RESEARCH AND PRACTICE
IN HUMAN RESOURCE MANAGEMENT

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Armstrong-Stassen, M., (1993). Why Managers Should Pay Greater Attention to the Reasons They Give for a Workforce Reduction, Research and Practice in Human Resource Management, 1(1), 41-51.

Why Managers Should Pay Greater Attention to the Reasons They Give for a Workforce Reduction

Marjorie Armstrong-Stassen

Abstract

This study investigated the effects of procedural, interactional, and distributive injustice on survivors’ reactions to a workforce reduction involving permanent layoffs. The participants consisted of 223 technical and clerical employees at a US telecommunications facility. Path analysis (LISREL 7) was used to test the proposed relationships. Interactional injustice had a significant direct effect on perceived job insecurity, employee well being, organisational loyalty, and organisational morale. Procedural injustice had a significant direct effect on employee well being and distributive injustice had a significant direct effect on perceived job insecurity. The results indicate that the perceived fairness of the company’s reason for a workforce reduction plays a key role in survivors’ reactions to the cutbacks.

Introduction

With the downturn in the U.S. economy in the early 1990s, an ever increasing number of organisations resorted to downsizing their workforce. For human resource managers, workforce reduction presents some very difficult issues such as how many employees will be affected, which employees will be targeted, and how will the reduction in force be handled. In the late 1980s, articles began to appear in the management literature concerning the adverse effects of workforce reduction on those employees who remain in the organisation (eg “What about workers who are left behind?”, Wall Street Journal, January 15, 1988; “Surviving survivors’ syndrome,” Industry Week, October 17, 1988). Managers were being cautioned that workforce reduction may appear to make good business sense but such action often has negative consequences, especially for the employees who remain in the organisation.

Perceived injustice has been identified in both the theoretical and empirical literature as a key mediating variable between a workforce reduction and layoff survivors’ responses to the reduction (cf Brockner & Greenberg, 1990). Survivors who perceive a workforce reduction as unfair are more likely to experience negative reactions. Three types of justice have been proposed in the theoretical literature: procedural, interactional, and distributive. Studies on survivors’ reactions have generally examined only one of these types at a time (eg Brockner, Tyler, & Cooper-Schneider, 1992; Davy, Kinicki, & Scheck, 1991). Unlike previous studies, the present study includes all three types of perceived justice. The purpose of this study is to investigate if procedural, interactional, and distributive justice have a differential impact on survivors’ reactions.

Lerner (1981) states that a “sense of justice is at the core of a person’s reaction to conditions of scarcity or unexpected change” (pp. 13-14). Brocker and Greenberg (1990) suggest that, in the case of workforce reduction, jobs may be viewed as scarce resources. Survivors’ sense of justice may be undermined by the perceived unfairness of the way the layoff is implemented or handled (procedural injustice), by the perceived unfairness of the company’s justification for the layoff (interactional injustice), and/or by the perceived unfairness of which employees get to stay and which are forced to leave, eg, targeting only blue-collar workers (distributive injustice). These issues relate to the three types of justice identified by Brockner and Greenberg as relevant to survivor research.

Procedural justice centres on the procedures by which the outcome distributions are determined (Deutsch, 1985). A major constituent of procedural justice is the decision rule used to determine which employees to terminate and which to retain. Decision rules that are perceived as arbitrary are more likely to generate perceptions of injustice. Brockner and Greenberg (1990) suggest that employees are more likely to be concerned about procedural justice issues in a layoff situation. If this is the case, perceived unfairness generated by evaluation of procedural issues should have a greater negative effect on survivors’ responses to a layoff.

Interactional justice is a relatively recent concept proposed by Bies (1987). According to Bies, interactional justice is the quality of interpersonal treatment people receive during the implementation of a procedure. The primary focus of Bies’ writings has been on the role social accounts play in the perception of injustice. He defines a social account as:

“a verbal strategy employed by a person to minimize the apparent severity of the predicament or to convince the audience that the wrongful act is not a fair representation of what the actor is ‘really like’ as a person.” (p. 294)

With regard to a workforce reduction, this would involve the organisation’s justification for the reduction itself. Failure to explain or offering a tenuous (from the employees’ viewpoint) explanation for the cutbacks would result in perceptions of injustice.

Distributive justice centres on the fairness of the outcome distributions (Deutsch, 1985). It is perhaps best exemplified by equity theory (Adams, 1965). Brockner and his colleagues (Brockner, Davy, & Carter, 1985; Brockner, Greenberg, Brockner, Bortz, Davy, & Carter, 1986) suggest that job survivors may experience positive inequity and subsequent guilt after witnessing the layoff of co-workers. However, it is more likely that survivors will perceive that their co-workers have been unfairly targeted for layoff and that their own jobs are in jeopardy.

The existing research evidence shows that perceived procedural injustice does play an important role in the reaction of survivors to a layoff (eg Davy, Kinicki, & Scheck, 1991). However, the question of whether or not the three types of justice have a differential impact on survivors’ reactions has not been investigated. Along with perceived job insecurity, the present study investigates the impact of procedural, interactional, and distributive justice on employee well-being, organisational loyalty, and organisational morale. Although quite limited, the empirical evidence does provide support for a significant negative relationship between perceived injustice (generally measured as procedural injustice) and some of these outcome variables. Davy, Kinicki, Scheck, and Sutton (1988) found that perceived fairness of the layoff was negatively associated with psychological withdrawal measured by organisational commitment and job satisfaction. A workforce reduction has the potential to reduce, sometimes quite drastically, the prevailing enthusiasm or “spirit” of the individuals in the organisation. Indeed, reduced organisational morale is frequently cited in the practitioner literature as a major consequence of workforce reduction. In general, the empirical evidence confirms this. Jick (1979) found a “drastic deterioration” in morale among state mental hospital employees following a layoff. Sutton, Eisenhardt, and Jucker (1986) reported that morale was “seriously damaged” following the workforce reductions at Atari. It is proposed that perceived injustice has a direct effect on organisational loyalty and morale as well as an indirect impact through its effect on perceived job insecurity and employee well-being.

Figure 1 represents the relationships examined in this study. Perceived job insecurity is assumed to play a mediating role between the three types of justice and the outcome variables. Since perceived job insecurity is likely to be affected by organisational tenure and layoff exposure (witnessing the layoff of a co-worker), these are included as control variables. Employee well-being is also posited to play a mediating role between perceived justice, perceived job insecurity and organisational loyalty and morale.

Figure 1
Model of the Relationship between Perceived Injustice and Outcome Variables
Model of the Relationship between Perceived Injustice and Outcome Variables

Method

Participants and Procedure

The participating organisation, a facility of a major corporation in the telecommunications industry, is located in the southwestern area of the United States. The organisation had undergone a workforce reduction approximately six weeks prior to the data collection. 223 technical and clerical employees completed a survey questionnaire. This represents a response rate of 70%. The respondents consisted of 200 technical workers and 23 clerical employees. They ranged in age from 25 to 63 years with a mean and median of 42 years. The length of time they had worked for the organisation ranged from 7 to 42 years with a mean and median of 20 years. There were 152 (68%) males and 70 (31%) females (one missing value). The majority were married (69%) and had some technical training beyond high school (65%). A large international union represented both the technical and clerical employees.

The survey questionnaires were administered on site during regular working hours. Each supervisor was notified in advance by the manager assigned to work with the researcher that a survey questionnaire would be administered and given a specific day and time for his or her work group to participate. Supervisors were asked to communicate this information to their subordinates and to encourage their participation in the study. Employees were given one-hour release time from their work to fill out the questionnaire. The questionnaire was accompanied by a cover letter signed by the District Manager and the two union Vice- Presidents requesting employee cooperation in participating in the study. The questionnaire was administered in small groups ranging from 5 to 20 persons. Respondents were instructed to place the completed questionnaire in the envelope provided and place it in a box as they left the room.

Measures

Perceived injustice. Perceived procedural injustice was measured with four items which asked respondents about the perceived fairness of the amount of notice given to those laid off, the way it was decided who would be laid off, the amount of help provided to those laid off, and the amount of worker input in the decision for laying off workers. Perceived interactional injustice was measured by a single item which asked respondents about the fairness of the company’s reason for the layoff. Perceived distributive injustice was measured with a single item pertaining to the perceived fairness of the distribution of the layoff among the non-management and management employees.

Perceived job insecurity. Perceived job insecurity was measured by three items adapted from Jick (1979). These items assessed the degree of worry about job security, the likelihood of being laid off, and expectations for the future of the company.

Employee well-being. Employee well-being was assessed by two items asking respondents to describe “how things are now” in regard to the well-being of workers and the treatment of workers. The 5-point response categories ranged from “Very good,” scored as 5, to “The worst it’s ever been,” scored as 1.

Organisational loyalty. Reichers (1985) criticises current measures of organisational commitment because they confound commitment with outcomes of commitment (intention to remain and effort on behalf of the company). Therefore, the measure used in this study focuses on organisational loyalty. The 6-item organisational loyalty index consisted of one item from Buchanan’s (1974) organisational commitment scale (“I feel a strong sense of loyalty toward this company”), two items from Porter, Steers, Mowday, and Boulian’s (1974) Organisational Commitment Questionnaire (“I really care about the fate of this organisation” and “For me this is the best of all possible organisations for which to work”), and three items from Cook arid Wall’s (1980) organisational commitment scale reflecting pride in the organisation and feeling oneself to be part of the organisation.

Organisational morale. According to Zeitz (1983), “Morale concerns members’ affective or emotive responses to the organisation— their general sense of well-being and enthusiasm for collective endeavours” (p. 1089). The semantic differential measure of organisational morale developed for this study consisted of ten bipolar adjectives (eg enthusiastic-indifferent) designed to reflect enthusiasm for the organisation. Seven of the pairs were taken from a morale scale developed by Scott (1967). Respondents were asked to describe how the workers felt at the present time.

Data Analysis

Path analysis using the LISREL 7 computer program (Jöreskog & Sörbom, 1989) was used to test the hypothesised relationships. LISREL allows the estimation of the regression equations simultaneously. This is desirable because of the probable interrelationships between some of the variables.

Results

The means, standard deviations, correlations, and reliability coefficients for the measured variables are presented in Table 1. All measures consisted of 5-point response scales.

Table 1
Means, Standard Deviations, Reliability Coefficients, and Correlations for the Major Variables
1 2 3 4 5 6 7
Mean 3.64 3.95 4.00 3.67 2.57 3.31 2.29
SD .85 1.03 1.06 1.05 .91 .85 .71
1. Procedural Injustice .72
2. Interactional Injustice .52 --
3. Distributive Injustice .40 .39 --
4. Perceived Job Insecurity .26 .26 .25 .81
5. Employee Well-being -.43 -.38 -.33 -.34 .84
6. Organisational Loyalty -.40 -.43 -.23 -.35 .52 .89
7. Organisational Morale -.34 -.36 -.09 -.27 .51 .44 .89

Note: Reliability coefficients (Cronbach’s coefficient alphas) appear on the diagonal.
-- designates a single item measure. All correlations ≥.23 are significant.

Assessment of the Model

The χ2(6) goodness-of-fit value for the model is 9.03 (p=.17). The goodness-of-fit index (GFI) is .99 and the adjusted goodness-of-fit (AGFI) is .93. The root meansquare residual (RMR) is .05. All of these goodness-of-fit indices show that the model fits the data quite well. Overall, the model accounts for 54% of the variance with 34% for perceived job insecurity, 29% for well-being, 37% for organisational loyalty, and 33% for organisational morale. However, some of the hypothesised relationships for the perceived injustice variables are not significant indicating that the three types of perceived injustice differentially influence perceptions of job insecurity, employee well-being, organisational loyalty, and organisational morale. Figure 2 displays those relationships which are significant along with their standardised path coefficients.

Figure 2
Significant Hypothesised Relationships
Significant Hypothesised Relationships

The only significant relationship for procedural injustice is a negative effect on employee well-being. Survivors who feel that the layoff was not handled fairly report lower employee well-being. The only significant relationship for distributive injustice is a positive effect on perceived job insecurity. Survivors who believe that the non-management employees have borne the brunt of the layoffs report greater job insecurity. On the other hand, interactional injustice has a significant effect on all four dependent variables. Survivors who feel that the company’s reason for the layoff is not fair report greater job insecurity, lower employee well-being, lower organisational loyalty, and lower organisational morale. High perceived job insecurity is associated with lower employee well-being and lower organisational loyalty but, contrary to prediction, does not significantly influence organisational morale. Employee well-being is positively related to organisational loyalty and morale.

Discussion

This study investigated the simultaneous effects of procedural, interactional, and distributive injustice on perceived job insecurity, employee well-being, organisational loyalty, and organisational morale following a workforce reduction involving permanent layoffs. The results indicate that how a company handles a reduction in workforce, the reason the company gives for the reduction, and the employees targeted for layoff have a differential effect on survivors’ reactions to the reduction.

The primary influence of procedural injustice is on employee well-being whereas the major effect of distributive injustice is on perceived job insecurity. Survivors who feel that the layoff was handled unfairly report lower employee well-being whereas survivors who believe that the non-management employees were unfairly targeted for layoffs perceive greater threat of job loss. Perceived interactional injustice, on the other hand, has a direct effect on perceived job insecurity, employee well-being, organisational loyalty, and organisational morale. Survivors who feel that the company did not present a fair account of the reason for the layoff perceive greater job insecurity, report lower employee well-being, reduced organisational loyalty, and reduced organisational morale.

The fact that the survivors in this study are unionised may have played an important role in the findings. The collective bargaining contract between labour and management in this company clearly stipulates the procedures to be followed in the case of a workforce reduction. Part-time and temporary employees are to be laid off before any layoffs of the permanent full-time employees take place. The layoffs are to be based upon inverse seniority (ie last hired, first fired), and employees are to receive three months’ advance warning of an impending layoff. Provisions for a severance package are also included. This clear delineation of the procedures that management is to follow in the event of a reduction in force may therefore contribute to perceived procedural fairness. It may be that for those situations which lack clearly delineated reduction procedures, such as for management or non-unionised employees, perceptions of procedural injustice will be stronger and, in turn, will have a much greater effect on survivors’ reactions.

The findings of this study have important implications for managers who are considering downsizing their workforce. Perceived injustice, whether it be from how the layoff is implemented, the company’s stated reason for the layoff, or which employees are targeted for layoff, adversely affects perceived job security and employee well-being. In turn, perceived job insecurity and low employee well-being are associated with reduced loyalty to the company and low organisational morale. The anecdotal evidence on survivors (eg Morton, 1983) suggests that lower commitment and morale are associated with reduced productivity. Clearly, managers need to ensure as much as possible the perceived fairness of the layoff.

The findings of this study also imply that managers need to be especially concerned about how they justify the necessity of a workforce reduction. Bies and Shapiro (1987) found that it is the adequacy of the justification rather than the actual claim that is the critical component in determining people’s reactions. Thus, management should clearly communicate to the employees in an honest and sincere manner why the layoff is necessary. This is particularly important when there is high uncertainty and survivors attach personal significance to the layoff, eg, perceived likelihood of additional layoffs and identification with laid-off co-workers (Brockner, DeWitt, Grover, & Reed, 1990).

Future research should include a test of the modified model, ie, with the non significant paths fixed to zero. In this study, both interactional and distributive justice were measured by a single item. Additional items for each of the three measures of perceived justice would be desirable. However, researchers should note that managers tend to object to these types of item. Thus, researchers may be forced to rely on only a few items to assess each type of justice. Another area that warrants investigation is whether the three types of perceived justice will have similar or different effects for survivors who are not unionised.

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