Firms with strong employee relationships best placed to ride out recession
Companies that have built strong employee relationships are likely to be best placed to ride out the economic storm created by COVID-19, researchers found.
The World Bank is predicting the pandemic will cause the worst global recession since the Second World War, with unemployment expected to rise to its highest level since 1965.
Experts found that organisations with comprehensive human resource management (HRM) practices and union relationships were more likely to thrive after a deep recession.
Hossam Zeitoun, lead author and Associate Professor of Strategy and Behavioural Science at Warwick Business School, said: “Workplace performance depends heavily on invisible, unwritten contracts managers have with staff.
“Those implicit agreements, that doing well at your work or being loyal will increase job security or lead to a pay rise, count when it comes to employees being committed to a company.
“When external shocks hit the workplace, like a recession, managers are under pressure to cut costs and breach these unspoken contracts by reducing pay, intensifying work, or making redundancies. If this is done unilaterally, it erodes trust, commitment, and productivity among the staff who remain.
“However, this can be reduced by having comprehensive HRM practices and established negotiations with trade unions. Such practices might be costly in the short term, but we have found they pay off particularly after a deep recession.”
Researchers analysed the British Workplace Employment Relations Survey, which took place in 2004 and 2011, either side of the Great Recession.
They analysed hundreds of workplaces covered in both surveys to compare their employment relations – including employee participation, development, team work, and incentives, such as merit pay and profit sharing – and how that affected their ability to thrive after the financial crash in 2008.
Firms that invested more in HRM and union relationships were likely to experience better workplace performance after the recession, especially if they had suffered a severe impact.
When employees’ interests are protected, they are more likely to remain motivated, make helpful suggestions to enhance efficiency in difficult times, and implement the required changes quickly.
Dr Zeitoun said: “When the economy is ticking along nicely, that is the best time to invest in human resource management and to build strong employee relationships. But it is never too late to do so, given the expected long duration of the crisis.
“If the trust between management and workers breaks down, there is often a ‘survivor’s syndrome’ as the remaining workforce feel demotivated or even guilty that they still have a job.
“A stronger employee voice helps to make sure things are done fairly, with a proper procedure, so the remaining workers are motivated.
“Our findings suggest that companies with strong employee practices in place are likely to pull together to get through the hard times.”