Preventing subsequent turnover after downsizing: The role of collective pay for performance practices

Abstract Prior studies have suggested that downsizing events can lead to a contagion of voluntary turnover among employees. In the current study, drawing on the turnover event theory, we propose that the relationship between downsizing and turnover can be nonlinear. We also propose that the presence of collective pay‐for‐performance (PFP) practices is an important but overlooked contingency that moderates the effects of downsizing. By analyzing a dataset collected from 317 firms with 634 firm‐year observations, we found that the relationship between downsizing and voluntary turnover rates takes an attenuated positive form, and that this relationship is mitigated in firms that have more collective PFP practices. Our findings contribute to the literature on downsizing, turnover, and collective PFP practices while also providing a specific practical implication pertaining to the mitigation of the disruptive effects of downsizing.