Thursday, 24 October, 2013

A new survey released today by the Chartered Institute of Personnel and Development (CIPD) shows that most people don’t trust their senior managers.  Only 34% of people surveyed trusted the senior management of their organisation but 92% of them trusted their direct colleagues. Little surprise perhaps with large organisations cutting pay for staff and outsourcing jobs, whilst increasing bonuses for their top executives. Tellingly, the CIPD survey finds that trust in senior management increases as employees get closer to senior management positions themselves, but people of all levels have much higher trust in their line managers (80%).  But it could be that this lack of trust is less an organisational problem and more about a problem in society.

The link between income inequality and a lack of trust is supported by a large body of research, with a strong consensus that people in less equal countries trust each other less[1]. Whilst people still trust people they know and those they work with directly, inequality erodes the general belief that other people can be trusted. This could have serious implications for senior management in large organisations. Do employees trust managers less if they develop an arm's length approach? Will they trust the decisions of their bosses if they rarely see them? 

The damaging consequences for business of a lack of trust are well documented. A wide range of academic studies of both large and small businesses suggest a strong correlation between narrower pay dispersion within an organisation and improved organisation performance. In his book, The Price of Inequality, Nobel Prize winner Joseph Stiglitz discusses the link between productivity and a worker’s perception of fairness. If an employee doesn’t believe that they are being paid fairly compared to the senior management of their company then they are less happy, less loyal to the company and less productive.  

There is even some suggestion that this lack of fairness can lead to a drop in quality of the work produced by the company. For example, the large scale failure of defective tires put out by Firestone occurred after they cut pay and lengthened shifts whilst making large profits. 

High levels of income inequality destroy the bonds of trust which a well-functioning business relies on. It is an issue that business can ill-afford to ignore. 

Tim Stacey, Policy and Campaigns Officer

 

[1] Jordahl, Henrik. 2007. Inequality and Trust. Research Institute of Industrial Economics