The Relationship between Interpersonal Trust, Employee Satisfaction ...

Total Quality Management Vol. 17, No. 10, 1261 –1271, December 2006

The Relationship between Interpersonal Trust, Employee Satisfaction, and Employee Loyalty KURT MATZLER & BIRGIT RENZL

Department of International Management, Johannes Kepler University Linz, Austria; Management & Leadership, Innsbruck University, Austria

Unit for Strategic

ABSTRACT Employee satisfaction is considered to be one of the most important drivers of quality, customer satisfaction and productivity. In this study we investigate an important driver of employee satisfaction. We argue that interpersonal trust (trust in management and trust in peers) strongly influences employee satisfaction and, as a consequence, employee loyalty. To test the relationships between these constructs we measured trust in management and trust in peers, satisfaction and loyalty of employees of an Austrian company in the energy sector (N ¼ 131). The results of the statistical analysis using structural equation modeling with Partial Least Squares (PLS) confirm a strong link between trust, employee satisfaction and employee loyalty. KEY WORDS : (PLS)

Interpersonal trust, employee satisfaction, employee loyalty, Partial Least Squares

Introduction Numerous studies show that satisfied employees are highly motivated, have good morale at work, and work more effectively and efficiently (e.g. Eskildsen & Dahlgaard, 2000). They are also more committed to continuous improvement and to quality. Employee satisfaction, therefore, directly influences process quality. Process quality, in turn, determines quality costs and customer satisfaction. From a theoretical and managerial perspective, therefore, it is crucial to identify the drivers of employee satisfaction, to monitor satisfaction continuously and to take the right measures to foster satisfaction and loyalty. These questions are the focus of many studies in the TQM literature (Eskildsen & Dahlgaard, 2000; Eskildsen & Nu¨ssler, 2000; Martensen & Gronholdt, 2001; Matzler et al., 2004; Westlund & Lo¨thgren, 2001). In this study we argue that interpersonal

Correspondence Address: Birgit Renzl, Unit for Strategic Management & Leadership, Innsbruck University School of Management, Universitaetsstrasse 15, A-6020 Innsbruck, Austria. Email: [email protected] 1478-3363 Print=1478-3371 Online=06=101261–11 # 2006 Taylor & Francis DOI: 10.1080=14783360600753653

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trust is a strong driver of employee satisfaction. Previous studies have investigated the role of trust in the formation of employee satisfaction (for a review see for example Dirks & Ferrin, 2001), but have focused mainly on trust in management (e.g. Rich, 1997) or trust in leadership (for a review see Dirks & Ferrin, 2002). We argue that, especially in teambased organizations, trust in peers also plays a major role. In the following section of the paper we briefly review the literature on trust and on employee satisfaction and we develop three hypotheses regarding the trust–satisfaction–loyalty relationship. We then report the results of an empirical study that investigates the impact of trust in management and trust in peers on employee satisfaction and loyalty.

Trust and Employee Satisfaction In the last decade, trust has become a major research area within the field of organizational studies (Dirks & Ferrin, 2001; Mayer et al., 1995; McAllister, 1995; Rousseau et al., 1998). Trust has been studied in a wide variety of disciplines (organization science, sociology, psychology) and has focused on the individual level, group level, firm level and inter-firm level (Rousseau et al., 1998). Studies on the effects of trust (e.g. Dirks & Ferrin, 2001, 2002; Mooradian et al., forthcoming 2007) have found that it leads to more positive workplace attitudes (e.g. employee satisfaction and commitment), workplace behaviors (e.g. knowledge sharing, organizational citizenship behavior) and performance outcomes (e.g. individual performance, group performance and business-unit performance). Trust enables cooperative behavior, promotes network-based forms of organization, reduces conflicts, decreases transaction costs, facilitates rapid formulation of ad hoc work groups and promotes effective responses to crises (Rousseau et al., 1998). Interpersonal trust can be defined as ‘. . . the willingness of a party to be vulnerable to the actions of another party based on the expectation that the other will perform a particular action important to the trustor, irrespective of the ability to monitor or control that other party’ (Mayer et al., 1995). There are three main facets of trust (Whitener et al., 1998): first, trust in another person reflects a person’s expectation or belief that the exchange partner will act benevolently; secondly, trust involves the willingness to be vulnerable and risk that the other person may not fulfill the expectations; and thirdly, trust involves a certain level of dependency which means that a person is affected by the actions of others. Hence, in workplace relationships, employees will feel safer and more positive about their managers and peers when they believe that their leaders and peers are trustworthy. In contrast, low levels of trust lead to psychologically distressing situations, as leaders or peers may have power over important aspects of one’s job (Dirks & Ferrin, 2002). As a consequence, trust should have a strong and direct effect on employee satisfaction. Several studies on the manager – subordinate relationship have shown that trust is a major predictor of job satisfaction. Driscoll (1978) showed that trust in the decisionmaker increased job satisfaction. Lagace (1991) found that reciprocal trust between managers and salespeople increases job satisfaction of the subordinates. In his study on the relationship between trust, job satisfaction and performance of salespeople, Rich (1997) found that trust in one’s manager directly influences job satisfaction, as sales managers are responsible for many duties that directly affect salespeople, such as performance evaluation, promotion, authorizing raises, assigning territories, training, providing leads,

Interpersonal Trust, Employee Satisfaction, and Employee Loyalty

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and so on. Rich argues that salespeople will be more satisfied with their job when they have honest, competent, and reliable sales managers that can be trusted. He confirmed this hypothesis in a study with 183 salesperson-manager dyads. In a study on selling alliances that are formed in order to cooperatively develop and maintain customer relationships, Smith & Barclay (1997) demonstrate that trusting behaviors have an effect on perceived task performance and mutual satisfaction (defined as the extent to which both partners in a relationship are satisfied) and mutual perceived trustworthiness had both a direct and indirect (via trusting behaviors) effect on satisfaction. Pillai et al. (1999) tested a comprehensive model of relationship between transformational and transactional leadership, procedural and distributive justice, trust, job satisfaction, organizational commitment, and organizational citizenship behaviors in two quantitative studies. Their results reveal that trust in a leader mediates the relationship between leader behavior and job satisfaction. Flaherty & Pappas (2000) study the salesperson–manager relationship and report that trust has a strong impact on job satisfaction. Goris et al. (2003) report findings from an empirical study in two companies that provide justification for trust in superiors and influence on superiors as predictors of performance and satisfaction. Brashear et al. (2003) found that interpersonal trust is most strongly related to shared values and respect. In their empirical study, trust was directly related to job satisfaction and relationalism, and indirectly related to organizational commitment and turnover intention. Overall, the empirical evidence strongly supports the effect of trust on employee satisfaction. From the brief review of the most important studies reported here, it becomes evident that most of the studies focus on the impact of trust on satisfaction in a subordinate –manager –relationship. As the architecture of modern organizations has strongly moved towards team-based organizations in the last years – especially in Total Quality Management (Robbins, 2003) – we argue that not only trust in management but also trust in peers plays a major role in the formation of employee satisfaction. The three facets of trust mentioned above are also relevant for work teams. Trust in a team member reflects the expectation that the team member will act benevolently, it involves the willingness to be vulnerable and risk that the other team member may not fulfill the expectations, and it involves dependency, as a trustee will be affected by the team member’s behavior. Thus, we expect that employee satisfaction in team-based organizations is strongly affected by trust in management and trust in peers: H1: Trust in management is positively related to employee satisfaction. H2: Trust in peers is positively related to employee satisfaction. Employee Satisfaction and Employee Loyalty In an effort to retain employees with high levels of performance, companies try to foster positive organizational attitudes like job satisfaction and organizational commitment. With the rise of the ‘knowledge economy’, employee satisfaction and loyalty have become critical issues (Matzler et al., 2003b; Renzl, 2003). According to Peter Drucker (1997) ‘. . . the only comparative advantage of the developed countries is in the supply of knowledge workers.’ Knowledge is a highly mobile resource, stored in the heads of individuals, and knowledge workers can easily take it with them. Hence, it becomes essential to attract and keep highly qualified and highly performing employees (Matzler et al.,

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2003a). Several empirical studies have found that employee satisfaction is a strong determinant of organizational commitment and loyalty (e.g. Mak & Sockel, 2001; Martensen & Gronholdt, 2001), it is negatively related to turnover (e.g. Tekleab et al., 2005; Ward, 1988) and absenteeism (e.g. Muchinsky, 1977). In their meta-analysis of the antecedents and correlates of employee turnover, Griffeth et al. (2000) find that overall job satisfaction and facet satisfaction are strong predictors of turnover. Thus, we argue that H3: Employee satisfaction is positively related to employee loyalty. The relationships between these constructs (trust in management, trust in peers, employee satisfaction and employee loyalty) are shown in Figure 1. In the next section we describe the empirical study and the results of testing of our hypotheses. Study Sample To test the relationship between trust, employee satisfaction and loyalty, we collected data from an Austrian company in the utility sector. A standardized self-administered questionnaire was sent to 665 employees of that company. All the employees selected for this study

Figure 1. Conceptual model


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were part of project teams. The employees received an e-mail from the research team explaining the scope of the study. The questionnaire was attached, and the employees were asked to complete the questionnaire, which they then dropped in one of the boxes that were placed in a central location in the building and were picked up one week later by a member of the research team. Anonymity and confidential treatment of the answers were guaranteed. 131 fully completed and usable questionnaires were returned within one week, this corresponds to a return rate of approximately 20%. Measures All constructs were measured using existing and tested scales. Trust in management and trust in colleagues were measured using Cook & Wall’s (1980) interpersonal trust at work scale. This scale was chosen for three reasons. First, it was developed in order to measure trust in management and trust in colleagues, and is therefore most appropriate for the purpose of our study. Second, it was one of the first scales, and is still the most widely used, for measuring interpersonal trust. Third, this scale has been extensively tested and shows good psychometric properties. From the questionnaire, the subscales capturing faith in intentions of peers and faith in intentions of management were chosen, measuring the items on a five-point Likert scale (from ‘strong approval’ to ‘strong disapproval’). Cook & Wall’s scale to measure faith in the trustworthy intentions of others corresponds closely to Mayer et al.’s (1995) definition of benevolence (‘You care about me and take an interest in my well-being and goals’) (Abrams et al., 2003) which is defined as the extent to which a trustee is believed to want to do good to the trustor, aside from an egocentric profit motive, which demonstrates a concern for the welfare of others (McAllister, 1995). Benevolence has been identified as a central condition of trust. Benevolence is part of trustworthy behavior . . . and consists of three actions: 1) showing consideration and sensitivity for employees’ needs and interests, 2) acting in a way that protects employees’ interests, and 3) refraining from exploiting others for the benefit of one’s own interests. These actions on the part of managers may lead employees to perceive them as loyal and benevolent. Researchers have shown such evidence of managerial loyalty to be an important condition that leads to trust between mentors and prote´ge´s. (Whitener et al., 1998) Employee satisfaction was measured against a six-item scale that reflects overall satisfaction rather than any specific dimension of employee satisfaction (Homburg & Stock, 2004, 2005). Employee loyalty has been measured with a five-item scale adapted from Homburg & Stock (2000) using a five-point Likert scale (from ‘strong approval’ to ‘strong disapproval’). Data Analysis and Results The relationships between the constructs were analyzed using structural equation modeling using the Partial Least Squares (PLS) approach. PLS has been chosen in this study as it is better suited to causal modeling when sample size is small and models are complex (Fornell & Bookstein, 1982; Hulland, 1999). The application of PLS requires

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a minimum sample size of 30 and a minimum sample size that is 10 times greater than (1) the number of items comprising the most formative constructs or (2) the number of independent constructs directly influencing a dependent construct (Wixom & Watson, 2001). With a sample size of 131 in this study, these requirements are met. The software used was SmartPLS (Hansmann & Ringle, 2004). A PLS model is usually analyzed and interpreted in two stages (Hulland, 1999). In the first stage, the measurement model was tested by performing validity and reliability analyses on each of the measurements obtained using the model. In the second stage, the structural model was tested by estimating the paths between the constructs in the model, determining their significance as well as the predictive ability of the model. This sequence was followed to ensure that reliable and valid measurements of the constructs are used before conclusions about the nature of the relationships between the various constructs are drawn (Hulland, 1999).

Reliability and Validity Reliability and validity were tested by looking at: (1) the reliability of individual items; and (2) the convergent validity of the measures associated with individual constructs. The figures for reliability of individual items are reported in Figure 2. All items have loadings higher than 0.4, only three items have a loading lower then 0.7, thus, it can be concluded that individual items are reliable. Convergent validity was measured using Fornell & Larcker’s (1981) measure of internal consistency, which is superior to Cronbach’s Alpha since it uses the item loadings obtained within the nomological network. Internal consistency is reported in Table 1 and with values above 0.7 for each construct, convergent validity is satisfied. Also, Average Variance Extracted (AVE), with the lowest value being 0.53, indicates high convergent validity. Discriminant validity was assessed using the latent variable correlations matrix (Table 2), where the square roots of the values of the average variance extracted calculated for each of the constructs along the diagonal is reported. The correlations between the constructs are reported in the lower left off-diagonal elements in the matrix. Fornell & Larcker (1981) suggest that average variance shared between a construct and its measures should be greater than the variance shared between the constructs and other constructs in the model. Discriminant validity is given, when the diagonal elements (square root AVE) are greater than the off-diagonal elements in the corresponding rows and columns. As can be seen from Table 2, discriminant validity is satisfactory. Overall, all the measures show very good reliability and validity.

Path Coefficients and Predictive Ability Figure 2 reports the path coefficients, their significance level and the R 2 values. The results of the bootstrapping resampling technique (500 runs), which is used in PLS to determine the significance of the paths, show that all the paths are significant. Two paths are significant at the p , 0.001 level (Trust in Peers ! Employee Satisfaction, b ¼ 0.42; Employee Satisfaction ! Employee Loyalty, b ¼ 0.71) and one path is significant at the p , 0.05 level (Trust in Management ! Employee Satisfaction, b ¼ 0.28). R 2 values of the endogenous constructs are 0.37 (Employee Satisfaction) and 0.50 (Employee Loyalty). Thus, it can be concluded that the hypothesized model is confirmed by the data.


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Figure 2. Relationships between trust, employee satisfaction, and loyalty

Discussion In this study we have shown that trust in colleagues and trust in management are strong predictors of employee satisfaction, and employee satisfaction, in turn, influences employee loyalty. Thus, our hypotheses have been supported (see Table 3). It is interesting to note that trust in peers (b ¼ 0.42) has a much stronger impact on employee satisfaction than trust in management (b ¼ 0.28). This result underlines the importance of measuring not only trust in management, but also trust in peers. This, in our view, is an important finding, as most previous studies focused only on the superior-subordinate relationship when analyzing the antecedents and consequences of trust in organizations and neglected the peer-to-peer-relationship. The findings of our study also have important implications for management. Employee satisfaction is a central topic in Total Quality Management. In an effort to increase satisfaction and

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K. Matzler & B. Renzl Table 1. Reliabilities and convergent validity (AVE)

Construct Faith in intentions of peers (Cook & Wall, 1980) 1. If I got in difficulties at work I know my colleagues would try and help me out 2. I can trust the people I work with to lend me a hand if I needed it 3. Most of my colleagues can be relied upon to do as they say they will do Faith in intentions management (Cook & Wall, 1980) 1. Management at my firm is sincere in its attempts to meet the employees’ point of view 2. I feel quite confident that the firm will always try to treat me fairly 3. Our management would be quite prepared to gain advantage by deceiving the employees (reverse coded) Employee satisfaction (Homburg & Stock, 2004 and 2005) 1. Overall, I am quite satisfied with my job 2. I do not intend to work for a different company 3. I like my job 4. There are no fundamental things I dislike about my job 5. I like my job more than many employees of other companies 6. I consider this employer as first choice Employee loyalty (adapted from Homburg & Stock, 2000) 1. I speak positively about my company when talking to customers 2. I speak positively about my company when talking to friends and relatives 3. I can recommend the products and services of my company to others 4. I would like to stay with this company also in the future 5. I would not change immediately to another company if I got a job offer

Item loading

Internal consistency

Average variance extracted

0.77

0.53

0.78

0.54

0.89

0.58

0.84

0.53

0.72 0.72 0.74

0.80 0.63 0.76

0.87 0.49 0.86 0.74 0.79 0.77

0.53 0.77 0.73 0.78 0.77

loyalty, many companies monitor employee satisfaction systematically and continuously using standardized questionnaires that capture many facets of satisfaction (e.g. Matzler et al., 2004). To increase the predictive power of such measures, questions on trust should be included. Then, measures should be taken to increase employee’s trust in peers and in management. Abrams et al. (2003) provide a comprehensive framework to identify the drivers of trust and to derive managerial implications. Interpersonal trust can best be promoted if attention is paid to four ‘trust builders’. First, trust can be fostered when managers and peers show trustworthy behavior (act with discretion, are consistent


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Table 2. Latent variable correlation matrix

Employee satisfaction Employee loyalty Trust in management Trust in peers

Employee satisfaction

Employee loyalty

Trust in management

Trust in peers

0.76 0.71 0.51 0.58

0.72 0.51 0.56

0.73 0.62

0.73

Square root of AVE is on the diagonal

Table 3. Structural relationships of the model Linkages in the model

Hypotheses

Sign

Parameter

Significance

Conclusion

Trust in Management ! Employee Satisfaction Trust in Peers ! Employee Satisfaction Employee Satisfaction ! Employee Loyalty

H1

þ

0.28

p , 0.05

Supported

H2

þ

0.42

p , 0.001

Supported

H3

þ

0.71

p , 0.001

Supported

between word and deed, ensure frequent and rich communication, engage in collaborative communication, ensure that decisions are fair and transparent). Second, on an organizational level, holding people accountable for trust and, especially, a shared vision and language, seem to be important drivers of trust. Third, on a relational level, creating personal connections and giving away something of value (e.g. be willing to offer others one’s own personal network of contacts when appropriate) are central elements of trust building. Fourth, on the individual level, the disclosure of expertise and one’s own limitations increase trust. Finally, we would also like to underline that trust not only influences workplace attitudes such as employee satisfaction, but it is also an important driver of workplace behavior, such as knowledge sharing (Mooradian et al., forthcoming 2007; von Krogh, 2002; von Krogh et al., 2000). Managers who are cognizant of the processes that lead to trust or distrust in an organization, and who are aware of the effect of trust on attitudes and behavior, are able to take adequate measures to intervene in trust building processes at a team level and at the superior-subordinate level, and thus improve the performance of organizations. References Abrams, L. C. et al. (2003) Nurturing interpersonal trust in knowledge-sharing networks, Academy of Management Executive, 17(4), pp. 64–77. Brashear, T. G. et al. (2003) An empirical test of trust-building processes and outcomes in sales manager-salesperson relationships, Journal of the Academy of Marketing Science, 31(2), pp. 189–200. Cook, J. & Wall, T. (1980) New work attitude measures of trust, organizational commitment and personal need non-fulfillment, Journal of Occupational Psychology, 53, pp. 39–52. Dirks, K. T. & Ferrin, D. L. (2001) The role of trust in organizational settings, Organization Science, 12(4), pp. 450– 467.

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