For whom the budget cut tolls

Bill Below, OECD Directorate for Public Governance

Staff reductions, salary cuts, the loss of benefits and truncated career opportunities blow a cold wind over the motivation of employees fortunate enough to survive downsizing. At the very moment when the affected company needs its remaining staff to take on the work of others, accept new roles and work longer hours for less, those employees undergo an overwhelming gamut of emotions affecting work performance: anger, resentment, job insecurity, low job satisfaction and a loss of trust. After all, a psychological contract has been broken as surely as watching your boss rip up your actual contract in front of you. Being one of the “lucky” ones doesn’t diminish the distress. Survivors’ emotions are so strong workforce specialists call them “sicknesses”—and they can be crippling, not just for those experiencing them, but for the organisation itself.

Good luck with that

The best employers understand this and take measures to help staff prepare for and work through the emotional turmoil of painful change. It’s not about altruism. Future performance will depend on management’s ability to minimise trauma and inspire support for the newly-shaped organisation. That’s why leading private sector firms prepare strategic plans in advance, set up cross-functional working groups, help managers with their people and communication skills and have detailed implementation and communication plans ready. They follow up with post-downsize employee care programmes and skills development to help staff adjust to new roles. And the public sector? Not enough, according to Engaging Public Employees for a High-Performing Civil Service (OECD 2016).

Handle with care

Yet, even with all the bells and whistles, downsizing efforts often fail to improve levels of efficiency, effectiveness, productivity and, in the private sector, profitability. That bodes poorly for countries hoping to relieve fiscal pressure with a “pure downsizing” approach. And research suggests there are many of them. From 2008 to 2013 the majority of OECD countries cut civil service budgets, 75% reduced or froze public wages and 62% cut training investments. During this period, public sector downsizing efforts included a full range of instruments (see chart). Despite the tenuous relationship between layoffs and productivity gains, 14 countries cited enhanced productivity as the desired strategic outcome of personnel reductions—without necessarily accounting for how that productivity would be accomplished. The data show that dismissals ranked fifth on a list of seven instruments, and were used more frequently than both decentralising government agencies and privatisation. Meanwhile, recruitment freezes and non-replacement of retiring staff, the first and second preferred downsizing instruments, while less violent, impose costs on organisations, including loss of institutional memory, loss of trust, a more concentrated workload, and in the case of hiring freezes, a lack of fresh thinking and experience entering the organisation.

Source: OECD (2014) Question 5, Survey on managing budgetary constraints: implications for HRM and Employment in Central Public Administration.

Pain ahead

Among survivors, reduced compensation probably has the most far-reaching impact on motivation, performance, perceptions of fairness and the quality of work. Cuts to compensation took different forms in different countries, from suspension of performance bonuses or top ups for holiday seasons, to decreases in overtime pay and simple wage cuts. Reductions can be temporary or part of ongoing public sector reform. For example, Germany no longer takes seniority into account in middle and top management and has adopted certain performance pay criteria, allowing high performers to rise faster to new levels.

One thing is sure: the old notion of a safe job in the civil service is profoundly changing: eight countries reported more personnel cuts in their central public administrations than in the private sector, five countries reported that it has become easier to dismiss public employees, and four countries reported that they have eased civil service job protections. The trend looks set to continue, to judge by the response to the survey question, “Will budgetary constraints and the subsequent need for stabilising national economies be an extra impetus to abolish employment as civil servants?” Over half of the 23 responding countries answered with “very much” or “somewhat”.

“Putting a man on the moon”

To help countries progress towards more effective management of human capital in the public sector, evidence-based tools are needed. The authors of the report look at employee engagement as a key performance indicator and a way forward. Engagement is the sweet spot where an individual’s personal values, goals and motivations align with those of the organisation. It helps gear their behaviour towards achieving goals, innovating more and working energetically albeit in paced, sustainable ways (so reducing the incidence of burnout).

The report analyses the use of employee surveys in monitoring public sector engagement. While a majority (21) of countries surveyed reported measuring employee engagement in some form, only a handful use the data regularly to support decision making—for now, at least. This is not enough, and policymakers involved in public sector reform should take heed.

The value of employee engagement has been illustrated by a story about President Kennedy’s 1962 visit to NASA following the announcement of his ambitious goals for manned spaceflight. After asking various engineers what they did, the president then turned to a janitor in the room and posed the same question. The janitor answered: “I’m helping put a man on the moon!” Engagement is about being in step with the bigger picture (although NASA’s morale was severely tested later that decade when budgetary plenty was replaced by unprecedented retrenchment). The good news is, engagement correlates to individual and organisational performance. Engaged employees are productive employees—an intriguing relationship at a time when governments strive to find a workable measure of public sector productivity.

Counting on goodwill

Inciting employees to connect to the bigger picture requires a culture of engagement. That means beefing up management skills and HR processes to levels found in well-run private sector firms. It also means attracting and retaining the best and the brightest. While many talented people turn to the public sector out of a belief in public service, counting on goodwill alone will only take government employers so far. When the dust settles, they will need to provide an attractive mix of job stability, compensation, engagement and professional growth opportunities—lessons that have gone unheeded by policymakers eager for the illusory gains of “fire and forget” downsizing.

Links and further reading

OECD (2016), Engaging Public Employees for a High-Performing Civil Service,
This report was prepared by Daniel Gerson based on papers by Cristoph Demmke and Beatrix Behrens.

Public Employment and Management,

OECD Directorate for Public Governance,

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  1. Charles Kovacs - 26/04/2017 Reply

    This is a very useful post about what happens when cutbacks become necessary and how employers can best minimize the damage to both the employees and the companies. However, since the article deals not with the private, but the public sector, it would have been useful to note that:

    1. The Civil Service has always had a different culture and a privileged position compared to the private sector. Meanwhile, it has been noted in many countries that the Civil Service has been neither civil nor much of a service.
    2. In most OECD-member countries, civil servants tend to think of the public as their subjects and not as their employers. In the rest of the country, civil servants may think likewise, but most are smart and courteous enough not to say so.
    3. Most civil servants’ fear of downsizing is probably more acute than of company employees, because they can expect that most employers in the private sector will be reluctant to employ them given what they think of the Civil Service and its productivity.
    4. The Civil Services usually complain about being under staffed and under paid, while the public usually thinks the opposite and may even regard them as an in efficient, privileged caste. This may be unjust to some truly outstanding civil servants, but they are unfortunately a minority.
    5. Engagement is a great idea, but the example of NASA’s moon landing project in 1962 was the example cited, and that was 55 years ago in connection with a spectacular project. Moreover, back then, the US Civil Service had very different demographics and culture and was quite well regarded, especially when compared to the state and municipal bureaucracies.
    6. I am sure we would all be delighted to have the “best and the brightest” in the Civil Service of our country, but most such people are unlikely to be attracted to the inertia (to be polite) that is an integral part of civil service culture.

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