Organizations have the fundamental duty of ensuring that they run their operations in a cost effective manner. In doing so, they take a range of measures to reduce the productivity costs while maximizing the output. Even though the benefits of cost cutting are evident, the effect it has on employees has not entirely been elucidated. Consequently, it forms a gap in literature that should be explored in detail. The impact of cost cutting especially among bank employees should be evaluated in-depth. This paper entails the literature review of the independent variable, which is employee’s dissatisfaction, and dependent variables which are the reduction of employee benefits, budget reduction, and downsizing. Companies introduce cost-cutting measures to remain profitable in a stiff marketable environment (Khamisa et al., 2015). When the expansion is not possible the companies resort to internal measures, where employees become casualties. Cost-cutting strategies are often approached with caution so that it does not affect the employee morale and subsequently their performance (Purpora, and Blegen, 2015).
The intention of cost-cutting is hinged on the company’s need to reduce operational costs, thus, increasing profits or improving the customer service. The casualty of cost-cutting measures is the employee as seen by in some of the strategies used to cut costs; closure of facilities, reduction of employee pay, laying-off of staff, and reduction of budgetary allocations (Skogstad et al., 2015). Approaches to cost-cutting should always be approached with caution since they could have adverse effects on the company.
Employee Dissatisfaction
Employees play a fundamental role in building a good rapport with the customers. According to Wu and Wu (2011), as an intermediary of the company, the employee can affect the reputation of the company through their conducts. Employee satisfaction has been defined as a positive emotional experience as a result of job appraisals for the experiences the employee garners in the workplace. A disconnect between the appraisal and the workplace experiences bring about employee dissatisfaction.
In any business or organization, both employees and the employers have expectations. For success, these expectations have to be mutual (Leblebici, 2012). The motivation for employees to work is drawn from different areas. For example, they work in the hope that they can have positive career growth, aside from the earnings (Onyeukwu and Ekere, 2018). The employer has the mandate of ensuring that they provide an environment that enables the employees realize such benefits (Panagiotakopoulos, 2014). Failure by the employer to meet the expectation of workers leads to dissatisfaction within the organization (Van Grembergen, and De Haes, 2018). Dissatisfied employees have a high intensity to quit, reflected in absenteeism, persistent errors, and burnout (Ramamurthi et al., 2016). The characteristics that mark an employee dissatisfied include distress, emotional instability, introverted behaviour, and unfriendliness (De Vito et al., 2018).
Cost cutting measures decreases the staff morale as certain incentives provided by the organization are withdrawn. As a result, the employee feels that their needs are not being met by the company they work for and see no need in working any harder (McManus, and Mosca, 2015). Therefore, the output of the employees will go down even though the management might have intended to reduce costs (Gregory, 2011). Cost cutting measures may have adverse consequences to the employees that could be detrimental to the overall success of the company.
A couple of factors determine whether the employee wants to stay with the organisation or company or leave. Key among them includes job security, benefits, workplace environment, and incentives (Sarwar, & Abugre, 2013). Without these, the employee is bound to feel insecure and see no need in making the organisation their priority. The argument is based on the fact that employees often want to feel welcome, and treated with decorum for them to work at an optimum (Anderson, and Dees, 2017).
Reduction on Employee Benefits
Employees are motivated by incentives provided by the employer. Continual staff motivation encourages the employees to commit to their tasks and ensure they deliver on their mandate (Boddy et al., 2015). Employees who are not motivated could seek employment in other areas, in a bid to improve on their livelihood (Akyüz et al., 2015). This will mean that employee does not effectively meet their needs as they had foreseen at the beginning (Seamans, & Zhu, 2017). The consequences of reduced benefits on the employee are quite adverse on the part of the company or organisation. For instance, the employee will feel devalued by the company (McWilliams, 2016). Consequently, they will have low self-esteem and become less motivated to work for the company (De Vito et al., 2018). According to Gregory (2011), it is the idea that the work expended is commensurate to the compensation one gets from the employer. However, once the benefits are reduced as a cost-cutting measure, the productivity of the employee is bound to go down (Paagman et al., 2015). The benefits provided to employees must be representative of the nature of work they do and responsibilities bestowed upon them (Narteh and Odoom, 2015).
Reduced benefits result in increased chances of contemplation by the employees to quit their jobs. The effect is a decline in loyalty to the company as they begin seeking out other employment opportunities that offer better compensation for their labour (Ghosh et al., 2015). As a result, the company is faced by a high turnover rate as employees migrate to better-paying companies (Idiegbeyan-ose et al., 2018). The cost of replacing labour may also be another factor that the company might have to grapple with when staff quit their jobs (Pillay et al., 2015).
Budget Reduction
Resource allocation to key functions within an organisation has a negative impact on the company once it is reduced even before they are put into practice. Employee morale, as well as satisfaction, declines when news of the reduction spread. When implemented, the cuts still decrease the morale even if they are innovative.
The reason for reduced job satisfaction is based on the fear that the company may not perform as required and job security may be at stake (Callan et al. 2012). Budget reduction is often interpreted as a sign of a financial crisis for the company. Thus, the employees are interested in better financial performance by the company for them to be assured of their jobs, therefore, working at an optimum level for the company with the knowledge that their jobs are safe in the near future.
The budget reduction can be in the form of decreased incentives that are used to motivate the workers to meet certain goals. These incentives may have been the backbone of the company workforce, where employees thrived knowing that meeting certain goals has certain rewards in the end, other than just the usual salary. It also means that opportunities for career growth are less especially with the thought that the company is wobbling financially (Church, Hannan, & Kuang, X.J., 2012).
Budget cuts could also imply a reduction in employee salaries. This reduces the level of motivation and increases dissatisfaction (Di Mascio, and Natalini, 2015). Other incentives that may be axed include services such as food and catering, where employees are forced to find their means of food. As small as it may be, the budget reduction could have a ripple effect on the company owing to the uncertainty about job securities and opportunities for growth.
Downsizing
Downsizing involves letting go of employees to meet certain financial requirements. The reason for downsizing ranges from the change in market position, which necessitates the company to release employees to remain profitable, or technological changes, which automate some services that human beings would otherwise have done (Norman, Butler, & Ranft, 2013).
Retrenchment of employees is characteristic of downsizing within the company. In particular, it is a measure taken by the company to help in reducing the cost of sustaining employees. The outcome of such an initiative can be detrimental, considering the people affected. The employees that have been stopped may go and spread bad news about the company especially if they think the company targeted them unfairly whereas dissatisfaction takes root on those who remain behind (Iverson, & Zatzick, 2011). The reason behind this is that employees know that their jobs are not secure, and could be dismissed anytime should the position of the company or organisation not improve in the foreseeable future.
Job security is a critical factor in the organization since it enables the employee to plan on their future. Employees could have needs and dependents that they may not meet once their employers fire them. Market changes that lead to downsizing lead to mistrust in employees, or even mental health issues. As a result, the tension in the company leads to the lack of motivation among the employees (Rehman, & Naeem, 2012).
Downsizing is a problem in any organisation because it could result in dismissal of highly qualified staff. The process should be approached in such a manner that it does not complicate further the position of the company in the workforce. Remaining employees must be assured of their place in the workplace to increase their satisfaction.
Conclusion
Cost cutting is a measure undertaken by any organization to reduce wastage. The review of scholarly literature indicates the adverse effects of the strategy on employees. Organizations have the mandate to ensure that they put in place adequate measures to mitigate against cost cutting.
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