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This study investigates expatriate compensation from the under-researched perspective of host-country nationals (HCN). HCNs are typically compensated at lower levels than expatriates are, even when they hold similar jobs and possess similar qualifications. Such pay differential may provoke HCN perceptions of pay unfairness, which can in turn affect other HCN outcomes such as performance and turnover. The study identifies a number of factors that may offset or attenuate the negative influence of pay differential on HCN's perceived pay unfairness, namely awareness of expatriate contributions and special needs, expatriate interpersonal sensitivity, HCN pay advantage over other locals, and HCN contact with expatriates. Data from HCNs working with similarly qualified expatriates largely supported the hypotheses. Implications, limitations, and suggestions for future research are discussed.