Fairness of Financial Severance Package ... - EuroJournals

European Journal of Economics, Finance and Administrative Sciences
ISSN 1450-2275 Issue 45 (2012)
© EuroJournals, Inc. 2012
http://www.eurojournals.com/EJEFAS.htm
Fairness of Financial Severance Package:
Employees' Perspective in Jordan
Fawzi Al-Sawalqa
Corresponding Author, Accounting Department
Financial & Administrative Sciences Faculty
Tafila Technical University
Tafila-Jordan P.O. Box (179)/ Zip code (66110)
Tel: +962-776791650
E-mail: fawzi2000sawalqa@yahoo.com
Ahmad Nahar Al-Rfou
Tafila Technical University –Financial and Administrative Sciences Faculty
Tafila – Jordan P.O. Box (179) Post Office/Zip code (66110) Jordan
E-mail: Ahmadrfou_357@yahoo.com
Abstract
This study aims to measure the fairness of the financial severance package that adopted
on the employees who were laid off from Jordan Cement Factories Company
(JOCM).The study also trays to measure the feeling of the employees toward including
them in downsizing program. As well, the study aims to investigate the main factors
that encouraged them to accept the downsizing offer and the financial severance
package of the company. 160 questionnaires were distributed to achieve the objectives
of this study. The results of the study indicated that the severance package was unfair in
context of its two parties, procedural and distribution.
Keywords: Severance package; Downsizing strategy; Fairness; Jordan Cement
Factories; Jordan.
1. Introduction
The business firms employed downsizing strategy in order to minimize the operational costs which
will contribute in gaining the competitive advantage (Al-Rfou, 2003). However, some of Jordanian
companies adopted the downsizing program by offering severance package to their employees.
JOCM is a public company listed in Amman Stock Exchange. The company is one of the largest
companies in Jordan. It was established in 1951 with a share capital of one million Jordanian
dinars. The company’s capital was raised several times throughout the years to finally settle at
60.44JDs million. JOCM was one of the first institutions to be privatized in Jordan when the French
giant, Lafarge Group, bought 33% of the government's stake in 1998. Lafarge now manages
JOCM's operations and currently owns around 50.28% of the company's share capital. Lafarge
Group was established in 1833 and is considered a global leader in producing cement. The group
employs around 71 thousand employees in over 70 countries. Moreover, the group's sales reached
EUR 16.9 billion in 2006, versus EUR 14.5 billion recorded the year before. JOCM's main
activities include quarrying, producing and trading in cement in locally and abroad. JOCM owns
two cement plants, one in Fuhais and another in Rashidiyeh, in addition to an export terminal in
Aqaba (Sunnuqrot et al., 2007).
This study comes to overcome the limitations of the previous studies which focused on the
influence of downsizing strategy on organizational performance (e.g. Kalimo et al, 2003; Al-Rfou,

141 European Journal of Economics, Finance and Administrative Sciences - Issue 45 (2012)
2003; Gyu-Chang & Jong-Sung, 2006; Zachary et al., 2009). In addition, prior studies investigated
the effect of downsizing strategy on the behavioural, psychological and healthy of the survived
employees but not the victims (e.g. Erickson & Roloff, 2008; Keith, 2004; Kalimo et al., 2003).
Furthermore, most of previous studies were conducted in the Western context and ignored the
developing nations. Thus, this study is a starting point in context of Jordan and other developing
Middle East countries.
After few years from adopting the downsizing strategy, important questions were
questioned around the fairness of financial severance package. In particular, it has been noted that
the laid off employees were unsatisfied about the package. This study comes to measure the
fairness of the financial severance package and to measure the feeling of the employees toward
including them in downsizing program. As well, the study comes to investigate the factors that
contribute in accepting the downsizing offer and the financial severance package of the company.
In particular, these study trays to answer the following questions:
1. What is the feeling of laid off employees toward fairness of the financial severance
package?
2. What is the feeling of laid off employees toward fairness of including them in
downsizing program?
3. What are the main factors that contribute in accepting the laid off employees the
financial severance package?
Accordingly, the study tests the following hypotheses:
H1. There is a difference in employees' feeling award the procedural fairness related to some
personal factors such as qualification, employee's experience in the company and salary.
H2. There is a difference in employees' feeling toward the distributional fairness related to some
personal factors such as qualification, employee's experience in the company and salary.
2. Literature Reviews
Previous studies focused on investigation the impact of adopting downsizing strategies on two
levels, namely; organizational level and individual level. In respect to organizational level, study of
Zachary et al. (2009) tested the effect of adopting downsizing strategy on organizational
performance. However, the study found that there is a positive relationship between the adoption of
downsizing strategy and the financial and managerial indicators of organizational performance. In
addition, study by Al-Rfou (2003) also reached the similar result in that it found a positive and
significant relationship between downsizing strategy and organizational financial and managerial
performance of Jordanian companies.
Espahbodi et al. (2000) investigated the effects of downsizing strategy on operational
performance. The study findings indicated that downsizing strategy adoption reduces cost of goods
sold, employees' costs, capital expenditures and research and development expenditures.
Furthermore, Yu and Park (2006) investigated the influence of downsizing strategy on the financial
performance and employees' productivity. The results of study revealed a positive influence by
improving the financial performance of the company but not the employees' productivity.
In respect to the individual level, previous studies (e.g. Naumann, 1998; Naumann et al.,
1995; Mckee-Ryan & Kinicki, 2002; Sun, 1994) studied the effect of downsizing strategy on the
survivors employees. In general, the findings of these studies indicated that the effect of downsizing
strategy exceeds the financial effect to psychological and physical effects. As well, the results
revealed that the downsizing strategy leads to social instability. Another study by Mckinley et al.
(1995) found that downsizing strategy negatively affects the survivor employees in terms of job
overload, job stress and changing in formal and informal relationships. As well, the strategy affects
the job satisfaction and job commitment negatively. Thus, it can be argued that the current study
comes to overcome the limitations of previous studies in that it focuses on the individual victims of
downsizing strategy.

142 European Journal of Economics, Finance and Administrative Sciences - Issue 45 (2012)
3. Methodology
This study has been built on descriptive analytical approach and aims to analyses the relationship
between some individual factories and the extent of procedural distributive fairness for severance
package from viewpoint of employees of JOCM.
The date of this study has been collected using questionnaire. 195 questionnaires were
distributed with 160 useful questionnaires forming 82% response rate. SPSS version 17 was used,
the questionnaire has four sections. The first section includes the demographic information of
respondents. The second section measures procedural fairness. The third section measures
distributive fairness. The last section presents the factors that contribute in accepting the financial
severance package. However, the demographic variables focus on age, academic qualifications,
experience and salary. The procedural fairness represents the feeling of employees toward the rules
and that have been used in determining the names of laid off employees and those were used in
identifying the amount of incentives distributive fairness
Table (1) shows that 87% of the study's sample has diploma or less, while 13% of sample has
bachelors or above. In respect to the salary of the respondents the study findings show that 74%
were earned more than 600JDs monthly, while 26% of theme earned more than 700JDs monthly.
However companies used to laid off the higher salary's employees. It's also noted that about 70% of
the sample were served the company for more than 15 years.
Table 1: Characteristics of the study sample
Variable Item % Freq
Less than general secondary 78 48.8%
Diploma 62 38.8%
Qualifications
Bachelor 16 10%
Post graduate 4 2.5%
Total 160 100%
400-500 25 15.6%
501-600 16 10%
Salary JDs
601-700 49 30.6%
More than 700 70 43.8%
Total 160 100%
Less than 10 years 10 6%
employment years 10-15 years 39 24%
16-20 52 33%
More than 20 years More than 20 years 59 37%
Total Total 100% 160
Table 2: Statistics of the respondents toward procedural fairness
No Items Average WA t- value P - value Order
1
I felt unfairness toward including me in downsizing
program.
4.19 83.81 34.84 0.000 1
2
I felt unfairness whenever I saw my name within the list
of laid off employees.
4.02 80.44 35.30 0.000 2
3
I didn’t find a justification in my performance to include
my in the list of laid off employees
3.18 63.59 4.46 0.000 4
4
I felt that patronage excluded some employees from the
list of laid off employees
3.63 72.50 17.09 0.000 3
5
I felt that the basis of identifying the severances package
un logic and unfair.
3.11 62.11 2.63 0.008 5
Incremental Average of All Items 3.63 72.49 18.86 0.000
Table 2 shows that the feeling of respondents (1-5) is positive. That is, the weighted average
for all paragraphs is 72.49 with more than 60% for each one (p-value

143 European Journal of Economics, Finance and Administrative Sciences - Issue 45 (2012)
Table 3: Statistics of the respondents toward distributive fairness
No Items Average Average t- value P - value Order
1 I feel that the financial incentive amount that I earned not
relevant to my employment period.
3.86 3.86 31.60 0.000 3
2 I feel that the financial incentive amount that I earned not
relevant to my qualifications and experience.
4.25 4.25 46.19 0.000 1
3 I feel that the financial incentive is unfairness at all. 3.59 3.59 15.58 0.000 4
4 I was not satisfied at the time of taking the incentive amount. 3.18 3.18 4.06 0.102 6
5 I am regretful for accepting the financial severance package. 3.22 3.22 5.36 0.000 5
6 If financial severance package is offered again, I will not
agree on it.
3.89 3.89 29.89 0.000 2
7 My advice to my friends who are still working not to agree on
financial severance package.
3.00 3.00 29.84 0.000 7
Incremental Average of All Items 3.57 3.57 23.22 0.000
Table 3 shows that the weighted average for all paragraphs is 69.1 with more than 60% for
items 1, 2, 4, 6 and7 (p-value < 0.05). This, however, indicate that there is weak in distributive
fairness resulted from their feeling that the financial incentive amount that they earned not relevant
to their employment period, qualifications and experience.
Table 5: Factors that contribute in accepting the laid off employees the financial severance package
No Items
I decided to accept the financial severance package in
Average WA t- value P - value Order
1 order for the company not to lay me off without any
financial incentives.
4.10 82.06 34.05 0.000 1
2
I decided to accept the financial severance package in
order for the company not to take arbitrary procedures.
3.92 78.49 29.84 0.000 2
3
I decided to accept the financial severance package to give
my care to my family and religion issues.
3.70 74.05 45.12 0.000 3
4
I decided to accept the financial severance package in
order to establish my own project.
3.22 64.31 6.34 0.000 4
5
I decided to accept the financial severance package
because its amount is big.
3.13 62.65 3.22 0.001 5
6
I decided to accept the financial severance package for
personal reasons. .
2.90 58.03 2.37 0.018 6
7
I decided to accept the financial severance package
depending on my friends’ advices
2.88 57.50 2.72- 0.007 7
8
I decided to accept the financial severance package for
health reasons.
2.45 48.92 12.22- 0.000 8
Incremental Average of All Items 3.29 65.75 15.12 0.003
Table 5 presents the main factors that contribute in accepting the laid off employees the
financial severance package. The main two reasons are their fair from the company to lay them off
without any financial incentives and for the company not to take arbitrary procedures toward them.
The table shows that the weighted average for all paragraphs is 65.75 with more than 60% for most
of the items (p-value < 0.05).
4. Hypotheses Testing and Results
H1. There is a difference in employees' feeling toward the procedural fairness related to some
personal factors such as qualification, employee's experience in the company and salary.
This hypothesis can be tested by dividing it to the following sub-hypotheses:
H1a: There is a difference in employees' feeling toward the procedural fairness related to
academic qualification.
The result of One Way ANOVA test indicates that F-calculated equal 3.88 which is greater
than F-table value which equal 2.62 (df= 648 and3; α=0.05). However, p-value= 0.009 which

144 European Journal of Economics, Finance and Administrative Sciences - Issue 45 (2012)
means there is a variance among the respondents around the weak of procedural fairness which
related to academic qualification (see Table 6).
Table 6: One Way ANOVA test/ academic qualification
Variable Source of variance Sum of squares df Mean squares F α
Poor feeling of procedural
fairness
Between groups
Among groups
Total
0.914
50.060
50.974
3
648.3
651.3
0.305
0.079 3.88 0.009
Table 7 shows that those who have Diploma degree and less were felt in poor procedural
fairness more than the other groups. The mean was 2.97 followed by those who have Bachelor
degree and then who have postgraduate degrees.
Table 7: Mean of poor feeling of procedural fairness according to academic qualification variable
Academic qualification Mean
GSECE or less 2.97
Diploma 2.97
Bachelor 2.89
Post graduate 2.84
H1b: There is a difference in employees' feeling toward the procedural fairness related to
number of employment years in the company.
The result of One Way ANOVA test indicates that F-calculated equal 6.08 which is greater
than F-table value which equal 2.62 (df= 648 and3; α= 0.05). However, p-value= 0.000 which
means there is a variance among the respondents around the weak of procedural fairness which
related to number of employment years in the company (see Table 8).
Table 8: One Way ANOVA test/ Number of employment years in the company
Variable
Poor feeling of procedural fairness
Source of
variance
Sum of
squares
df
Mean
squares
Between groups 1.419 3 0.471
Among groups 49.550 648 0.078
Total 50.969 651
F α
6.080 0.000
Table 9 shows that those who worked for more than 20 years in the company and those who
worked between 15 and 20 years felt in poor procedural fairness more than the other groups with a
mean of 2.99 and 2.90 respectively.
Table 9: Mean of poor feeling of procedural fairness according to number of employment years in the
company
No. of years in the company Mean
Less than 10 years 2.77
10-less 15 years 2.82
15- less than 20 years 2.90
More than 20 years 2.99
H1c: There is a difference in employees' feeling toward the procedural fairness related to salary.
The result of One Way ANOVA test indicates that F-calculated equal 6.03 which is greater
than F-table value which equal 2.62 (df=648 and3; α=0.05). However, p-value= 0.000 which means
there is a variance among the respondents around the weak of procedural fairness which related to
salary (see Table 10).

145 European Journal of Economics, Finance and Administrative Sciences - Issue 45 (2012)
Table 10: One Way ANOVA test/ salary
Variable Source of variance Sum of squares df Mean squares F α
Poor feeling of
procedural fairness
Between groups
Among groups
Total
1.409
49.565
50.975
3
648
651
0.470
0.078 6.03 0.000
Table 11 shows that those who earned more than 700 JDs felt in poor procedural fairness
more than the other groups with a mean of 3.120.
Table 11: Mean of poor feeling of procedural fairness according to salary
Salary JDs Mean
400- less than 2.970
500-less than 600 2.997
600-less than 700 3.001
More than 700 3.120
H2. There is a difference in employees' feeling toward the distributive fairness related to
some personal factors such as qualification, employee's experience in the company and salary.
This hypothesis can be tested by dividing it to the following sub-hypotheses:
H2a: There is a difference in employees' feeling toward the distributive fairness related to
academic qualification.
The result of One Way ANOVA test indicates that F-calculated equal 4.43 which is greater
than F-table value which equal 2.62 (df=648 and3; α=0.05). However, p-value= 0.000 which means
there is a variance among the respondents around the weak of distributive fairness which related to
academic qualification (see Table 12).
Table 12: One Way ANOVA test/ academic qualification
02 Source of variance Sum of squares df Mean squares F α
Poor feeling of
distributive
fairness
Between groups 1.042 3 0.347 4.427 0.004
Among groups 49.835 648 0.078
Total 50.877 651
Table 13 shows that most of the respondents were felt in poor distributive fairness more
than the other groups with greater feeling for those who have low qualifications.
Table 13: Mean of poor feeling of distributive fairness according to academic qualification variable
Academic qualification Mean
GSECE or less 2.970
Diploma 2.970
Bachelor 2.950
Post graduate 2.940
H2b: There is a difference in employees' feeling toward the distributive fairness related to
number of employment years in the company.
The result of One Way ANOVA test indicates that F-calculated equal 3.944 which is greater
than F-table value which equal 2.62 (df=648 and3; α=0.05). However, p-value= 0.008 which means
there is a variance among the respondents around the weak of distributive fairness which related to
number of employment years in the company (see Table 14).
Table 14: One Way ANOVA test/ number of employment years in the company
Variable Source of variance Sum of squares df Mean squares F α
Poor feeling of
distributive fairness
Between groups
Among groups
Total
2.701
145.418
148.118
3
648
651
0.900
0.228 3.944 0.008

146 European Journal of Economics, Finance and Administrative Sciences - Issue 45 (2012)
Table 15 shows that those who worked for more than 20 years in the company and those
who worked between 15 and to less than 20 years felt in poor distributive fairness more than the
other groups .
Table 15: Mean of poor feeling of distributive fairness according to number of employment years in the
company
Mean No. of years in the company
2.770 Less than 10 years
2.820 10-less 15 years
2.901 15- less than 20 years
2.990 More than 20 years
H2c: There is a difference in employees' feeling toward the distributive fairness related to
salary.
The result of One Way ANOVA test indicates that F-calculated equal 7.53 which is greater
than F-table value which equal 2.62 (df=648 and3; α=0.05). However, p-value= 0.000 which means
there is a variance among the respondents around the weak of distributive fairness which related to
salary (see Table 16).
Table 16: One Way ANOVA test/ salary
Variable
Poor feeling of
distributive fairness
Source of
variance
Sum of squares df Mean squares F α
Between groups 5.073 3 1.691
Among groups 143.046 648 0.225 7.530 0.000
Total 148.118 651
Table 17 shows that those who earned more than 600 JDs felt in poor procedural fairness
more than the other groups with a mean of 3.12.
Table 17: Mean of poor feeling of distributive fairness according to salary
Mean Salary JDs
3.500 400- less than
3.499 500-less than 600
3.301 600-less than 700
3.410 More than 700
5. Summary and Conclusion
The results of the study shows that the laid off employees who were aimed in the downsizing
program of JOCM have poor feeling in the fairness of the program. In particular, their feeling was
appeared in two fairness types:
Firstly, procedural fairness: the results indicated that the respondents of the study feel
unfairness in the inclusion them in the downsizing program and severance package. This feeling is
mainly found with those who had low academic qualification, those who worked for long periods in
the company and those who earned high salaries.
Secondly, Distributive fairness: the results of the study indicated that the respondents of the
study feel unfairness in the distribution of the severance package as it not relevant to their
experience, qualification and salary. This feeling is much more for those who have lower academic
qualification, those who worked for 15 years and less and who earned low salaries.
As mentioned above, this study is one of the first in respect to Jordan in field.
Since this study is considered one of the first studies in this field it must be taken as a
starting point for researchers to build on and for companies to overcome the limitations of their
downsizing programs. However, the representative of employees should take part in determining

147 European Journal of Economics, Finance and Administrative Sciences - Issue 45 (2012)
the severance package for their employees. Furthermore, companies should depend on clear polices
and rules in order to include the relevant employees in the downsizing program. This, however, will
limit unfairness feeling of employees toward the severance package. The financial severance
package should be in accordance with the employees’ qualification, experience and salary.
However, other researchers are invited to build on this study and investigate the severance
package of other companies taking many other factors on their account. In addition, researchers
must co-operate with companies to overcome the limitations of severance package by participate in
applicable research. Universities are also invited to accomplish some related workshops and courses
to inform the employees with their standard right.
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