Pay cuts vs. downsizing: Comparing their effects on work attitudes of remaining employees

Despite the increase in payroll cost reduction activities, studies comparing the effects of payroll cost reduction methods (i.e. cutting pay and downsizing) on work attitudes (e.g. affective commitment and job satisfaction) have been limited. This three-paper dissertation compares the effects of cutting pay and downsizing on work attitudes of remaining employees. The studies in Paper 1 of this dissertation compare the main effects in this comparison. The results demonstrate that employees whose pay is cut, compared to survivors of downsizing, exhibit less positive pay-related perceptions and work attitudes while they exhibit more positive job security-related perceptions. The studies in Paper 2 identify trust in management as a moderator in this comparison. 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, on the other hand, 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, employees whose pay is cut experience stronger perceptions of job security than those employees who survive downsizing. Lastly, the studies in Paper 3 identify sector as a moderator in this comparison. In the private sector, survivors of downsizing exhibited higher levels of work attitudes relative to employees whose pay was cut. In the public sector, on the other hand, there was no significant difference in the levels of work attitudes between employees whose pay was cut and employees who survived downsizing. The papers in this dissertation first demonstrate that cutting pay, compared to downsizing, better maintains perceptions of job security but does not as well maintain pay-related perceptions. When work attitudes are examined, the papers overall demonstrate that downsizing better maintains work attitudes than cutting pay. Lastly, the papers also demonstrate that pay cuts can be a more feasible alternative to downsizing in terms of maintaining work attitudes of remaining employees in the public sector and when the level of trust in management is high