The Process of Downsizing: Task Performance and

Organizational Commitment as Layoff Criteria*

Rick IversonFaculty of Business Administration

Simon Fraser University8888 University DriveBurnaby, B.C. V5A 1S6

CANADA

*The research reported herein was supported by an Australian Research Council Grant A79331468

Downsizing is Ubiquitous

US: March 2008 job cuts of over 60,000 is most in past 5 years1

UK: Around 40% of companies looking to conduct layoffs (2008 survey)2

2 http://www.personneltoday.com/articles/2008/02/11/44360/cipdkpmg-labour-mark).

1(http://www.bls.gov/mls/)

Australian Banking Industry

Four major banks dominate the industry, with combined profits totaling approximately $17 billion for

2006/2007.

During the late 1990s the closure of more than 1150 branches nationally

Motivation for Study Theoretical:

Impacts of layoffs on survivors Fair process, increased communication, and alternative

workforce reduction strategies Criteria to select out employees to be laid-off (and in

turn select survivors) Task performance and organizational commitment

Practical: Legal ramifications of a wrong layoff decision are

significant (can cost over $100,000 per suit to defend) (Lind, Greenberg, Scott, & Welchans, 2000).

Task (focal) Performance

is defined as “the proficiency with which job incumbents perform activities that are formally recognized as part of their jobs” (Borman & Motowidlo, 1993, p.73).

Task Performance Human capital theories

Performance appraisal: Rewards Performance weakness Low performers Firing and laying off

Legal mechanism

Hypothesis 1

Task performance is negatively related to the likelihood of an employee being laid-off.

Organizational Commitment

the degree of loyalty an individual has to an organization and includes “a strong belief in and acceptance of the organization's goals and values” (Porter, Steers, Mowday, & Boulian, 1974, p. 604).

Organizational Commitment Social exchange theories

Shore et al. (1995) note that the “categorization of employees by managers appears to set in motion an exchange relationship that directly influences managerial treatment of the employees” (p.1595).

Promotability Managerial potential Rewards

Organizational Commitment Breach of psychological contract

(Brockner et al., 1992)

Emotional toll on managers Emotional exhaustion Managers less committed Managers have lower performance Reduce guilt and conflict

Extra-role behaviors

Greater control coping

Hypothesis 2

Organizational commitment is negatively related to the likelihood of an employee being laid-off.

Interaction Resources allocation framework

(Bergeron, 2007)

Performance appraisals- task performance

Organizational commitment

Hypothesis 3

The negative relationship between organizational commitment and the likelihood of an employee being laid-off is moderated by task performance, such that the negative relationship will be stronger when task performance is low than when task performance is high.

Research setting The setting for this research is an Australian-based international banking organization. The bank has around 20,000 full-time equivalent staff across some 1600 branches and business outlets

Sample The sample comprised 3126 Australian bank employees (following listwise deletion). The staff were predominately non-managers (72%), female (63%), unionized (67%) and full-time (73%). The average tenure and education of employees were 8.76 years (s.d.=7.69) and 10.99 years (s.d.=2.88), respectively

Data collectionA multiple-item survey was administered during working hours inFebruary 1995 to a random sample of 5,978 employees) (61% response rate) from the various state bank branches and businessoutlets in Australia. Surveys were coded with identification numbers so as to match respondents to organizational records(i.e., layoffs and performance).

Methodology

Measurement Dependent variable

Layoffs. We measured layoffs as the duration of time before being laid-off during a five year period (from February 1, 1995 to June 1, 2000). One-hundred and fifty-six employees were laid-off during this time period, representing a layoff rate of 5.16 percent (as percentage of the final sample).

Independent variables Task performance. Supervisory performance ratings were obtained from

the banks records. A 5-point global scale ranging from (1) unsatisfactory to (5) outstanding, where the proportion of employees receiving a 1 (unsatisfactory) was 0.3 percent, a 2 (adequate) was 11.4 percent, a 3 (fully competent) was 60.5 percent, a 4 (commendable) was 27.3 percent, and a 5 (outstanding) was 0.4 percent. (M=3.16, SD=.63).

Organizational commitment. This was operationalized using the 9-item short form of Porter et al. (1974). Example items include “I am proud to tell others that I am part of the organization”, “I find that my values and the bank are very similar”, “The bank really inspires the very best in me in the way of job performance”, and “I really care about the fate of the bank.” Respondents used a 5-point Likert-type scale (1= strongly disagree to 5= strongly agree) and the alpha coefficient for the 9-item measure is .87.

Methodology

Methodology Control Variables

Employee attitudesJob opportunities (Price & Mueller, 1981; 1986: 3-items: α=.88) Job security (Oldham, Kulik, Ambrose, & Stepina, 1986: α=.81) Job satisfaction (Brayfield & Rothe, 1951: 3-items: α=.84) Routinization (Price & Mueller, 1986:3-items: α=.76)

Demographic variablesManager (1=manager; 0= non-manager),

female (1=female, 0=male), education (years), tenure(years), full-time (1=full-time, 0= part- time or casual), and union membership

(1=union member, 0=nonmember).

Event history analysis (Allison, 1984; Yamaguchi, 1991) allows researchers to view layoffs as a “time-dependent variable” that changes depending on the duration it takes for an individual to be laid-off

Event history analysis allows researchers to simultaneously predict both the occurrence of a layoff and the timing of the event. The measurement window in this study was between February 1, 1995 (when we surveyed employees) and June 1, 2000 (when we obtained employment status information) and entered them in the baseline model (Allison, 1995)

We followed the procedure as recommended by Aiken and West (1991) to the test the interaction between task performance and organizational commitment on layoffs

Analysis

ResultsTable 2 Cox Proportional Hazard Model of Layoffs

Variables

Step 1

Step 2

Step 3

Control variables Job opportunities .073 .029 .026 Job security -.190* -.123 -.119 Job satisfaction -.337** -.183 -.171 Routinization .253 .262 .267 Manager -.176 -.117 -.100 Female .305 .318 .325 Education -.007 -.009 -.011 Tenure .097*** .097*** .096*** Full-time .539* .536* .555* Union member .002 .028 .034 Predictor variables Task performance -.304*** -.268*** Organizational commitment -.333** -.322** Interaction term a Task performance x Organizational commitment .256** -2 Log-likelihood -1124.66*** -1120.72*** -1119.90*** D b .089 .095 .098

Note. N=3126. Predictor X Time variables entered in equations but not shown in table. a Variables were ‘centered’ prior to computing interaction term. b Current research considers that “D is similar to the R2 value used regression models: D = 2/ (n - K + 2),

where n = sample size and K = number of variables” (Sheridan, 1992, p. 1047). * p<.05; ** p<.01; *** p<.001. One-tailed test.

-0.4

-0.2

0

0.2

0.4

0.6

Low High

Organization Commitment

Likelihood of Layoff

LowPerformance

HighPerformance

Figure 1. Moderating effect of task performance on the relationship between organizational commitment and likelihood of layoff

In-role and extra-role contributions

Commitment-layoff relationship moderated by task performance

Human capital and social exchange theories

Implications

Relational and contextual dimensions

Task performance, organizational commitment, and OCBs (Colquitt et al., 2007)

30 percent of performance is contextual (Morman & Motowidlo, 1993)

Job Performance

The role of prior commitment (Brockner et al., 1992)

Fair process

LMX and halo effects

Favoritism and politics

Organizational Commitment

Task performance and organizational commitment

Trade-off between low performance and high commitment

Theoretical development

Conclusion