Pay reductions and work attitudes: the moderating effect of employee involvement practices

Abstract

Purpose\ud Since the 2008 financial crisis, the UK workforce in general has experienced a period of stagnant and falling wages in both nominal and real terms. The main parties involved remain unsure of the consequences from such a historically unusual phenomenon. The purpose of this paper is twofold: first, to explore the main effect on job satisfaction and organizational commitment of those employees who had experienced pay reductions (nominal wage cuts or pay freezes under a positive inflation rate) as compared with those who experienced nominal pay rises during the recent recession; and second, to examine the moderating effect of employee involvement (EI) practices on that relationship. This was done by using aggregated employee perception data to measure organizational EI practices.\ud \ud Design/methodology/approach\ud Employee-employer matched data were used, involving 8,489 employees and their associated 497 organizations (medium or large sized). The number of employees from each organization was between 15 and 25. The data used were extracted from the 2011 Workplace Employment Relations Study in the UK to which the authors applied hierarchical linear regression in STATA 13.\ud \ud Findings\ud The results indicate that when compared with those employees who had nominal pay rises during the recession, employees who had wage cuts or freezes (with 5 percent inflation rate) are significantly and negatively associated with their job satisfaction and organizational commitment, even when controlling for important variables such as perception of job insecurity and the degree of adverse impact caused by recession on the organization studied. That is to say, facing the same perception of job loss, those who experienced pay reductions are significantly unhappier and less committed than those who had pay rises. However, the adverse effect of pay reductions on employees’ work attitudes is much less in workplaces characterized by a high, as opposed to a low level, of EI practices.\ud \ud Research limitations/implications\ud Implications, limitations, and further research issues are discussed in light of current employment relations’ practices.\ud \ud Originality/value\ud The intention is to extend the current debate on employment relations under adverse changes such as pay reductions. Thus, the unique contribution of this study is to examine the value of EI in modifying extreme employee reactions to adverse changes

Consequences of Labor Cost Reduction Practices: A Structured Literature Review*

“…More recent evidence from a field experiment found that providing employees with a reasonable justification for why their pay is being cut mitigated turnover (Chen and Horton 2016). Lastly, survey results provided evidence that adverse effects to job satisfaction were mitigated for employees who had opportunities to influence the decisionmaking process (Wang and Seifert 2017). These studies highlight the importance of fairness when implementing mandatory pay cuts and reveal ways in which mandatory pay cuts can be implemented in order to mitigate negative employee-level consequences.…”

“…Generally, research in this area concludes that management's decisions to implement a mandatory pay cut resulted in negative employee attitudes and behaviors. Similar to the research on employee downsizing and mandatory furloughs, employees perceive a pay cut as unfair (Smith 2015;Wang and Seifert 2017) and as a breach of their psychological contract with the firm (Chambel and Fortuna 2015). Mandatory pay cuts led to negative employee attitudes, including decreased job satisfaction (Lovett et al 2008;Kawaguchi and Ohtake 2007;Smith 2015;Wang and Seifert 2017) and organizational commitment (Chambel and Fortuna 2015;Fiorito et al 2007;Wang and Seifert 2017).…”

“…Similar to the research on employee downsizing and mandatory furloughs, employees perceive a pay cut as unfair (Smith 2015;Wang and Seifert 2017) and as a breach of their psychological contract with the firm (Chambel and Fortuna 2015). Mandatory pay cuts led to negative employee attitudes, including decreased job satisfaction (Lovett et al 2008;Kawaguchi and Ohtake 2007;Smith 2015;Wang and Seifert 2017) and organizational commitment (Chambel and Fortuna 2015;Fiorito et al 2007;Wang and Seifert 2017). In a field experiment, employees who received a 50% mandatory pay cut experienced decreased job satisfaction (Lovett et al 2008), and survey results show that job satisfaction decreased following a mandatory pay cut regardless of the firm's previous performance (Smith 2015).…”

“…In addition to the prevalence of labor cost reduction observed in practice, academic research also investigates how employees respond to management's decisions to reduce labor costs through employee downsizing, furloughs, or pay cuts (e.g., Datta et al 2010;Halbesleben et al 2013;Wang and Seifert 2017). I conduct a structured literature review on the employee-level consequences of employee downsizing, furloughs, and pay cuts.…”

Wage adjustment practices in Russian firms

“…The literature either focuses on HR practices and their impact on employee performance and well-being [Wang, Seifert, 2017] or investigates wage adjustments in the context of downward nominal wage rigidity [Blanchflower, Oswald, 1988;Bewely, 1999;Babecký et al, 2010]. There are a number of studies concerning the wage behaviour of firms from the macroeconomic point of view, as the problem of wage-setting is closely linked to unemployment, inflation and other macroeconomic issues.…”