The cost of living crisis and rising inflation rates are putting pressure on all of us to cut costs. In this economic climate, many businesses will be looking to adopt cost-cutting actions, such as wage cuts or freezes, increasing workloads and reducing training expenditures. When employees are facing a cost of living crisis outside of work, how important is it that managers deliver these changes without losing employee trust?
Research led by Professor Chidiebere Ogbonnaya, Professor of Human Resource Management in Kent Business School, has examined this problem by analysing data from ‘The Great Recession’ which followed the 2008 financial crisis.
At the time, workplaces across the UK experienced significant drop in productivity, growth and financial performance. In response, many organisations took cost-cutting actions which prioritised short term financial benefits over people management activities which supported a positive employee-centric culture. Through their research, Chidi and colleagues set out to address whether these actions weaken the employment relations climate, thereby encouraging employees to lodge more complaints against their organisations.
They analysed data from 21,981 employees and 1,923 workplaces taken from the 2011 British Workplace Employment Relations Survey which revealed, as hypothesised, that cost-cutting actions violate the psychological contract, often leading to a breakdown in the quality of mutual respect and cooperation between employees and management and a strain on their relationships.
However, the researchers did find that where workplaces engaged employees in the cost-cutting process through participatory decision making practise, employees were less likely to experience a poor employment relations climate and raise concerns about their working conditions, despite management’s use of cost-cutting actions.
With this in mind, Chidiebere recommends that managers contemplating downsizing as a means of tackling the current economic uncertainty should also consider various best practices to mitigate the negative effects of their approach on employees. “Managers should actively involve employees in workplace decision-making and communicate organisational updates to their employees in a transparent manner, creating an environment where they feel free to speak up or ask questions.”
Chidi is a Professor of Human Resource Management at Kent Business School and Head of the Department of Leadership and Management. His research covers a broad range of topics on job quality, employment relations, workplace values, ethical leadership, psychological well-being and employee productivity. He is currently studying the leadership and management experiences of disadvantaged workers in low- and middle-income economies.