To Cut Pay or Lay Off: Exploring a Vexing HR Challenge
Key Findings: In today’s turbulent business environment the need to reduce payroll costs can arise at any time. Generally, this means resorting to one of two agonizing options: cutting pay or engaging in layoffs. The challenge, of course, is to select the option that meets the firm’s financial needs while minimizing the potential downsides involved. Several studies have examined the negative effects of cutbacks on employees. The results of these studies are of limited value to decision-makers, however, since overwhelmingly they focus either on pay cuts or on layoffs while making no attempt to compare the two. Here we report on a series of three studies that extends previous research in a couple of ways. Initially, by examining pay cuts versus layoffs to test their comparative effects. And then by explicitly considering the ways in which these effects vary depending on the context in which they are executed.
human resources; layoffs; paycuts