The Effect of Reducing the Salaries on Employee's Productivity

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The Effect of Reducing the Salaries on Employee's Productivity in The Saudi Labor Market Introduction The indeterminate setting of both the legal contract of employment and the compensation system implies that employees’ attitude towards their work roles and their loyalty to their organization are based on the individual effort exerted by the workers themselves. Therefore, fairness in pay allocation is important and the perceived fairness about pay is a major determinant in deciding the morale of employees. Organizations may be prompted to execute pay cuts to allow them to avoid layoffs when faced with challenges to enable the business stay afloat.

Prior to considering salary reduction for employees, it would important to consider how this would affect the morale of employees.

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According to Wang, W., & Seifert (2017) pay reduction affect employee attitude to their roles, and this also has a moderating impact on employee involvement in their work roles.

Whereas salary cuts offer short-term relief to the organization in terms of the company’s finances, there could be challenges in terms of morale of employees and this could lead to decreased productivity. The purpose of the current research is to investigate the impact of reducing employees’ salaries on their productivity in the Saudi labor market in terms of motivation and boosting morale.

The Problem of the Study Organizations are confronted by tough financial situations, arising from different situations and one of the ways they can cope with the challenge is through salary cuts and downsizing.

Most organizations result to employees’ salary reduction when they are confronted with financial issues so that they can cope with the situation. As cited by Nurunnabi et al. (2020), one of the major challenges that businesses have been confronted with in the wake of the COVID-19 pandemic is economic downturn, compelling them to adopt downsizing strategies to remain afloat. Therefore, one strategy that businesses have been implementing to cope with the challenge is salary cuts for employees to sustain the operations of the organization and cater to salary costs.

As noted by Cherian et al. (2021), there is a close link between the level of compensation and the morale of employees. In Most cases, a high level of compensation implies a sense of job satisfaction among personnel and decline in motivation to execute their roles. Mostly, salary cuts lead to low morale among employees and when employees do not feel valued or appreciated as they have been subjected to a pay cuts. When employees’ salary is cut, they could feel as though they have been stripped off their benefits and bonuses and may feel the job is no longer

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worthwhile. In many contexts, decreased employee morale could filter though the ranks and worsen as the organization loses one of its most resourceful assets, its employees. Stripping employees off their benefits could also lead to decrease in productivity as when they have a pay cut they are less motivated to work and this decreases productivity, which could to losses for the organization. Organizations may also experience reduced employee loyalty, and eventual increase in turnover as employees seek better employment terms in rival companies. Therefore, employee salary affects their productivity and a reduction in the level of compensation affects morale and motivation.

The Research Questions/Hypothesis The hypothesis of the study is that effectively motivating workers through compensation affects motivation and pay cuts lead to loss of motivation and productivity among personnel.

The research questions that are addressed in the research include: a) How do pay cuts affect employee motivation and morale to execute their roles? b) What is the relationship between compensation and turnover? c) What is the effect of employee pay cuts and turnover and eventual productivity of the organization? d) What ways can organizations in Saudi Arabia effectively motivate workers to increase productivity? e) What non-monetary approaches can organizations apply to motivate employees in the event of pay cuts? f) Do employees feel devalued when they are subjected to pay cuts?

The Purpose of the Study

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The purpose of the study is to investigate the effect of reducing the salaries on employee's productivity in the Saudi labor market. In the wake of economic downturn faced by organizations in the Saudi context, they are compelled to cut down on the compensation paid out to employees so that some capital is available to sustain the operations of the business. The research seeks to investigate how the morale, motivation and job satisfaction among employees are affected when they are subjected to pay cuts. Therefore, the research seeks to establish the connection between employee compensation and overall productivity of the organization.

Through understanding the impact of pay cuts in shaping the productivity of the organization, the research provides useful insights to the organization on how they can boost the morale, motivation and job satisfaction among employees in the midst of financial crises when confronted with pay cuts. More so, the research seeks to investigate strategies companies can apply to boost their productivity and reduce the rate of turnover especially in the context of poor economic downturn brought forth by inevitable economic challenges in the business.

References

Cherian, J., Gaikar, V., Paul, R., & Pech, R. (2021). Corporate Culture and Its Impact on Employees’ Attitude, Performance, Productivity, and Behavior: An Investigative Analysis from Selected Organizations of the United Arab Emirates (UAE). Journal of Open Innovation: Technology, Market, and Complexity, 7(1), 45.

Nurunnabi, M., Alhawal, H. M., & Hoque, Z. (2020). Impact of COVID-19: how CEOs respond to SMEs recovery planning in Saudi Arabia. White Paper, 3.

Wang, W., & Seifert, R. (2017). Pay reductions and work attitudes: the moderating effect of employee involvement practices. Employee Relations. 1-10.

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