How to Mitigate the Effects of Economic Hardship

It is a fact of organizational life that managers make decisions that may result in negative outcomes. To the extent they perceive these decisions as unfair, affected individuals may develop undesirable attitudes that manifest as damaging workplace behaviors (e.g., low productivity, high absenteeism). In times of economic hardship, managers' decisions become especially tough because they concern issues related to employees' livelihoods. However, it is possible to mitigate such negative effects by ensuring that individuals understand the decision-making process and believe it is fair.

Among other factors, perceptions of fairness greatly influence employees' reactions to negative outcomes of management's decisions. There are two relevant aspects to fairness in this context. Distributive fairness addresses the outcomes of a decision, while procedural fairness speaks to the way the decision was made. Importantly, research shows that if people believe the decision-making process is fair, they will accept the results, even when they don't like them. While managers cannot always control the alternatives from which they must choose (e.g., reduce everyone's pay or lay off selected employees), they always have control over HOW they make those decisions.

Two sets of studies illustrate this point. In the first, researchers ¹ examined the effect of procedural fairness on the reactions of the victims of job layoffs, of survivors, and of employees who knew they would be laid off soon. Individuals in all three categories who perceived the decision process as fair reacted much less negatively than those who viewed it as unfair. The authors suggest that in order to minimize the negative effects of layoffs for all workers, employers could offer support such as severance pay and outplacement service. When that is not possible, actions such as providing advance notice, clearly communicating the explanation for the layoffs, and treating all employees in a dignified manner will mitigate negative reactions.

In the second set of studies ², researchers examined the effects of an ongoing pay freeze on salaried workers who had been given no explanation for this action. One year after the pay freeze had been implemented, management provided viable justifications for the decision. As a result, employees whose attitudes and behaviors had deteriorated became receptive to the explanations, which demonstrated the fairness of the decision criteria. The implication is that if a decision process truly is fair AND if management can make a persuasive case that it is - even after the fact - the adverse effects of the decision can be mitigated.

In both cases, the lesson is this: there is a huge return on the time and effort spent on ensuring fair decision processes in the workplace.

¹ Brockner, J., Konovsky, M., Cooper-Schneider, R., Folger, R., Martin, C., & Bies, R.J. (1994). Interactive effects of procedural justice and outcome negativity on victims and survivors of job loss. Academy of Management Journal, 37:397-409.

² Schaubroeck, J., May, D.R., & Brown, F.W. (1994). Procedural justice explanations and employee reactions to economic hardship: A field experiment. Journal of Applied Psychology, 79:455-460.

Pat Lynch, Ph.D., is President of Business Alignment Strategies, Inc., a consulting firm that helps clients optimize business results by aligning people, programs, and processes with organizational goals. Pat can show you how to apply relevant research findings in practical ways to create immediate results in your organization. Contact us today to see how we can help you make a difference!

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