Journal of Accounting Review  2025/01
Vol.80   1-44
DOI:10.6552/JOAR.202501_(80).0001

Do Companies’Salary Adjustment Commitments to Employees Matter? Evidence from Employees’Productivity

Abstract

Using manually collected Taiwanese data from 2018 to 2021, this study examines the relationship between deviations in company-announced salary adjustments and employee productivity—an area previously unaddressed in the literature. Companies that keep their promised salary adjustments to their employees are ideal examples of fulfilling social responsibilities. However, when companies announce actual salary adjustments that are lower than their previously announced and expected salary adjustments, it indicates that the salary adjustments are less than their original commitments to their employees (i.e., failure to fulfill promises, hereafter under-commitment). Consistent with expectancy theory and prospect theory, empirical results reveal that employee productivity declines when under-commitment salary adjustments occur, whereas no significant effect on employee productivity is observed when over-commitment occurs. Furthermore, when a company exhibits under-commitment more often or sequentially, productivity is negatively affected. These findings still hold after considering sensitivity and endogeneity concerns and suggest that it is very important for companies to keep their promises to employees and that failure to fulfill promises greatly harms employee productivity. Overall, this study's findings are of interest to companies, policymakers, and regulators planning to promote ESG-related practices and strategies (e.g., employee remuneration and benefits).