Confirmation and compensation: extending the socio-cognitive perspective on workforce downsizing

Matthias Brauer and Martin Zimmermann

Chapter 3 in A Concise Guide to Corporate Downsizing, 2025, pp 98-123 from Edward Elgar Publishing

Abstract: McKinley et al.'s (2000) socio-cognitive model of workforce downsizing suggests that the institutionalization of downsizing goes back to the emergence and collectivization of a dominant “downsizing is effective” schema among executive managers. We extend this conceptual model by arguing that the inclination of a CEO to adopt a “downsizing is effective” schema, and thus to increase downsizing intensity, becomes greater if the focal firm has recently engaged in downsizings and if the CEO's compensation package limits the financial risks associated with downsizing. Moreover, we theorize that positive stock market feedback to prior downsizings strengthens these relationships. Our empirical analysis of workforce downsizings by large U.S. firms largely provides support for the viability of the socio-cognitive model of workforce downsizing and our suggested extensions. Collectively, the study advances our understanding of the antecedents of workforce downsizing and highlights that the socio-cognitive perspective meaningfully complements the rational economic perspective on workforce downsizing.

Keywords: Workforce downsizing; Managerial cognition; Stock market feedback; Managerial compensation (search for similar items in EconPapers)
Date: 2025
ISBN: 9781035311002
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