Employee Loyalty Essay

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.

Rotter (1967) defined interpersonal trust as '. . . an expectancy held by an individual or a group that the word, promise, verbal or written statement of another individual or group can be relied upon' Trust in the supervisor is seen as pivotal for leader effectiveness and work unit productivity Moreover, the leader's behavior is fundamental in determining the level of interpersonal trust in a work unit. These supervisor behaviors include those often used to delineate higher-quality exchanges, i.e. sharing appropriate information, allowing mutuality of influence, and not abusing the vulnerability of others. Trust is a relationship of reliance. A trusted party is presumed to seek to fulfill policies, ethical codes, law, and their previous promises. Trust does not need to involve belief in the good character, vices, or morals of the other party. Persons engaged in a criminal activity usually trust each other to some extent. Also, trust does not need to include an action that you and the other party are mutually engaged in. Trust is a prediction of reliance on an action, based on what a party knows about the other party. Trust is a statement about what is otherwise unknown.

Studies on the effects of trust (Dirks & Ferrin, 2001) 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 a person's willingness to depend on another person's actions that involve opportunism (Williams,2001; Zand, 1972). By sharing a brand new idea with a team member, one is willing to risk the ownership of the idea. Trusting an individual means 'the probability that he or she will perform an action that is beneficial or at least not detrimental to us is high enough for us to consider engaging in some form of cooperation with him.'(Gambetta, 1988: 217). 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, etc. Rich argues that salespeople will be more satisfied with their jobs when they have honest, competent, and reliable sales managers who can be trusted.

Smith & Barclay (1997), in their study, argued that trusting behaviors affect perceived task performance and mutual satisfaction and mutual perceived trustworthiness had both a direct and indirect effect on satisfaction. Flaherty & Pappas (2000) studied the salesperson–manager relationship and reported that trust has a strong impact on job satisfaction. Brashear (2003) found that interpersonal trust is most strongly related to shared values and respect. In that study, trust was directly related to job satisfaction and rationalism, and indirectly related to organizational commitment and turnover intention.

The study conducted by Kurt Matzler and Birgit Renzil (2006) argued that not only trust in management but also trust in peers plays a major role in employee satisfaction. 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 it is expected that employee satisfaction in team-based organizations is strongly affected by trust in management and trust in peers.

Employee satisfaction

High employee satisfaction contributes significantly to high customer satisfaction, which drives intent to return, and therefore, financial results. High employee satisfaction expresses itself as enthusiasm for one’s work, which directly impacts the experience of the customer. When companies are committed to providing high-quality products and services; when companies set high work standards for their employees; and when employees are empowered through training and development, provided with knowledge and information, permitted to make mistakes without punishment, and trusted; they will experience an increase in their level of satisfaction at work. This level of satisfaction can be enhanced further if teamwork and visionary leadership are introduced.

Satisfied employees are more likely to stay with the company and become committed and are more likely to be motivated to provide a high level of customer service, doing so will also further enhance the employee’s satisfaction through the feeling of achievement. Enhanced employee satisfaction leads to improved employee retention, and employee stability ensures the successful implementation of continuous improvement and customer satisfaction. Customer satisfaction will no doubt lead to corporate success and greater job security. These will further enhance employee satisfaction.

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Satisfied and loyal employees represent value to a company (Anne Martensen & Lars Gronholdt, 2001). A company’s success will therefore depend on its ability to attract and hold on to employees who, in the future, will be among the most competent, productive and motivated employees, that is, employees who are loyal to the company and its values, and who develop concurrently with the company. Work is satisfying to the extent that the worker undertakes it willingly and finds it to be an optimal challenge (Brown and Peterson,1994).

Many companies invest considerable amounts of resources in programs to monitor and increase employee satisfaction (Heskett et al., 1997). It is assumed that employee satisfaction leads to motivated and committed employees, to more effective and efficient work, and in turn to higher process and product quality (Eskildsen & Dahlgaard, 2000). Ultimately, employee satisfaction is expected to lead to higher customer satisfaction ( Homburg & Stock, 2004), which directly impacts firm performance (Anderson, 1994).

In the study by Kurt Matzler_ & Birgit Renzl,2007 the relationship between three personality traits (Neuroticism, Agreeableness, and Conscientiousness) and employee satisfaction, as well as the impact of employee satisfaction on affective commitment towards an organization is illuminated. Organizational effectiveness depends on the social structure of the organization, which can be measured by employee satisfaction and productivity of workers (Emery and Trist 1960). Other theorists have suggested that satisfied workers are productive workers {Likert 1961; McGregor 1960) because satisfied employees work harder and better than frustrated ones (Gross and Etzioni 1985), resulting in greater organizational effectiveness (Kopelman. Brief, and Guzzo 1990). Satisfied employees are more likely to engage in collaborative efforts and accept organizational goals that increase productivity (Likert, 1961). Employee satisfaction also affects financial performance by reducing employee turnover because employee turnover increases transition and adjustment costs. Thus, improving employee satisfaction helps an organization improve financial performance.

A study conducted by Yair Berson1 and Jonathan D. Linton, 2005 identified that transformational leadership style was related to employee satisfaction. Extensive research (Lowe et al., 1996) has demonstrated that transformational leaders have employees who are more satisfied with their jobs than employees who report to other leaders. Transactional leadership is also associated with employee satisfaction, although to a lesser extent (Lowe et al., 1996).

Employee loyalty

Josee Bloemer, and Gaby Odekerken-Schroder, 2006 conducted a study to investigate the impact of employee relationship proneness on three different types of attitudinal loyalty and relate these different types of attitudinal loyalty to employee loyalty. Affective commitment plays a pivotal role in creating all positive loyalty behaviors of employees. An empirical study of one of the UK’s four supermarket chains reveals an inverse correlation between employee satisfaction and the measures of productivity, efficiency, and profitability, the most profitable stores being those in which employees are least satisfied.

Employee loyalty, measured in terms of length of service, also appears to be inversely correlated with productivity and profitability. The relationship between employer and employee should be based on mutual respect and understanding, treating employees fairly and equally, no matter what their position may be. Communication is an important step in promoting employee commitment. Managements’ expectations might not be similar to those of the employees, so mutual expectations should be crystal clear to make sure all parties understand what is expected from them. When managers gain respect and confidence from their team commitment is reinforced. So offering leadership development programs to managers can perfect their skills in leadership and help them in specific areas. In a tight labor market, keeping good employees and developing employee loyalty becomes increasingly important and a continuing challenge.

A study conducted by Hooi Lai Wan defined and modeled the approach of developing employee loyalty through human resource management policies by identifying human resource management policies that augment employee loyalty and analyzing if the Japanese style of human resource management has a role in enhancing employee loyalty. A continuous and systematic approach to training and development, recruitment policies that reduce job-hopping and ensure long-term employment, internal promotion practices with little recognition given to seniority, and the implementation of the productivity-linked wage system would create a more committed employee towards the company. Most of these elements are representative of the Japanese style of human resource management which enhances employee loyalty and encourages long-term employment.

Studies such as Frederick Reichheld’s “The Loyalty Effect,” (1996) and James Heskett, W. Early Sasser, and Leonard Schlesinger’s “The Service Profit Chain” (1997) conclude that there are direct and quantifiable links between customer service variables (such as satisfaction and loyalty), employee variables (such as satisfaction, enthusiasm, loyalty, commitment, capability, and internal service quality), and financial results. In 1997, Development Dimensions International (DDI) conducted focus groups, customer interviews, literature reviews, and surveys to determine the drivers of an effective service environment. They found that employee satisfaction was strongly related to employee commitment and loyalty, and both measures have proven relationships to retention and productivity.