Trust in the workplace is key in a strong society, but it's slipping away thanks to the financial crisis. How do we get it back?
In times of uncertainty, trust becomes more important. The Edelman Trust Barometer has reported some depressing results: the global financial crisis and the demise of high-profile banks, and the government rescue plans that followed, have profoundly destabilised public confidence, resulting in a breakdown in trust in government and business.
The UK public's cynicism has been stoked by the MPs' expenses scandal, high-profile organisational failures (such as the BP disaster in the US), the unveiling of News International's phone-hacking practices, the 2011 summer riots and the ongoing eurozone crisis. Cuts to national and local public services have been reported alongside the reinstatement of high bankers' bonuses in the very institutions taxpayers so recently bailed out – a decision perceived as incomprehensible to those experiencing a reduced standard of living.
Does it really matter for society whether trust is up or down like the weather? Surely some of the decisions made in the banks that led to the crisis were a result of people trusting leaders too much? Is trusting your work colleagues essential, or simply a "nice to have"?
The answer is yes, trust does matter; we rely on certain levels of trust to function and prosper. Ask any UN peacekeeper and they will tell you that a society whose citizens lose the capacity to trust one another will become dysfunctional. Trust is critical for building the foundations of social order; it is the basis for civil society.
In the workplace, one distinct advantage of trust is its link to innovation. Some economic commentators argue that for UK plc to return to growth and restore job opportunities, innovative approaches will be key. No one is going to take a risk unless they know that they will be backed by their immediate and senior managers. For small- to medium-sized enterprises, innovation will fuel growth, and that has to be good for our economy. In the public sector, managers will have to rethink the way they deliver services – we need people to spend time reinventing forms of delivery, not simply hacking away at the size or volume of existing practices.
Another distinct benefit is that "high trust" workplaces find it much easier to embrace organisational change – they can change faster and will achieve better levels of employee engagement at all levels. At times of high uncertainty, having a boss or CEO that they really trust can encourage employees to take the plunge and try something different. Furthermore, we know that trust encourages successful co-operation and teamwork, promotes and facilitates partnerships and joint ventures and decreases operating and transaction costs (managers can spend less time monitoring staff).
A focus on trust does mean concern for a company's moral and ethical principles. Perceptions of trustworthiness include the organisation's competence and predictability, but also relate to two ethical dimensions. One is the integrity of the organisation – the degree to which it and its managers adhere to general moral standards. Another is benevolence, which emphasises the positive intent towards those who are trusting in them. Research both conceptually and empirically illustrates that employees prefer to trust organisations that uphold moral and ethical standards.
In autumn 2011, as part of an in-depth case study research, my team and I surveyed 2,000 people at 14 private- and public-sector organisations. While trust remains a serious problem for many workplaces, there is good news. Some of the organisations researched not only managed to maintain trust during adverse times, but in some cases actually enhanced trust relations despite downsizing and restructuring – and this was observed within the public as well as the private sector.
In many cases, it came down to senior managers taking some bold but moral decisions about how to manage change while elevating the importance of maintaining the trust of their workplace. For some organisations this paid dividends at a business level, in their community and in their workplace.
Financial crisisEconomicsBankingFinancial sectorVeronica Hope-Haileyguardian.co.uk
Jan
23
Vince Cable should look past executive pay to the wages of the workforce | Duncan Exley
As well as rewarding executives for poor performance, unfair pay has adverse impacts on the wider economy and on taxpayers
Vince Cable's policy announcement on tackling the soaring levels of executive pay is unlikely to put an end to the controversy. The business secretary's proposals place a lot of faith in the ability and willingness of investors to rein in excess. There will be no shortage of commentators pointing out that investors, some of whom are very well paid themselves, have neither the motivation, nor the form, to justify such faith.
So, it might appear odd to suggest that to reduce excessive income inequality and improve company performance we should be paying less attention to executive pay.
Although it is true that top pay has risen out of all proportion to either company performance or employees' pay, it is also true that focusing on the few people in the boardroom has led to us neglecting the fact that organisations also have other employees, whose pay and performance might also be important.
The way that executive pay is spoken about strongly suggests that the majority of the workforce are not really being considered. Many policymakers have expressed a desire to link executive pay to company performance, but suggest that company performance is entirely dependent on the actions of a handful of superhumans and that everyone else is more or less irrelevant. It is also telling that the government-commissioned Hutton review of fair pay in the public sector was actually a review of top pay in the public sector.
This compulsive focus on boardroom pay should concern those with an interest in the UK's unusually high levels of income inequality, because although top incomes have rocketed away from median incomes, there has been much less outrage about the stagnation of pay for the majority of the working population.
Paying insufficient attention to the wider workforce is likely to neither improve most people's living standards nor improve company performance. Despite the obsession with linking executive pay to performance, studies suggest that incentives tend to be counterproductive for directors, but effective for unskilled staff. Other studies show that productivity tends to be lower in organisations where pay gaps are wider, and that – unsurprisingly – people who think their pay is unfairly low tend to have reduced motivation.
However, unfair pay in the wider workforce also has adverse impacts on the wider economy and on all taxpayers. This is not only because of the obvious effect of low pay on suppressing spending, but also because levels of debt tend to be higher where pay gaps are wider. At the bottom end of the pay scale, there is a direct cost to taxpayers. The Institute for Fiscal Studies (IFS) estimates that pay below the living wage costs taxpayers £6bn a year in benefits and forgone revenue. The real cost is likely to be much higher, if we consider that 57% of children in poverty have at least one working parent and that child poverty costs us £25bn a year, to say nothing of the wider social costs of poverty and inequality.
Not only does excessive pay at the top lead us to neglect other employees' pay, but also directors' incentives may lead to suppressed pay further down. If directors' incentives are linked to company profits, then it may be tempting to increase profits by suppressing costs – such as wages – rather than the harder task of increasing revenues.
The egalitarian, financial and performance arguments for giving proper regard to the pay, performance and productivity of staff beyond the boardroom are strong ones. However, those who have most influence over organisations' pay – in the company, the City, Westminster and Whitehall – tend to interact with directors disproportionately (relative to their interactions with other employees) and therefore tend to think about directors disproportionately. This suggests that we need to have structural solutions designed to build a whole-company perspective into how companies operate and what they report on. This is why it is sensible to require companies to include employees on remuneration committees and to report on pay ratios and any policy on low pay. Unfortunately, Cable seems to have been persuaded away from rigorous action in those areas.
For all of our sakes, we need to remember that there are more people in a company than there are in a boardroom.
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Executive pay and bonusesPayEconomic policyEconomicsPovertyVince CableDuncan Exleyguardian.co.uk