Encouraging organizational learning through pay after a corporate downsizing

Corporate downsizing has been implemented by a large number of American firms in an effort to become more flexible and responsive to increased competition. The results associated with these downsizings have not been as stellar as researchers and practitioners had hoped. In fact, fewer than half of downsized firms reported achieving any reduction in costs (Hitt, Keats, Harback and Nixon, 1994). In addition to these dismal financial indicators, the effects of downsizing on the remaining employees have been substantial, including increased stress, reduced career opportunities and decreased company loyalty. This article looks at the possibility that person-based compensation systems such as skill/competency based pay or broad banding may alleviate some of the problems associated with both the poor financial performance and the negative impact on survivors of downsizing. By encouraging employees to acquire new skills and knowledge, person-based pay programs may foster the development of a highly flexible workforce. Employees with wider skills may prove valuable to downsized firms coping with large losses in organizational knowledge and memory.