Downsizing on Voluntary Turnover: The Mixed Effects of Collective Pay for Performance Practices

Abstract

Research on downsizing and turnover has shown that downsizing as involuntary collective turnover engaged by an employer has disruptive effect on employee motivation and quality of human capital resources, which ultimately influence voluntary turnover behaviors of survivors from downsizing events. In this study, we examine whether firm level downsizing rate relates to concurrent voluntary collective turnover and how collective pay for performance practices, such as profit sharing and employee stock ownership plans, play an important role to affect the downsizing effect on voluntary collective turnover. Using 238 firms with 1,294 firm-year observations during 2006-2016, our findings show that downsizing rate is significantly and positively related to voluntary collective turnover. Interestingly, firms with more downsizing rate have lower concurrent voluntary turnover rate when firms use profit sharing, whereas firms with more downsizing rate and using employee stock ownership plans have greater concurrent voluntary turnover rate. Therefore, this study suggests that the downsizing-voluntary collective turnover relationship is highly contingent upon collective pay for performance practices and more research should be explored to understand the dynamics of this relationship.