A nationwide real estate company informed its agents one year ago that it was increasing its agent transaction fees. The company explicitly guaranteed that there wouldn’t be another fee increase for at least two more years. Earlier this month, the company broke that promise hiking fees yet again, a year earlier than they said they would. While unexpected change is unavoidable in the world of business, a lack of accountability and integrity isn’t. Instead of directly addressing their inconsistent messaging, the company opted to ignore it, creating the perception that either 1) they didn’t think their agents would notice or 2) they don’t care. Neither of which bodes well for maintaining the trust of their employees.
To say trust is important in the employer-employee relationship would be to state the obvious. We are social creatures that are programmed to adapt in the direction of survival. That means we are drawn to those whom we deem trustworthy, and we tend to withdraw from those who violate our trust- in the name of self-preservation. When the trust violator is our employer, the proverbial hand that feeds us, it can create quite the conundrum for our survival instincts.
Employers hold a great deal of power over their employees. They are responsible for performance evaluations, guidance with job responsibilities, training, pay, approving time off, etc. When employees believe they cannot trust their boss, they are met with a dilemma: either quit their job and risk losing their livelihood or stay put, keeping their income but having to watch their back. Either way, it’s bad for business.
In 2002, Kurt Dirks and Donald Ferrin published a meta-analysis that looked at four decades of research on trust and leadership. They found that employee trust was associated with organizational commitment, job satisfaction, attitudes regarding the workplace, and a lower intention of quitting. They also found that employees’ commitment to decisions made or goals set by their leader depended on how much they trusted that leader. The same was true for their belief in the accuracy of information provided by their leader. Said simply, when employees don’t trust their leader, they are less committed to their work, enjoy their job less, listen to their boss less, think (and likely talk) poorly about their place of work, and are more likely to leave.
For the real estate company in question, what seemed like a smart and even necessary financial decision on the surface may have actually resulted in a degradation in overall company performance. The company increased its income in exchange for decreasing its trustworthiness to its employees. This wasn’t totally due to the company’s decision to hike agent fees or even that the fee increase came a year earlier than they promised. The biggest violation lay with their delivery. It was their lack of transparency- their decision to ignore their broken promise and push forward like nothing ever happened.
Defining Trust
Trust is an invaluable resource. Unlike money, it’s something that, when lost, it’s hard to get back. For the employer-employee relationship, trust exists across two categories: character-based and relationship-based trust.
Character-based trust refers to an employee’s opinion of the leader’s character. If someone is viewed as honest, righteous, responsible, empathetic, etc., they are often seen as a trustworthy person resulting in character-based trust. Relationship-based trust deals with an employee’s willingness to reciprocate the care and consideration that a leader may express in their relationship. As humans, we naturally feel a need to “repay” others when we feel they have given us something. This works in both positive and negative directions. If a leader is caring and considerate, employees will feel obligated to do the same. Similarly, if an employee feels slighted by a leader, they may feel some vindictiveness and a need to return the slight.
Leaders have the unique challenge to achieve and maintain both character-based and relationship-based trust if they want to be successful. A leader may be perceived as someone of strong character but due to inconsistently reinforcing policies, employees may learn not to trust them from a relationship-based standpoint. On the other hand, a leader may focus their leadership practices around fairness, dependability, and integrity, yet they may be viewed by employees as lacking empathy resulting in a lack of character-based trust. Both are necessary to maintain the trust of employees.
How to Earn and Maintain Employee Trust
1. Practice Both Transformational and Transactional Leadership
Transformational leadership is a concept first introduced by James MacGregor Burns in the 1970s that describes a leadership approach that causes transformative change in followers. It involves inspiring employees, understanding their strengths and weaknesses, and challenging them to take greater ownership for their work. Leaders who practice transformational leadership tap into the law of reciprocation; their employees feel a strong pull to reciprocate when the leader invests their time and energy into the development of the employee. As a result, relationship-based trust is achieved.
Transactional leadership, on the other hand, is more focused on the bottom line. It relies on enforcing standards, setting concrete goals, and applying rigorous checks and balances to ensure achievement. Transactional leaders are structured leaders. That means they consistently follow policies and, more times than not, they keep their word. As a result, they are often viewed by employees as having strong character which results in character-based trust.
In order to truly obtain employee trust, leaders must practice both types of leadership. They must demonstrate an investment in the growth and development of their employees while also possessing a rigid adherence to fairness, dependability, and integrity. If either is missing, employee trust will be too.
2. Give Employees Responsibility
When leaders give their employees added responsibilities, they communicate added trust in them. This also taps into the law of reciprocation, in that employees perceive that their leaders are trusting them with more responsibility and will feel an urge to reciprocate that trust. What's more, more responsibility means more autonomy, and autonomy is one of three basic psychological needs in humans. By giving employees greater responsibility, leaders are increasing their motivation and engagement in their work. Added responsibility equals more motivated and more trusting employees.
3. Keep Your Word (and if you can’t, be transparent about it)
Perhaps the greatest threat to employee trust is a broken psychological contract. When a leader makes a promise and then goes back on that promise, it’s a significant blow to their trustworthiness. However, business is ever-changing and economic hardships happen; sometimes policies must change. When that happens, transparency is the antidote. Leaders who are transparent with their employees and explain the rationale behind their decisions are those who are more likely to maintain that trust even when they are forced to make unpopular decisions.
For the leaders of this real estate company, their actions were unwise. They went back on a promise made to employees. They broke a psychological contract hurting relationship-based trust. Then, they chose to ignore their unreliability causing employees to question their character, degrading character-based trust. With a single decision, they eroded both relationship-based and character-based trust. They failed to practice either transformational or transactional leadership. And, by doing so, they decreased their employees’ commitment to the organization, increased attrition, and created an anti-marketing campaign (i.e., thousands of angry realtors sharing their frustrations with others). Their decision was short-sighted. They bet on the hare over the tortoise for the ultra-marathon that is business.
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