Can cutting pay be an alternative to cutting people when maintaining work attitudes is a concern? It can be if employees trust you

Abstract

Despite the social pressure to cut pay instead of people when payroll cost (i.e., cost of salaries and wages) needs to be reduced, only a limited effort has been made to identify “when” cutting pay can be a feasible alternative to downsizing in terms of maintaining work attitudes of remaining employees. Utilizing both a within-subject design experiment and secondary data analysis, the current research identifies high trust in management as one necessary condition. Results demonstrate that when the level of trust in management is low, employees who had their pay cut exhibit lower levels of work attitudes than employees who survived downsizing. When the level of trust in management is high, in contrast, employees who had their pay cut did not exhibit lower levels of work attitudes than employees who survived downsizing. Moreover, when the level of trust in management is high, feelings of job security are strengthened among pay-reduced employees (compared to employees who survived downsizing). The results demonstrate that, in terms of maintaining work attitudes of remaining employees, high levels of trust in management are necessary for pay cuts to be a feasible alternative to downsizing.