Articles

Downsize with Dignity: Workplace Justice Eases the Pain

Thunderbird Professor David Bowen

By David Bowen, Ph.D.

As economic conditions continue to hit companies hard, many are facing the daunting task of downsizing their workforces. No manager wants to do it, and no company goes unscathed in the process. But managers forced to cut jobs in these trying times can soften the blow if they take the steps necessary to salvage perceptions of workplace justice.

These steps often cost companies nothing, but the long-term payoffs can be huge. Research shows that perceptions of justice amid layoffs can ease workplace tension, reduce the risk of lawsuits and improve job performance among surviving workers. Benefits even spill over to the customers who interact with shell-shocked employees. Because small gains in customer loyalty can translate into much larger gains in profitability, these are potent effects. Unfortunately, certain aspects of downsizing are inherently unfair. No matter how managers approach the problem, the ugly business of downsizing means that some employees get picked to stay while others are sent on their way. The process stings everybody in an organization.

The key for managers is to recognize that organizational justice comes in three parts, and business leaders reap rewards even if they get only one of these components right. The first component of organizational justice deals with the allocations that some employees get and others do not. This is called distributive justice. In most cases, members of an organization feel justly treated as long as they receive rewards in accordance with how much they contribute.

This isn’t always possible during downsizing. Productive employees sometimes lose their jobs, while slackers sometimes survive. Obtaining a sense of distributive justice is virtually impossible in these cases. But managers can reverse much of the ill will by paying attention to the two other key components of organizational justice — procedural and interactional.

Procedural justice deals with the processes by which allocations are determined. A just procedure is one that is applied consistently, free of bias, accurate, representative of relevant stakeholders and consistent with ethical norms. During layoffs, this means an organization should consider factors such as seniority, job performance and salary, and then establish a process that managers can apply consistently to all. Though surprising to some, research has shown that just procedures can mitigate much of the negativity associated with unjust allocations. Researchers have named this the “fair process effect.”

The opposite also can work against a manager. Discarded employees who perceive an unjust process followed by an unjust allocation may feel twice jilted. Keeping an unproductive, overpaid worker because he’s the boss’s nephew, for example, might trigger this double shot of ire. But, even if an organization falls short in delivering fair processes and allocations, applying the third principle of justice can still make a difference.

Interactional justice deals with how one person treats another. Many of the ill effects of downsizing can be alleviated if managers simply treat their employees with dignity and spend time providing relevant information. Although attorneys and human resource professionals sometimes coach managers to avoid apologizing during layoffs — which can be seen as an admission of guilt — open dialogue promotes feelings of interactional justice and actually reduces the risk of litigation.

One group of researchers interviewed a large number of layoff victims in 2000 and found that many considered legal action following their downsizing. Almost a quarter of these individuals even spoke to an attorney. Downsized workers ready to sue were those who believed they were mistreated at the time of their discharge. Among those who felt unjustly treated, a full 66 percent contemplated litigation. Among those who felt justly treated, this dropped to just 16 percent.

Jerald Greenberg, Ph.D., a researcher at the University of Texas at Arlington, provides insight on how managers can use interactional justice to achieve results such as these in times of hardship. He observed the effect of pay cuts at two manufacturing plants in 1993. At one plant, an executive politely spent about 15 minutes announcing a 15 percent across-the-board pay cut. At the second plant, an executive spent about an hour-and-a-half speaking, taking questions and expressing regrets about making an identical pay cut. During the next 10 weeks, employee theft was 80 percent lower at the second plant, and workers were 15 percent less likely to resign. No one wanted to have his or her pay cut, but workers understood why it happened, appreciated the supportive interpersonal treatment and did not vent their ire on the organization.

For many companies today, layoffs are inevitable. But if managers take the time to master at least one, if not all, components of workplace justice, they can survive the crisis with their business reputation intact and their remaining workforce productive and happy.

Softening the blow of layoffs:
1. Be consistent. Establish a fair process that applies to all.
2. Be visible. Deliver bad news in person.
3. Be open. Discuss organizational exigencies.
4. Be honest. Tell the truth, even if it means saying you’re sorry.
5. Be nice. Treat employees with dignity, courtesy and respect.

David Bowen, Ph.D.,  is the G. Robert & Katherine Herberger Chair in Global Management at Thunderbird School of Global Management in Glendale, Arizona. He received a career achievement award in September 2008 from The Services Marketing Special Interest Group of the American Marketing Association. In August 2008, he received the “Paper of the Year” award by the Academy of Management Perspectives journal for a paper he wrote on organizational justice with co-authors from the University of Arizona.