Corporate Social Responsibility Helps Companies Maintain Employee Trust During Job Cuts and Benefit Reductions
Businesses today are facing a long list of disruptive pressures, from economic instability to supply chain interruptions and unpredictable geopolitical events. Rising inflation, fluctuating interest rates, labor shortages, and other challenges can quickly push organizations into crisis mode. When that happens, companies often make difficult decisions such as freezing salary increases, modifying benefits, reducing perks, or even cutting staff. While these actions may be necessary for organizational survival, they can also cause employees to feel that the company has not lived up to its commitments.
Researchers describe this feeling as a psychological contract breach—a moment when employees believe their organization has failed to honor the expectations and promises that form the unwritten foundation of their working relationship. This idea is central to understanding how workplace trust can erode during crises and what organizations can do to protect that trust. A recent study led by Assistant Professor Haoying (Howie) Xu from the Stevens School of Business explores exactly this issue, revealing how corporate social responsibility (CSR) can act as a kind of reputational insurance policy for companies when tough decisions impact employees.
Understanding Psychological Contract Breach
A psychological contract isn’t a formal document. Instead, it encompasses everything employees believe their employer owes them—fair treatment, stability, professional growth, promised salary increases, reliable benefits, and a general sense of long-term security.
When these expectations are disrupted, employees may feel betrayed, confused, or undervalued. According to Xu’s research, the reactions can vary widely. Some employees respond with reduced motivation or engagement. This might show up as arriving late to work more often or becoming less focused on responsibilities. Others may adopt a quiet quitting mentality, performing only the minimum required tasks and disengaging from any extra effort.
In more severe cases, frustration can spill outside the workplace. Employees might speak negatively about the company to people outside the organization, harming its external reputation at precisely the time leadership is trying to stabilize operations. This reputational damage can make it even harder to attract and retain talent during a recovery period.
How the Research Was Conducted
Xu and his collaborators—Meng Zhong from the University of Nottingham Ningbo China, Sandy Wayne from the University of Illinois Chicago, and Eric Michel from Northern Illinois University—wanted to better understand how employees interpret contract breaches and what factors shape whether they blame the company or external circumstances.
Their study gathered feedback from employees across different industries in the United States, focusing on experiences during the COVID-19 pandemic, a time when many companies were forced to make unexpected financial and operational adjustments. Participants were asked how they perceived psychological contract breaches at their own workplaces and how they reacted to them.
In addition to surveying real-world experiences, the research team also created hypothetical breach scenarios. Employees were asked how they would feel and what actions they might take if their employer suddenly reduced benefits or froze raises. This mixed approach allowed the researchers to examine not only what employees had actually done during a crisis but also how they thought they would react in controlled situations.
The study, titled Insurance-like Effects of Corporate Social Responsibility in Understanding Employees’ Responses to Psychological Contract Breach During a Crisis, was published in the European Journal of Work and Organizational Psychology in 2025.
What the Study Revealed About Corporate Social Responsibility
One of the most significant findings was the role of corporate social responsibility in shaping employee perceptions. CSR refers to voluntary actions companies take to improve social and environmental well-being. This can include supporting nonprofit organizations, participating in community fundraising, sponsoring environmental programs, or backing initiatives that help specific groups or causes.
According to the study, employees who see their company as socially responsible are more likely to forgive breaches of psychological contracts. When CSR is strong and visible, workers tend to assume the organization acted out of necessity rather than neglect or indifference.
This ability of CSR to soften the impact of a breach operates much like an insurance policy. Employees who view their employer as conscientious and community-minded already believe the organization has good intentions. That positive moral capital helps the company weather difficult moments because employees think, essentially, “The company wouldn’t do this unless it had to.”
In contrast, organizations with weak CSR reputations receive little benefit from this effect. If employees already view a company as self-interested or disconnected from broader social concerns, any breach—intentional or not—can lead to harsher reactions.
Building Trust Before a Crisis Occurs
One key conclusion from the research is that CSR must be built up before trouble hits. Companies cannot expect to adopt social responsibility measures as a quick fix during a crisis. If employees haven’t already formed a positive opinion of the company’s values and intentions, last-minute CSR efforts will not have the same protective effect.
CSR creates a long-term reservoir of goodwill, and that goodwill operates as moral capital during tough times. Companies that consistently demonstrate care for communities and the environment show employees that they value more than just profit.
However, Xu emphasizes that CSR alone isn’t enough to repair a breach. Organizations still need to take deliberate steps to rebuild trust. This might involve compensation later, transparent communication about the reasons for difficult decisions, or proactively involving employees in crafting recovery plans. When employees feel included in the solution, they are less likely to interpret cost-cutting measures as personal betrayals.
Why CSR Works as Reputational Insurance
CSR has this insurance-like effect because it shapes the attribution process—the mental calculation employees make when deciding whether a breach was unavoidable or a sign of managerial failure. In psychology, attribution plays a major role in how people interpret events. When employees think the company behaves ethically and contributes positively to society, they naturally assume leadership made the best decision possible under the circumstances.
For companies, this means that CSR is not only about public image or external marketing. It is also a powerful internal tool for maintaining employee stability, loyalty, and performance during disruptions.
In a world where crisis events are becoming more frequent—from global pandemics to economic downturns—CSR acts as a steadying force that supports organizational resilience.
Additional Insight: Why CSR Matters Beyond Crisis Events
CSR does more than help companies navigate periods of instability. Research across organizational behavior shows that strong CSR practices can:
- Improve employee job satisfaction
- Strengthen organizational commitment
- Reduce turnover intentions
- Increase trust in leadership
- Enhance employer attractiveness for top talent
These benefits help explain why CSR initiatives have moved from optional add-ons to core elements of many corporate strategies. Employees increasingly want to work for organizations that contribute positively to society, and CSR helps companies meet those expectations.
Research Reference
Insurance-like Effects of Corporate Social Responsibility in Understanding Employees’ Responses to Psychological Contract Breach During a Crisis
https://www.tandfonline.com/doi/full/10.1080/1359432X.2024.2419420
