Pay reductions and work attitudes: the moderating effect of employee involvement practices
| Date | 06 November 2017 |
| DOI | https://doi.org/10.1108/ER-04-2016-0078 |
| Pages | 935-950 |
| Published date | 06 November 2017 |
| Author | Wen Wang,Roger Seifert |
| Subject Matter | HR & organizational behaviour,Industrial/labour relations,Employment law |
Pay reductions and work
attitudes: the moderating effect of
employee involvement practices
Wen Wang and Roger Seifert
University of Wolverhampton Business School, University of Wolverhampton,
Wolverhampton, UK
Abstract
Purpose –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.
Design/methodology/approach –Employee-employer matcheddata 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 inthe UK to which the authors applied hierarchical linear regression in STATA 13.
Findings –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.
Research limitations/implications –Implications, limitations, and further research issues are discussed
in light of current employment relations’practices.
Originality/value –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.
Keywords Employee relations, Employee involvement, Organizational commitment, Job satisfaction,
Pay reductions
Paper type Research paper
Introduction
The indeterminate nature of both the legal contract of employment and the economic
wage-effort bargain means that employees’attitudes to work and their loyalty to the employer
have been important elements in deciding the level of effort expended by workers themselves
(Hobsbawm, 1960; Thompson, 1967). Fairness of pay allocation is one essential aspect in this
contested terrain. Perceived “felt-fairness”of pay is not only derived from the level of wages
(Akerlof, 1982), but is deeply rooted in the equitable nature of wage differentials (Adams, 1963,
1965) relating to the treatment of comparable others (Akerlof and Yellen, 1990; Breza et al., 2016;
Clark and Oswald, 1996; Card et al., 2012; Smith, 2015).
Since the 2008 recession, wage reductions for British workers have been the deepest in a
century (Allen, 2013), and British workers have suffered the biggest real-wage fall of any
major G20 country (Monaghan and Nardelli, 2013). Recent research has revealed profound
challenges for employment relations as continued pay reductions and freezes have caused
strikes (Lange et al., 2015), alongside reduced productivity (Cohn, et al., 2014), and lower
Employee Relations
Vol. 39 No. 7, 2017
pp. 935-950
© Emerald PublishingLimited
0142-5455
DOI 10.1108/ER-04-2016-0078
Received 18 April 2016
Revised 14 October 2016
28 February 2017
4 April 2017
Accepted 4 April 2017
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/0142-5455.htm
935
The
moderating
effect of EI
practices
overall performance (Lee and Rupp, 2007). Few of the key parties to the employment
relationship have experience of such a phenomenon. The managers who carried out this
policy option in mainly non-strategic ways worry about losing key skilled workers and
falling morale which then leads to adverse effects on productivity; trade union leaders, when
they are involved, fear being by-passed and considered irrelevant as their members seem to
have no appetite for wage militancy, but are anxious about job security; and government
policy makers are torn between being pleased with lower unit labor costs across the
economy, but concerned about skill shortages, migrant labor, and loss of purchasing power
in the macro-economy.
We explore this conundrum and offer partial insight into a potential resolution when
wage reductions negatively affect work attitudes. By doing so, we attempt to make two
specific contributions to the literature. First, there appears to be no systematic research on
moderators of the relationship between pay reductions and employee outcomes despite the
frequently reported disruptive consequences caused by pay disputes, such as British
Airways cabin crew (Topham, 2017), junior doctors at NHS (BBC News, 2016), and
Deutsche Lufthansa (Lange et al., 2015). Second, only a few extant studies examined
individual characteristics influencing reaction to pay changes (Cohn et al., 2014),
while research on moderators at organizational level is under-explored. The present study
contributes to the increasing acknowledgment of the beneficial impact of work climate in
employment relations (Schreurs et al., 2013; Tomer, 1987). Methodologically, aggregated
employee perception was constructed to measure work climate, and Hierarchical Linear
Modeling was employed to examine the moderating effect. This is considered to be a more
suitable way to handle large data as used here (Davison et al., 2002). The matched
employee-employer data compiled are from the British Workplace Employment Relations
Study for 2011 (2014).
Pay reductions and employee attitudes
Total earnings’reductions can include a broad range of cuts to bonuses, benefits, overtime
pay, allowances,pensions, and basic pay. The general proposition is that any form of paycut
affects work attitudes; in particular basic wage reductions can damage morale since it is the
bedrock of the employment contract –the wage-effort bargain (Bewley, 1999; Smith, 2015).
Akerlof (1982)explained the norm: any extra effort (aboverequirement) made by workers and
any extra pay(higher than the supposed marketclearing wage rate) offered byemployers can
be seen as a “gift exchange.”Therefore, any pay reduction can distort the norm, and further
alienate workers from their tasks. This is evidenced by the historical rarity of pay cuts, a
phenomenon known as downward nominal wage rigidity, whereby pay rises are widely
expected, and pay cuts are seen as a rare necessary evil. Even during recessions, employers
prefer layoffs to pay cutsfor the fear that pay cuts induce the “best”workers toquit while as
“layoffs getthe misery out of the door”(Bewley, 1999;Saunders, 2017). However, suchnormal
trends have ceased to be dominant since the 2008 economic recession. Across sectors and
occupations,two out of three workers in the UK had a pay freeze; the resthad an average pay
increase wellbelow the inflation rate (Gammell,2012). Many workers in thepublic sector have
had a pay freeze for as long as eight years while the inflation rate has remained positive
(Public Sector Executive, 2016; Office of National Statistics, 2017a).
It is therefore helpful to improve our understanding of the link between pay reduction
and reduced morale. Researchers have shown that the “felt-fairness”of pay reductions is not
only subject to the absolute amount of pay or pay changes, but also determined by
comparisons with relevant reference groups (Card et al., 2012; Clark and Oswald, 1996;
Smith, 2015). Both Keynes (1936) and Hicks (1932/1963) noted that workers are so concerned
about the relation of their wages to those workers in similar situations that no employer
would dare to unilaterally cut pay (Wootton, 1974). The importance of this perceived
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