How Organizational Adaptations to Recession Relate to Organizational Commitment

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How OrganizationalAdaptations to RecessionRelate to OrganizationalCommitmentJane A. Grdinovac a & George B. Yancey ba Hogan Assessment Systemsb Emporia State University

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To cite this article: Jane A. Grdinovac & George B. Yancey (2012): HowOrganizational Adaptations to Recession Relate to Organizational Commitment, ThePsychologist-Manager Journal, 15:1, 6-24

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The Psychologist-Manager Journal, 15: 6–24, 2012Copyright © The Society of Psychologists in ManagementISSN: 1088-7156 print / 1550-3461 onlineDOI: 10.1080/10887156.2012.649089

How Organizational Adaptations toRecession Relate to Organizational

Commitment

Jane A. GrdinovacHogan Assessment Systems

George B. YanceyEmporia State University

This study explored how organizations adapted to the recent recession. One researchquestion was whether organizations adapted in ways that could be characterized ascaring or callous. Another research question was how the different organizationaladaptations were related to organizational commitment. The authors administered154 employees the Meyer and Allen’s (1997) revised organizational commitmentscales and a new instrument, the Caring Intervention Scale. In response to thefirst question, most of the companies preferred caring adaptations to cope with therecession. In response to the second question, affective commitment and norma-tive commitment were positively related to caring organizational adaptations. Thefindings suggest that how an organization adapts to economic difficulty may havepsychological ramifications that could affect organizational performance.

Tough times demand tough decisions and the current economic situation inAmerica qualifies as a tough time. The National Bureau of Economic Research(NBER; 2008), which is responsible for declaring a recession in the United States,officially announced on December 1, 2008 that the country entered a recessionin December 2007. The NBER declared that the recession ended in June 2009.It lasted for 18 months, which made it the longest recession in U.S. historysince the great depression of the 1930s (NEBR, 2010). By November 2009, fivemonths after the end of the recession, the U.S. unemployment rate reached 10.0%

Correspondence should be sent to Jane A. Grdinovac, Hogan Assessment Systems, 2622 East 21st,Tulsa, OK 74114. E-mail: [email protected]

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ORGANIZATIONAL ADAPTATIONS TO RECESSION 7

(U.S. Bureau of Labor Statistics, 2009), and by early 2010, the Bureau of LaborStatistics (2011) reported a peak of almost 3,000 mass layoff plans resulting inmore than 300,000 job losses in February alone. Although the recession endedtwo years ago, the American economy still suffers from high unemployment andslow growth. What should a CEO do when faced with a long period of declin-ing sales and no prospects for improvement on the horizon? Rigby and Bilodeau(2009) found that “as the recession intensifies, executives’ decisions increasinglyare driven by short-term cost-cutting goals” (p. 2).

ORGANIZATIONAL ADAPTATIONS TO THE RECESSION

In trying to decide how to respond to an economic crisis, many CEOs probablylook to see how their competitors are responding. An online poll of 467 humanresource professionals revealed that the four most common ways companies cutcosts between 2008 and 2009 were attrition (63%), hiring freezes (52%), salaryfreezes (49%), and layoffs (47%) (Society for Human Resource Management,2009a). Some other common cost-cutting practices included cutting employeebonuses, not renewing contracts with existing workers, and reducing work hoursand pay. The survey results revealed that employee benefits have also sufferedgreatly including reductions or eliminations in health care coverage, pensionplans, retirement packages, and flexible work programs. In another study con-ducted on Fortune 1000 organizations, 31% of those companies froze their definedbenefit pension plans in 2009, which is more than four times as many companiesas in 2004 (Society for Human Resource Management, 2009b). Thus, a CEO hasan array of tools to employ to cut costs during times of falling revenues to ensurethe organization maintains a balanced budget. Although a CEO has many tools athis or her disposal, which ones work best?

THE EFFECT OF CHANGE ON EMPLOYEES’ PSYCHOLOGICALCONTRACT AND ORGANIZATIONAL COMMITMENT

When an organization is shaken by a severe economic change, such as a reces-sion, it is our contention that companies that resort to management practices thatappear uncaring and callous to their employees, such as downsizing, will damagerelational psychological contracts. In contrast, companies that use managementpractices that appear caring and humane to their employees, such as executivepay cuts, will enhance relational psychological contracts.

The psychological contract is an unwritten agreement between the employeeand employer that reflects mutual beliefs and expectations regarding the workrelationship (Landy & Conte, 2010). Employees can form either a transactionalor a relational psychological contract with their organization. A transactional

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8 GRDINOVAC AND YANCEY

contract refers to a short-term relationship characterized by well-defined per-formance expectations and outcomes (Meyer, 2009). In contrast, a relationalcontract refers to a long-term relationship made up of loosely defined perfor-mance expectations with a mutual understanding that both parties are supportiveand committed to each other.

When drastic change initiatives are implemented by organizations, employees’psychological contracts can become unfulfilled or violated (Korsgaard, Sapienza,& Schweiger, 2002; Meyer, Allen, & Topolnytsky, 1998). A recent meta-analysisby Zhao, Wayne, Glibkowski, and Bravo (2007) revealed that psychological con-tract breach was negatively related to affective commitment. These studies suggestthat change events can lead to perceived violations of employees’ psychologicalcontracts, and those with strong commitment may become emotionally detachedfrom their organization as a result.

In commitment research, affective and normative commitment components areassociated with relational contracts, whereas continuance commitment is associ-ated with transactional contracts (McInnis, Meyer, & Feldman, 2009). Affectivecommitment refers to an employee’s emotional attachment to the organizationon the basis of his or her feelings of identification with and involvement inthe organization. Employees with high levels of affective commitment want toremain with the organization. Normative commitment is an employee’s sense ofobligation and duty to stay in the organization. Employees who feel a strong nor-mative commitment to the organization remain because they feel that they shouldremain with the organization. Continuance commitment, in contrast, is based onan employee’s assessment of the costs associated with leaving the organization.Employees who have a relationship with the organization solely on the basis ofcontinuance commitment remain at the organization because they need to remainwith the organization (Meyer & Allen, 1997).

Gilmore, Shea, and Useem (1997) investigated 530 companies and found thatlevels of organizational commitment decreased after restructuring events. Thesedramatic workplace changes can influence the relationship between the employeeand the organization even when the employee is not directly affected. Knudsen,Johnson, Martin, and Roman (2003) examined organizational commitment in sur-vivors and unaffected workers and found that survivors of downsizing experiencedsignificantly lower levels of organizational commitment. In this case, survivingemployees may feel insecure about their jobs and feel disconnected from theorganization.

The tactics companies used to respond to the recent recession could influ-ence how committed employees are to their organization. According to Meyerand Allen (1997), fair organizational practices and positive work experiencesinfluence an employee’s ability to develop affective commitment. Therefore, it isreasonable to postulate that caring adaptations would be related to higher affectiveand normative commitment in employees, and uncaring adaptations would berelated to lower affective and normative commitment.

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CONSEQUENCES OF ORGANIZATIONAL COMMITMENT

A CEO might reasonably ask, “What does it matter if caring adaptationsare related to higher affective and normative commitment in my employees?”The answer would be that organizational commitment is negatively related toemployee withdrawal behaviors such as tardiness, absenteeism, intentions toleave, and actual turnover. Out of the three components of commitment, affectivecommitment has the strongest inverse relationship with withdrawal behaviors(Glazer & Kruse, 2008; Meyer, Stanley, Herscovitch, & Topolnytsky, 2002;Somers, 1995). In contrast, continuance commitment is not strongly related towithdrawal behaviors (Gellatly, 1995; Meyer, Allen, & Smith, 1993). There isconflicting evidence found in the relationship between withdrawal behaviors andnormative commitment. In Meyer et al.’s (1993) study, normative and affectivecommitment correlated negatively with withdrawal behaviors. In another study,however, high levels of normative commitment correlated negatively with with-drawal cognitions and turnover intentions but positively with absenteeism (Meyeret al., 2002).

Furthermore, organizational commitment is positively related to job perfor-mance. This is especially true of affective commitment, whereas continuancecommitment has a tenuous relationship with job performance (Konovsky &Cropanzano, 1991; Luchak & Gellatly, 2007; Meyer et al., 2002). For normativecommitment, there is a weak positive relationship to job performance (Ashforth& Saks, 1996; Meyer et al., 2002).

Organizational commitment is also related to organizational citizenship behav-iors (OCBs). Similar to the findings of job performance, studies have shown thatemployees with strong affective and normative commitment are more likely todisplay OCBs than are employees with weak affective and normative commitment(Meyer et al., 1993; Meyer et al., 2002). Affective commitment had a stronger cor-relation with OCBs than did normative commitment in both studies. However, therelationship between continuance commitment and OCBs is unclear. Organ andRyan (1995) and Meyer et al. (2002) showed that continuance commitment wasunrelated to OCBs. In contrast, Shore and Wayne (1993) found that continuancecommitment correlated negatively with OCBs.

Not only is organizational commitment related to employees’ work behav-iors, it is also related to how satisfied employees are with their jobs. Severalstudies have reported significant positive correlations between affective com-mitment and job satisfaction. The relationships of normative and continuancecommitment with job satisfaction are weaker (Cooper-Hakim & Viswesvaran,2005; Meyer et al., 2002). Some studies have found that affective commitmentis also related to mental well-being (Siu, 2002), less stress (Meyer et al., 2002),and better physical well-being (Galais & Moser, 2009; Grebner et al., 2003; Siu,2002).

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In conclusion, employees who form a powerful bond with their organizationare likely to produce positive organizational outcomes. Thus, organizations shouldbe concerned about management practices that may lower their employees’commitment to the organization.

HYPOTHESES AND RESEARCH QUESTIONS

Hypothesis 1: The employees of organizations that use more caring adaptations andfewer uncaring adaptations will have greater affective organizational commitmentthan will the employees of organizations that use fewer caring adaptations and moreuncaring adaptations.Hypothesis 2: The employees of organizations that use more caring adaptations andfewer uncaring adaptations will have greater normative organizational commitmentthan will the employees of organizations that use fewer caring adaptations and moreuncaring adaptations.

We also proposed two research questions:

Research Question 1: How did most companies adapt to the recession?Research Question 2: Did most companies use caring or uncaring organizationaladaptations?

METHOD

Participants

We administered 200 surveys to currently employed individuals. Of these,155 surveys were returned (76% response rate). We discarded one survey becauseit was not properly completed. Participants consisted of 82 men and 72 women,ranging from 18 to 65 years of age, with an average age of 40.30 years(SD = 13.91 years). Participants included 136 European Americans, 8 Hispanics,5 African Americans, 3 Asian Americans, 1 American Indian, and 1 indi-vidual who identified as other. This study was comprised of 16 executives,29 blue collar workers, 24 middle management employees, 57 professionals,and 25 office clerical/retail/lab technicians. Participants worked at publiclyowned for-profit organizations (n = 40), privately owned for-profit organizations(n = 70), nonprofit organizations (n = 21), government agencies (n = 18), andother organizational sectors (n = 1).

Procedure

After we obtained institutional review board approval, we recruited 10 familymembers and friends to administer the surveys to individuals whose jobs vary in

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organizational sector, industry, and staff size. Each recruiter administered 20 sur-vey packets to coworkers and other employed individuals. Each survey packetincluded an informed consent form, a demographic information form, Meyer andAllen’s (1997) organizational commitment scales survey, the Caring InterventionScale (CIS), and an envelope. First, each recruiter handed out the survey materi-als to the participants. Next, recruiters had the participants complete the informedconsent form and instructed them to detach the bottom portion. Then, recruitershad the participants complete the demographic information sheet and the two sur-veys. Last, recruiters instructed the participants to return the survey materials andbottom portion of the consent form in a sealed envelope. Survey materials werecollected from the 10 recruiters after all surveys were completed and returned.

MEASUREMENTS

Organizational commitment

We used Meyer and Allen’s (1997) revised 8-item affective commitment scale,9-item continuance commitment scale, and 6-item normative commitment scaleto measure levels of organizational commitment in participants. Participants useda 7-point Likert-type scale ranging from 1 (strongly disagree) to 7 (strongly agree)to rate the extent to which they agreed or disagreed with statements pertaining totheir organizations. Sample items are as follows: “I would be very happy to spendthe rest of my career in this organization” (affective commitment); “It would bevery hard for me to leave my organization right now even if I wanted to” (con-tinuance commitment); and “I owe a great deal to my organization” (normativecommitment). Low commitment items were reverse-scored so that a high scoreindicated that the participants would remain in the organization and a low scoreindicated that participants would leave the organization. We obtained participants’scores by calculating the average of each commitment scale (Fields, 2002). Usingcoefficient alpha, the internal consistency for affective, continuance, and norma-tive commitment was .88, .76, and .88, respectively. Moreover, Allen and Meyer’s(1996) review of the three commitment measures provides substantial evidencefor the instrument’s construct validity.

CIS

We created a new instrument to measure what types of recession adaptations (car-ing or uncaring) organizations used to cope with the recession. The CIS consistedof 21 management adaptations. On the basis of pilot data, 13 items describedcaring adaptations (e.g., “My company implemented executive pay cuts suchthat executives suffered higher percentage cuts than lower level employees”) and8 items described uncaring adaptations (“My company required employees to paymore for their health care benefits [e.g., 100%]”). The participants were asked

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whether their companies had used any of these adaptations since the start of the2007 recession. We measured responses using a 2-point scale, with 1 for “No,they did not” and 2 for “Yes, they did.” We reverse-scored the uncaring recessionresponses so that a high score on the CIS indicated that the participant’s organi-zation responded to the recession in a caring way (i.e., many caring adaptationscombined with few uncaring adaptations), whereas a low score indicated that theparticipant’s organization responded to the recession in an uncaring way (i.e.,many uncaring adaptations combined with few caring adaptations).

To create the scale, we reviewed a variety of business sources to develop a listof 25 organizational practices used during economic downturns. We conducteda pilot study with 50 participants to see whether they classified each individualmanagement practice as either caring or uncaring. To be eligible to participate, anindividual was required to have been employed for a minimum of three years. Thepilot study participants received a survey containing the 25 management practicesand rated each statement using a 5-point scale ranging from 1 (very uncaring)to 5 (very caring). Then, we calculated the average score for each item. We dis-carded items with an average between 2.51 and 3.49 because they were thought tobe ambiguous. On the basis of the participants’ feedback, additional items werepiloted and some items were reworded for clarity. To further check the contentvalidity of the CIS, the 154 participants in this study were asked to indicate,using a dichotomous scale, whether they thought each organizational adaptationwas either caring or uncaring. The 154 participants were in agreement with the50 pilot study participants regarding which items were seen as caring adaptationsand which items were seen as uncaring adaptations.

The internal consistency for the CIS was .33 using coefficient alpha. Becausethe construct being measured is multidimensional, we expected low internal con-sistency. To examine the nature of the underlying factor structure of the 21 items,we performed an exploratory factor analysis with varimax rotation. There wereeight factors with eigenvalues of one or greater. Thus, the 21 items could bereduced to a maximum of 8 factors. However, just because a factor’s eigenvalueis greater than 1 does not mean that it is useful. An accepted method of arriv-ing at a useful number of factors is to produce a scree plot of the eigenvalues.We eliminated the factors where the eigenvalues level off horizontally. With thismethod, a three-factor solution emerged. The first factor, which explained 13%of the variance, was a combination of caring and uncaring personnel adaptations,such as hiring freezes and layoffs. The second factor, which explained 12% of thevariance, consisted of mainly caring and uncaring financial adaptations, such aseliminating nonessential costs from the budget (e.g., company parties) and freez-ing pension plans. The third factor, which explained 9% of the variance, consistedof caring adaptations reflecting that the company was carrying on business asusual, such as maintaining a 40-hr work week and full employee benefits. Thethree factors seemed to capture three strategies: personnel changes, financial cuts,and business as usual. Because the first two factors combined caring and uncaring

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adaptations, they were not able to illuminate whether a company was acting in acaring or uncaring fashion, which was the main goal of this study. Therefore, wefocused on the CIS total score for our analyses.

RESULTS

Hypotheses

The first hypothesis predicted that caring adaptations would be related to moreaffective commitment and that uncaring adaptations would be related to lessaffective commitment. Results showed a significant positive correlation betweenthe CIS and affective commitment (r = .35, p < .01), which supports thehypothesis (see Table 1).

The second hypothesis predicted that caring adaptations would be related tomore normative commitment and that uncaring adaptations would be related toless normative commitment. We found a significant positive relationship betweenCIS and normative commitment (r = .34, p < .01). Thus, the hypothesis wassupported (see Table 1).

Research Questions

The first research question examined how most companies adapted to the reces-sion, and the second research question examined whether the adaptations weremore caring or uncaring. As depicted in Table 2, the three most frequent adap-tations were maintaining full employee benefits (74%), maintaining a 40-hrwork week for most employees (71%), and eliminating nonessential costs fromthe company budget (59%). Although it was reassuring to see that the threemost frequent adaptations were all caring responses, a reframe of the same dataindicates that more than 25% of the participants’ companies did not maintain fullemployee benefits or maintain a 40-hr work week for most employees. It is clearthat the recession had an effect.

TABLE 1Means, Standard Deviations, and Correlations for Study Variables

Variable n M SD 1 2 3

1. Caring Intervention Scale 144 32.33 2.26 __2. Affective commitment 152 4.56 1.44 .35∗ __3. Normative commitment 153 4.40 1.51 .34∗ .70∗ __4. Continuance commitment 154 4.51 1.13 −.02 .11 .20∗

∗p < 0.05; ∗∗p < .01.

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TABLE 2Frequencies for Caring and Uncaring Responses

Caring response Percentage Uncaring response Percentage

Company maintained fullemployee benefits.

74% Company laid off employees toreduce labor costs.

40%

Company maintained a40 hour work week formost employees.

71% Company required employeesto pay more for their healthcare benefits (e.g., 100%).

30%

Company cut the fat frombudget (e.g., companyparties).

59% Company hired morecontract/temporary workersin place of full-timeemployees.

26%

Company retrained currentemployees for newpositions in the company.

54% Company reduced oreliminated refinedcontribution retirementsavings plan employermatch (e.g., 401(k)).

16%

Company implementedhiring freezes instead oflayoffs.

50% Company reduced oreliminated health carecoverage for employees.

14%

Company maintained 100%employment.

42% Company froze or closedpension plans.

8%

Company promoted onlyfrom within the company.

38% Company implementedemployee pay cuts of equalamount (e.g., a $1,000 paycut to all).

7%

Company asked for moreemployee input intoadministration’s decisionmaking process during arecession.

29% Mandatory companyshutdowns with no pay (e.g.,1-month shutdown) wereimplemented.

5%

Company offered earlyretirement packages.

26%

If work week reductions,company did not reducepay.

13%

Company restructured andreduced executivecompensation/severancepackages.

11%

Company implementedexecutive pay cuts suchthat executives sufferhigher percentage cutsthan lower levelemployees.

9%

Company cut topmanagement/executivebonuses only.

9%

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The three least frequent interventions were mandatory company shutdownswith no pay (5%), employee pay cuts of equal amount (7%), and frozen or closedpension plans (8%)—all uncaring responses. It is encouraging that most compa-nies seemed to prefer the caring responses to the uncaring responses in dealingwith the recession. The uncaring interventions that were used most often werelaying off employees (40%), having employees pay more for health care benefits(30%), and hiring more contract or temporary workers (26%).

Exploratory Analyses

Participants responded to one of the demographic questions, “To what extent hasthe recession impacted your organization?”, with one of four choices: (a) “It hashad no impact”; (b) “The impact has been noticeable, but small”; (c) “It has hada strong and definite impact”; and (d) “The impact has been enormous.” Thisquestion about the effect of the recession was only significantly related to con-tinuance commitment (r = .22, p < .01), implying that employees of companiesthat have suffered more from the recession tend to have higher levels of con-tinuance commitment. The correlations between recession impact and affectiveand normative commitment were both nonsignificant. This was the opposite ofwhat was found between the CIS and organizational commitment, in which con-tinuance commitment was unrelated to whether organizational adaptations werecaring or uncaring, whereas affective commitment and normative commitmentwere related, as Table 1 illustrates.

We examined the recession impact question also as a moderator of the relation-ships between CIS and organizational commitment. For the participants who workin companies where the recession had either no impact or just a small impact, thecorrelation between CIS and affective commitment was r = .28 (p < .05), but forthe participants who work in companies that had been hit hard by the recession,the correlation between CIS and affective commitment was r = .46 (p < .001).Thus, treating employees well even when organizations cannot afford to was asso-ciated more with employees connecting emotionally with their organizations thanwith mere loyalty. However, a Fisher’s r to Z test determined that the latter corre-lation was not significantly greater than the former (Z = 1.16, p > .05), so such aconclusion would be premature.

The opposite pattern emerged for normative commitment. For the participantswho work in companies where the recession had either no impact or just a smallimpact, the correlation between CIS and normative commitment was r = .40(p < .001), but for the participants who work in companies that had been hithard by the recession, the correlation between CIS and affective commitmentwas r = .23 (p > .05). Thus, treating employees well when organizations cannotafford to was associated more with employee loyalty than with employee affec-tion. However, a Fisher’s r to Z test determined that the former correlation was

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not significantly greater than the latter (Z = 1.16, p > .05), so such a conclusionwould be premature.

In addition, we found that the organizations that were more affected by therecession were more likely to engage in the following two caring responses thanwere organizations that were less affected by the recession: (a) promote only fromwithin the company [48% to 31%, χ2(1) = 4.70, p < .05]; and (b) offer earlyretirement packages [37% to 18%, χ2(1) = 6.61, p < .01]. In contrast, the orga-nizations that were more affected by the recession were more likely to engagein the following four uncaring responses: (a) lay off employees [61% to 29%,χ2(1) = 14.93, p < .001]; (b) reduce or eliminate defined contribution retirementsavings plan employer match (e.g., 401(k)) [25% to 11%, χ2(1) = 5.29, p < .05];(c) freeze or close pension plans [15% to 4%, χ2(1) = 6.27, p < .05]; and (d)mandatory company shutdowns with no pay [10% to 1%, χ2(1) = 5.96, p < .05].In addition, the organizations that were more affected by the recession were lesslikely to engage in the following caring response: maintain 100% employment:27% to 51%, χ2(1) = 7.87, p < .01. Thus, the biggest difference between thosecompanies that were more affected by the recession and those that were lessaffected by the recession was the tendency (by a factor of two to one) of theformer to use layoffs as a coping method.

DISCUSSION

This study examined the relationships between (a) caring and uncaring organiza-tional adaptations and (b) affective, normative, and continuance commitment inemployees during the recent recession. As hypothesized, affective and normativecommitment were positively related to caring organizational adaptations.

When organizations undergo drastic changes, the risks of violating employ-ees’ psychological contract increase (Korsgaard et al., 2002), and a breach ofemployees’ psychological contract is negatively related to affective commitment(Zhao et al., 2007). Affective and normative commitment, especially affectivecommitment, are associated with a number of desirable organizational outcomes,such as a decrease in absenteeism and an increase in job performance, OCBs,job satisfaction, and well-being (Ashforth & Saks, 1996; Begley & Czajka, 1993;Cooper-Hakim & Viswesvaran, 2005; De Cuyper, Notelaers, & De Witte, 2009;Galais & Moser, 2009; Glazer & Kruse, 2008; Grebner et al., 2003; Konovsky& Cropanzano, 1991; Luchak & Gellatly, 2007; Mathieu & Zajac, 1990; Meyeret al., 1993; Meyer et al., 2002; Siu, 2002; Somers, 1995). Thus, during difficulteconomic times, it may be wise for organizational decision makers to consider notonly the immediate financial ramifications of their actions but also the long-termpsychological ramifications of their actions.

The recent recession may be an opportunity to win the loyalty and trust ofemployees. History has proven that the economy will not slow down or contract

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indefinitely, but it is likely that employees will remember how their companiestreated them during tough times. When economic activity begins to rise again, thecompanies that took care of their employees may be rewarded with lower turnoverrates and hardworking employees. Thus, it may be not only more humane forcompanies to come up with caring ways to cope with economic difficulties, butalso more economical in the long run.

Unlike affective and normative commitment, continuance commitment was notrelated to caring organizational adaptations. Continuance commitment, however,was related to the effect of the recession on a participant’s company. As pre-viously noted, continuance commitment refers to commitment on the basis ofemployees’ perceived costs associated with leaving the organization (Meyer &Allen, 1997). For industries with high unemployment rates and unstable economicenvironments, employees are going to be less willing to leave their organizationeven if their companies use uncaring adaptations because of the perceived costsof leaving the organization. When there are few perceived alternatives, employeestend to remain at their organization because they do not have many other options.However, when the recession subsides and the job market grows, employees withstrong continuance commitment may leave their organizations. Continuance com-mitment seems to depend more on external economic factors than on internalorganizational factors.

Our two research questions were to explore how organizations adapted to therecession and whether the adaptations were caring or uncaring. We were pleasedto find that the three most frequent adaptations were all caring responses and thethree least frequent adaptations were all uncaring responses. The most frequentlyused uncaring adaptation was to lay off employees (40% of the participants’ com-panies laid off employees). This percentage was not far off from the Society forHuman Resource Management (2009a) study, which found that 47% of compa-nies laid off workers to cope with the recession. Because of the huge number oflayoffs and jobs lost during the recession, it is easy for the casual observer toassume that layoffs were the default decision for American CEOs. It was assur-ing to find that most companies resorted to caring responses first as a means toalleviate the effects of the recession.

Limitations and Future Research

Despite some conclusive results, this study has limitations that could be addressedin future research. First, the snowball technique used to create the sample didnot lead to a representative sample of American workers or American compa-nies. The selected recruiters may have only recruited individuals with similarcharacteristics. Subsequently, confidence in generalizing the results is limited.Random sampling of American companies in future studies would remedy thislimitation.

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A second limitation of this study was the newly constructed CIS. Because it isa new instrument, some important organizational adaptations may not have beencaptured. For future research, the CIS needs to be expanded, and more researchinto its psychometric properties is needed. In addition, replacing the dichotomousscale with a Likert scale might be advantageous.

Another study constraint was the measure of the recession’s impact oneach participant’s company. Not only was the measure subjective, but also theparticipants were given no clear definitions of the different levels of impact.Furthermore, a participant might have inferred that his or her organization washit hard by the recession if there were layoffs. Thus, the measure of the reces-sion’s effect and the CIS may not be independent. A more objective measure ofthe effect of the recession on a participant’s organization would benefit futureresearch efforts.

A fourth drawback of this study was the use of self-report data to determineorganizational adaptations and the effect of the recession. Some participants mayhave exaggerated or underreported their organization’s economic situation and/ortheir organization’s responses to the recession. For future research, more objectivemeasures of the companies’ economic struggles and their interventions would bepreferred.

A final limitation of this study was the correlational design because it limitscausal inferences. For future research, quasi-experimental approaches that com-pare the changes in organizational commitment of companies that used morecaring interventions to companies that used more uncaring interventions will pro-vide stronger evidence for inferring what actions increase or decrease employees’organizational commitment.

Practical Implications

An economic crisis, such as the recent recession, can foment dramatic organi-zational changes to cope with the crisis. Companies can respond in a varietyof ways. The relation between the 21 organizational adaptations and the threetypes of employee organizational commitment are depicted in Table 3. Fouritems are worth noting. Item 5, “Company laid off employees to reduce laborcosts” was negatively related to affective and normative commitment, whereasits counter image, Item 7, “Company maintained 100% employment” was pos-itively related to affective and normative commitment. Item 9, “Company hiredmore contract/temporary workers in place of full-time employees” was negativelyrelated to affective and normative commitment. Last, Item 20, “Company askedfor more employee input into the administration’s decision making process duringa recession,” had the strongest relationship with affective and normative commit-ment. Although this last option costs little money to implement, only 29% of theparticipants indicated that their organizations had asked for employee input (seeTable 2). Asking for employee input during troubled times seems to be an ideal

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TABLE 3Point-Biserial Correlations between Caring Intervention Scale Items and Affective,

Normative, and Continuance Commitment

AffectiveCommitment

NormativeCommitment

ContinuanceCommitment

1. Company implemented employee pay cuts ofequal amount (e.g., a $1,000 pay cut to all).

−.12 −.09 −.01

2. Company implemented executive pay cuts suchthat executives suffer higher percentage cuts thanlower level employees.

.02 .03 .24∗∗

3. Company promoted only from within thecompany.

−.05 .04 .01

4. Company cut top management/executivebonuses only.

−.01 .01 .18∗

5. Company laid off employees to reduce laborcosts.

−.28∗∗ −.34∗∗ .12

6. Company implemented hiring freezes instead oflayoffs.

−.03 .12 .17∗

7. Company maintained 100% employment. .26∗∗ .27∗∗ −.158. Company maintained a 40 hour work week for

most employees..05 −.14 −.05

9. Company hired more contract/temporaryworkers in place of full-time employees.

−.30∗∗ −.23∗∗ .03

10. Company offered early retirement packages. −.00 −.00 .0211. Company retrained current employees for new

positions in the company..09 .11 −.04

12. Mandatory company shutdowns with no pay(e.g., 1-month shutdown) were implemented.

−.01 .01 .15

13. Company reduced or eliminated health carecoverage for employees.

−.17∗ −.14 .08

14. Company restructured and reduced executivecompensation/severance packages.

−.00 .03 .07

15. Company reduced or eliminated refinedcontribution retirement savings plan employermatch (e.g., 401(k)).

−.06 .02 .09

16. If work week reductions, company did not reducepay.

−.10 −.08 .08

17. Company maintained full employee benefits. .17∗ −.03 −.0618. Company required employees to pay more for

their health care benefits (e.g., 100%)..03 −.11 .15

19. Company cut the fat from budget (e.g., companyparties).

.09 .05 .23∗∗

20. Company asked for more employee input intoadministration’s decision making process duringa recession.

.36∗∗ .34∗∗ −.01

21. Company froze or closed pension plans. −.04 .00 .13

∗p < .05. ∗∗p < .01.

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way to create the impression that the company and its employees are battling therecession together.

Layoffs, in contrast, do not communicate that companies along with theiremployees are all in this together. For the companies in this study that were hit thehardest by the recent recession, 61% responded by eliminating jobs. Is downsizingeffective? One way to approach that question is to ask, “Does downsizing makethe most sense theoretically?” As Kurt Lewin (1951) reminds us, “There is noth-ing so practical as a good theory” (p. 169). This question can be approached fromthree perspectives: economic, institutional, and psychological.

Economic Perspective

According to McKinley, Zhao, and Rust (2000), researchers who examinedownsizing from an economic perspective explore the financial effects on theorganizations, such as organizational productivity, profitability, and stock prices.These scholars assume that CEOs downsize because they believe it will producebetter financial performance resulting from streamlined operations, reduced laborcosts, a reduction in redundancies, or for some other logical reason. In short,the economic perspective assumes that CEOs downsize on the basis of rationaldecision making.

It is unfortunate that downsizing has not proven to be very effective. For exam-ple, Mentzer (1996) found that “there was no consistent relationship betweenpast profit and propensity to downsize, nor was there any consistent relationshipbetween extent of downsizing and future profit” (p. 237). In a study of the effect ofdownsizing on (a) profit margin, (b) return on assets, (c) return on equity, (d) assetefficiency, and (e) market-to-book ratios in Fortune 100 companies, De Meuse,Bergmann, Vanderheiden, and Roraff (2004) found that companies that down-sized experienced lower performance following the decision for several years.Furthermore, the companies that implemented larger downsizings took longerto return to previous performance levels. Perhaps that is why it was found that75% of the managers whose companies had downsized did not believe perfor-mance improved as a result (“Pink-Slip Productivity,” 1992) and employees in30 automobile companies that had implemented downsizing perceived a declinein production quality, quantity, and employee morale (Cameron, Freeman, &Mishra, 1991). Thus, some of the rational decisions made by CEOs may not bethat rational, which leads to the next perspective.

Institutional Perspective

According to this perspective, CEO decision making is driven less by reasonand more by conformity to social conventions that define certain managementpractices as good (i.e., ethical) or effective (i.e., profitable) practices (DiMaggio

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& Powell, 1983; Meyer & Rowan, 1977; Powell & DiMaggio, 1991). There hasbeen some support for this perspective in the study of organizational decisionmaking about downsizing (Norman, 1995; Tsai, Wu, Wang, & Huang, 2006).In explaining the institutionalization of downsizing, McKinley and colleagues(2000) concluded:

The result has been the emergence among managers of a dominant “downsizing iseffective” schema and the collectivization of that schema across multiple industriesand organizational sectors. This has occurred even in the absence of convinc-ing empirical evidence that downsizing actually produces technical or financialperformance improvement. (p. 228)

According to institutional theory, once ideas about expected management practicebecome established, not only are they taken for granted, but they can be experi-enced by some decision makers as a law-like constraint. By conforming to theseexpectations, decision makers can reduce their feelings of uncertainty (DiMaggio& Powell, 1983). Thus, the institutional perspective would assume that CEOsadapt certain cost-cutting measures more out of a desire to reduce their feelingsof uncertainty, whereas the economic perspective would assume that CEOs adaptcertain cost-cutting measures on the basis of their knowledge that these actionswill tend to increase organizational efficiency and profits (McKinley et al., 2000).

Psychological Contract Perspective

Unlike the previous two perspectives, which assume that downsizing will leadto positive organizational outcomes, from this viewpoint employees are expectedto perceive downsizing as a violation of their psychological contract becausethe employer has failed to provide stable employment and a positive work envi-ronment (De Meuse & Tornow, 1990; Morrison & Robinson, 1997; Rousseau,1995). Subsequently, employees’ job performance will suffer, and there will be acorresponding negative effect on the organization’s financial performance.

The purpose of exploring downsizing from three different perspectives is tocommunicate to CEOs and those who work with them how difficult it can beto shake top decision makers from their preconceived notions about what worksand what does not work. For example, even if the evidence supports the psycho-logical contract view of downsizing, the institutional perspective suggests thatmost CEOs are likely to follow the pack, especially during uncertain times, usingunverified economic justifications for employing ineffective management prac-tices. The use of downsizing to deal with the recession is especially popular inNorth America. Rigby and Bilodeau (2009) found that 51% of North Americanexecutives expected their companies to downsize in 2008 and that percentage roseto 70% in 2009. These percentages were higher than those found in other regions.

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Therefore, to avoid institutional thinking and acting, a CEO must be encouragedto think outside the box, which means thinking psychologically and financially.Psychologists in management are especially well suited to meet this challenge.

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How Organizational Adaptations to Recession Relate to Organizational Commitment

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