Relationship between Employee Satisfaction, Interpersonal Trust, and Employee Loyalty

Abstract

Maintaining employee loyalty could have a significant impact on internal relationship in an organization and external business performance. The aim of this study is to examine the direct impact of employee satisfaction on employee loyalty and examine the indirect relationship between employee satisfaction and employee loyalty mediated by interpersonal trust. We investigate how employee satisfaction and interpersonal trust impact on employee loyalty. To test the relationship, we conduct the survey to 2000 recipients among U.S. company among ten different industries. We will use Structural Equation Modeling to test result of the statistical analysis and confirm the relationship between employee satisfaction, interpersonal trust and loyalty. As for result, it is estimated that the finding indicates that there is a strong link between employee satisfaction, interpersonal trust, and employee loyalty. We expect to see employee satisfaction has direct positive impact on employee loyalty; and also has an indirect positive relationship between employee satisfaction and employee loyalty, which is mediated by interpersonal trust. These results will lead manager build a trust-based work environment in an organization in order to reduce the cost of high turnover rate in the workplace. Addressing the problem of employee loyalty, the research could potentially help to solve the problem regarding improving customer service, customer loyalty, service quality in the external environment in the future.

Keywords

Satisfaction; loyalty; trust; organization; employee

Introduction

Nowadays, increasing HR professionals and executives try to improve company culture, carry out new strategies to satisfy employee with current work content in an organization and make people loyalty. Increasing research is trying to examine the relationship between employee loyalty and business performance. Several studies reveal the employee loyalty has a positive impact on customer loyalty. The studies show that the loyal employee have a strong relationship with the business performance – loyal employees will deliver greater customer service, perform higher productivity, create more self-value than a new hire (Christina G. Chi & Dogan Gursoy, 2009).

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It is necessary to study employee loyalty and study what elements have an impact on employee loyalty. We will find a key to open the door of successful business, because employee loyalty has a strong relationship with business outcome based on the past researches. Many studies have found a strong link (positive relationship) between employee loyalty and customer service, so employee loyalty could reduce organization cost and improve business financial performance in the long run indirectly (Christina G. Chi & Dogan Gursoy, 2009). The researchers have found that maintaining loyal employees could deliver the better business results than those without loyal employees. To increase loyal employee, organization carry out strategies to make sure deliver better business performance, customer service among the industry and reduce the cost of turnover rate in the long run (Borzaga & Tortia, 2006).

In recent years, many researchers pay more attention to employee loyalty and they start their research and try to figure out what components would have an impact on employee loyalty in different sectors. Some researchers have indicated that there is relationship between employee satisfaction and employee loyalty. However, as millennials run into job market, the definition of employee satisfaction, interpersonal trust, and employee loyalty is changing. In addition, compared with the past decades, employees are willing to stay in an organization for years rarely right now. So, maintaining employee loyalty is still a hot topic in the changing world. Peter K. Murdock reports that “Millennials were three times more likely than non-millennials to change jobs in the last year, and 91% do not expect to stay with their current organizations longer than three years” in The New Reality of Employee Loyalty, on Dec 28th, 2017. Increasing millennials run into job market and change the rule of the job market. Organizations realize that maintaining employee loyalty is harder and harder in the real business world than before, because millennials change their mindset of the satisfaction and loyalty. Organizations should pay attention to how to maintain employee loyalty and know the relationship between employee satisfaction and loyalty in the job market. To address the problem how to maintain employee loyalty, researchers should be aware of what components would influence on employee loyalty.

Our purpose of this study is to investigate how the employee satisfaction have an impact on employee loyalty, and mediated by interpersonal trust, the relationship between employee satisfaction and employee loyalty. This study was conducted in ten different industries located the U.S. We expect to see three hundred valid responses as study sample among different organizations to test the relationship between employee satisfaction, interpersonal trust and employee loyalty.

Literature Review

The concept of employee loyalty was defined and explained in many dimensions in the past research (Hart & Thompson, 2007). Employee loyalty was considered as an organization commitment and employee loyalty was tested to have an impact on employees’ behavior in an organization (Meyer & Allen, 1991). In the prior research, researchers have been trying to extract the definition of employee loyalty: employee loyalty – “affection for the attachment to the organization”; “a sense of belongingness manifesting as ‘a wish to stay’” (John Cook & Toby Wall, 1980). In addition, employee loyalty – “also measures to what degree an employee takes personal responsibility for their work, and how likely they are to look for another job” (Wanda M. Costen & John Salazar, 2011). Employee loyalty – requires employees make psychological commitment with organization and be responsible for their job duties, personal and organizational goals. Besides, interpersonal trust was also defined in different ways. Interpersonal trust has been defined as a generalized expectancy held by an individual that the word promise, oral or written statement of another individual or group can be relied on (Rotter, 1967). In the past, researcher study trust between employer and subordinate, ignoring the trust between peers. Actually, the relationship of interpersonal trust exists not only in the management level, but also peer level. Interpersonal trust between individuals and among team within an organization facilitates a long-term stability of internal and external relationship in a business; and working in a trust-based environment increase the well-being of employees (John Cook & Toby Wall, 1980). In addition, millennials start to run into the current job market, so job market is still changing. The interpretations of employee satisfaction, interpersonal trust and employee loyalty are also changing. Also, the concept of employee loyalty has changed: employee loyalty means not only employees are willing to stay in the organization for a long while (Solomon, 1992), but also employees are willing to work as hard and they are more prone to stay in the organization to create value (Powers Edward L, 2000).

Many researches have been conducted the relationship to explore different variables have an impact on employee satisfaction and employee loyalty; some study focus on the relationship between employee satisfaction and loyalty in single sector or industry. Although many researchers have already indicated the relationship between employee satisfaction and employee loyalty in their individual companies (Brown & Peterson, 1993; Griffeth, Hom & Gaertner, 2000; Hom & Kinicki, 2001), researchers did not test the relationship between employee satisfaction and employee loyalty among different sectors. A study tried to examine the relationship between the effect of HRM, employee satisfaction and loyalty (Eskildsen Jacob K & Nussler Mikkel L, 2000). Some research focus on the impact of the training of employee job satisfaction on employee loyalty in the lodging industry (Wanda M Costen & John Salazar, 2011). The study tried to focus on the relationship of employee satisfaction and employee loyalty in the lodging industry, which could not stand for situation in general situation. Compare with in the lodging industry, this study targets general industries instead of the lodging industry. The relationship between employee satisfaction and employee loyalty is studied in government sector (C M. Chiu & C. A. Chen, 2010). The study tries to identify the successful total quality management implementation (TQM) in government has a positive impact on employee satisfaction and employee loyalty instead of interpersonal trust. Empirical research has examined the interpersonal trust has an impact on different dependent variables, for example, the relationship between interpersonal trust and organizational behaviors (MaAllister, 1995; Podsakoff, Mackenzie, Moorman & Fetter, 1990; Robinson, 1996), or work group performance (Kurt T. Dirks, 1999). So, the relationship between employee satisfaction, interpersonal trust and employee loyalty is still a new area to study. Based on the past research and current situation, we could still say the relationship between them is a new area to discover.

The past researches have supported us to explore the relationship between employee satisfaction, interpersonal trust and employee loyalty. In the prior research, the evidence indicates that organization should take steps to satisfy employees with their current work content to make employee loyalty (Lambert, Hogan & Barton, 2001). Also, the prior research studied in how interpersonal trust have an impact on employee satisfaction and employee loyalty in single sector (Kurt Matzler & Birgit Renzl, 2006), but no study examines in general organizations – how employee satisfaction has an impact on employee loyalty, which mediated by interpersonal trust. We will extend the sample base to figure out the relationship in ten different sectors to discuss more accurate result from this paper. The study gave us perspectives on measuring the relationship between trust, organizational commitment and personal need (John Cook & Toby Wall, 1980). However, this research studied how to raise organization commitment from an individual perspective; organizational commitment is a broad concept – including three components: identification, involvement, and loyalty. Based on the past research, this study is focus on employee loyalty and interpersonal trust – expanding the concept of interpersonal trust: interpersonal trust includes not only on peer level, but on management level (Manger – employee & employee – employee). Currently, it is the nature of various modern organizations that is strongly moving towards team-based organizations instead of individual-based organizations (Robbins, 2003). In the workplace relationship, the relationship with trust could make employees feel psychological safety and lead employee easily satisfy the work environment. (Dirks & Ferrin, 2002).  These findings support us to explore how interpersonal trust, as a mediator, to have an impact between employee satisfaction and employee loyalty accurately. By studying employee loyalty and employee satisfaction, researcher could provide perspective to organization: how to address the problem regarding service quality, productivity, employee capability (Heskett, Jones, Loveman, Sasser & Schlesinger, 1994).

In a word, it cannot be concluded that trust exerts positive influence on employee satisfaction and employee loyalty in the current job market, but we have been given the support and inspiring perspectives from the past research in the related research field. Obviously, the further study is supposed to be conducted to examine the relationship between employee satisfaction, interpersonal trust and employee satisfaction. The survey was conducted to team-based organizations in top 10 sectors around U.S. and the positions of respondents are from entry level to senior level (Level A, B, C, D & E). The respondents with some work experience therefore have a basic understanding of interpersonal trust, employee satisfaction, and employee loyalty. The basic understanding of these concepts within an organization is used as control variable in this study.

Research Design

o Are these latent variables? If so, what factors make up the latent variables?   

Sample

To examine the relationship between employee satisfaction, interpersonal trust, and employee loyalty, we will collect the data from U.S. companies among ten different sectors randomly – mainly cover health, construction, information, energy, professional service, government, finance and insurance, educational services, metal, machinery, computer and electrical manufacturing, real estate industry. (Top States among the 10 Major Industries in the US, http://foundersguide.com/top-states-among-the-10-major-industries-in-us/). Two hundred questionnaire invitations will be sent to each sector. Also, the positions of these recipients in each sector cover Level A, B, C, D & E – “entry level individual contributor, experienced individual contributors, managers and senior technical professionals and individual contributors, directors, and vice president or general manger”. At first, all the questionnaires will be sent via an e-mail through an online survey platform called SurveyMonkey (www. Sureveymonkey.com) or sent a link via LinkedIn message to all of recipients. An questionnaire will be attached and sent to our target recipients with the content explaining our purpose of the investigation. We will collect our data in one week and keep all the answers from all the respondents confidential and anonymity. It is estimated that we have 300 fully completed and valid questionnaires were returned in one week from 2000 recipients in ten sectors. This corresponds to a return rate of approximately 15%.

Elements

 To understand the relationship between employee satisfaction, interpersonal trust and employee loyalty, we examine the correlation between three different variables. In this study, two independent variables (IV) – employee satisfaction and interpersonal trust, and one dependent variable (DV) – employee loyalty is involved. Based on the past research, we note three hypotheses as below:

Hypotheses

H1: Employee satisfaction has a positive relationship with interpersonal trust

H2: Interpersonal trust has a positive relationship with employee loyalty

H3: Employee satisfaction has a positive relationship with employee loyalty

Therefore, through the research, we try to examine the strong relationship between those variables and IVs have a positive impact on DV. We assume that the control variable remains constant through the whole process of research.

Research Method

 The surveywas constructed for three dimensions – employee satisfaction, interpersonal trust, and employee loyalty. Based on IVs and DV, we design the survey and attached in appendix – Table 1, 2, and 3 regarding these variables. There are total 18 questions, and all of them could be answered quantitatively. Questionnaire does not have open questions or descriptive answers. We expect the average completed time for the questionnaire should be almost 5 – 10 minutes (including questions regarding demographic – education background, age, gender, race, position, etc.). We use multilevel sample in the research, for example: the positions cover different level, from entry level to senior level. The research could be explained from three dimensions: industry – organization – employee perspective.

Measurement

We used existing and tested scales to measure all the conducts in this paper. Employee satisfaction is using six items scored on five-point Likert scale (from “strongly agree” to “strongly disagree”) (Homburg & Stock, 2000, 2004, 2005) This scale was chosen for two reasons. Firstly, the scale has been tested in many papers, and shows that the scale is supportive to easily reflect the employee satisfaction and deliver a accurate research result. Secondly, we use the six items scored on five-point Libert scale instead of four items scored on five-point Libert scale (Gursoy & Swanger, 2007; Christina G. Chi & Dogan Gursoy, 2009). Six items scored on five-point Libert scale captures employee satisfaction more accurate than four items with five-point Libert scale. Interpersonal trust was interpreted as trust in management and trust among peers – was measured by using Cook & Wall’s (1980) at work scale. This scale is the most appropriate for this research, because this scale covers not only the trust between manager and subordinate, but also the trust among peers at the work environment. Also, this scale is the most popular scale to test interpersonal trust. Employee loyalty using a five-item scored on five-point Likert scale (from “strongly agree” to “strongly disagree”) (Homburg & Stock, 2000, 2004, 2005)

To ensure the scale could accurately reflect the research’s result, we use the similarity of items, and conducts all the items are measured on five-point scale, anchored at 1=Strongly disagree, 3= Neutral, and 5= Strongly agree for three variables.

Proposed Data Analysis

Data Analysis

The relationship between employee satisfaction, interpersonal trust, and employee loyalty will be analyzed by using Structural Equation Modeling (SEM) with Partial Least Squares (PLS) approach. A PLS approach was conducted into two different stages (Hulland, 1999). At the first stage, we use the SEM to test reliability and validity of the research. At the second stage, to determinate their significance and the predictive ability of the model, we will examine and analyze the paths between the constructs in the model structural model. “This sequence was followed to ensure that reliable and valid measurement of the constructs are used before conclusions about the nature of the relationships between the various constructs are drawn” (Hulland, 1999).

Reliability and Validity

To make sure the appropriate analysis of the measurement models, we will test and make interpretation on the criteria of reliability, convergent validity, and discriminant validity (C. C. Chang, C. M. Chiu & C.A. Chen, 2010). Reliability and validity are tested from three aspects – individual item, the convergent validity with individual instruments, and discriminant validity. In the research, we will use Cronbach’s alpha to measure reliability in our research. Firstly, we collect the answers of each of item of each variable. To get an overall measurement of each variable in the research, we could compute the mean score and acquire an overall mean score from all of answers of each variable. We expect to see the alpha is .70 or higher, which is considered satisfactory reliability for this research. An alpha value – .70 or higher – indicates that the research has a great level of reliability (Geoege & Bettenhausen, 1990). In this research, we use an existing measurement – Fornell & Larcker‘s (1981) measurement method to test validity.  We expect to see Average Variance Extracted (AVE), with the lowest value exceeds 0.50 indicates high convergent validity. In addition, based on latent variable correlation matrix, we should compare the square root of the AVE from the construct and the correlations between the constructs. If the compared result is the square root of the AVE is greater than inter-construct correlations, the test of discriminant validity is acceptable, therefore. (Table 4.)

Expected Results

In this study, we have tested the relationship between employee satisfaction, interpersonal trust and employee loyalty. As table 5, our hypotheses have been supported. Therefore, there is quantitative support for three hypotheses that there is a positive relationship between employee satisfaction and interpersonal trust, interpersonal trust and employee loyalty, and employee satisfaction and employee loyalty. Ideally, employee satisfaction has a positive relationship with employee loyalty; employee satisfaction has a positive impact on interpersonal trust; and interpersonal trust has a positive impact on employee loyalty.

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It is estimated to calculate the value of the path coefficients, their significance level and the R square values. We use path analysis to test the significance of each path in our study and the result will be delivered: all the paths are significant in this research. The first path expected is significant at p value< 0.001 (Employee Satisfaction  Interpersonal Trust, b > 0.50; Employee Satisfaction  Employee Loyalty, b > 0.50; Interpersonal Trust  Employee Loyalty, b> 0.50). We also expect to see R square values in the research paper, potentially we calculate R square is greater than 0.50 and less than 1.0 in the relationship. Therefore, the hypothesized model is confirmed by the data.

Limitations

Although we try to select a big size sample of the research to acquire an accurate resuslt, we cannot deny the study still exists some limitations. Firstly, samples of this study might be applied in the limited organizations, which means we could not cover all of industries, especially some emerging industries, such as AI industry. These emerging industries tend to involve team-based organization between human and AI, even more individual contributors and work remotely involved. These features will have an impact on our research result somehow. A bigger samples randomly selected are supposed to be carried out in the research to reach a greater statistical power and deliver more accurate relationship between employee satisfaction, interpersonal trust and employee loyalty. Secondly, we could not guarantee the equal distribution of these samples among ten different sectors, which means we are not able to analyze the general relationship between employee satisfaction, interpersonal trust and employee loyalty accurately among all types of industries. Ideally, the demographic of the sample was distributed to a bell curve. However, we could not guarantee the responses are equal in every sector. Besides, interpersonal trust could not be the only mediator to have an impact on employee satisfaction and employee loyalty. Compensation and benefits could also be a mediator to have an influence on employee satisfaction and employee loyalty. If we control the same level of compensation and benefits for all the recipients, we could receive more accurate results analysis about the relationship between employee satisfaction and employee loyalty mediated by interpersonal trust. Further research is supposed to carry out, researchers should take compensation and benefits into consideration of the relationship.

Appendix: Graphs and Tables

Figure 1.

Table 1.

Table 2.

Table 3.

Table 4.

Table 5.

References

https://www.forbes.com/sites/forbeshumanresourcescouncil/2017/12/28/the-new-reality-of-employee-loyalty/#5f78dcaa4cf3

Chang, C. C., Chiu, C. M., & Chen, C. A. (2010). The effect of TQM practices on employee satisfaction and loyalty in government. Total Quality Management, 21(12), 1299-1314.

Costen, W. M., & Salazar, J. (2011). The impact of training and development on employee job satisfaction, loyalty, and intent to stay in the lodging industry. Journal of Human Resources in Hospitality & Tourism, 10(3), 273-284.

Eskildsen, J. K., & Nussler, M. L. (2000). The managerial drivers of employee satisfaction and loyalty. Total Quality Management, 11(4-6), 581-588.

Powers, E. L. (2000). Employee loyalty in the new millennium. SAM Advanced Management Journal, 65(3), 4.