In his book The Speed of Trust, author Stephen M. R. Covey asserts that the trust level in an organization affects two things: speed and cost. When trust goes down, speed goes down and costs go up. (Consider the time and cost of airport security after 9/11, or costs for Sarbanes-Oxley Act compliance passed in response to Enron, WorldCom and other corporate scandals.) Conversely, when trust goes up, speed goes up and costs go down. I would add that when trust and speed go up, sustained results also go up.
In short, trust has a huge economic impact.
Simply put, trust means confidence. The opposite of trust, mistrust, is suspicion. Covey makes the point that whether it's high or low, trust is the "hidden variable" in the formula for organizational success.
Traditionally, most organizations think about results generation in the following terms:
Strategy x Execution=Results
However, inclusion of the hidden variable reveals a more accurate results reality:
(Strategy x Execution) x Trust=Results
Simple? Yes. Insignificant? Not in the least. At VisionLink, we have observed that in most organizations, the trust level is virtually palpable. In high trust organizations there is an obvious culture of confidence. That confidence is reflected in the consistent results that emerge from sustained success patterns in such companies. Those success patterns can only exist in a high trust environment.
So what does trust have to do with compensation? In a word, everything.
Compensation is a strategic tool. Smart business leaders employ it as such to ensure certain key outcomes and make their results more predictable. When approached correctly and strategically, compensation should do two things: 1) provide a systematic means of remunerating contributors for the achievement of certain performance standards, and; 2) clearly communicate and encourage the behaviors and outcomes that the organization considers its highest priorities.
As a result, a company's approach to compensation either encourages or diminishes trust. Think about it. If I work in your organization, and I hear you stand and speak about the company's vision and mission, and what the strategy is for the next year (or two or three), but I have a pay program that either has no bearing on those outcomes or is at odds with them, what level of confidence do I have in your leadership? How should I interpret the significance of my contribution to the company's future?
Likewise, if I have been allowed to develop a mentality of entitlement or complacency because my remuneration has no real link to performance standards, what are you communicating to me about your confidence in my ability? What incentive do I have to take a stewardship approach to my role and adopt an ownership mentality in my work?
Organizational trust exists when there is integrity between mission, strategy, roles, expectations and results. If that trust is going to be sustained, a company's pay philosophy and associated strategies must create a thread of continuity between each of those elements. By doing so, you are offering your employees ample evidence that they can have confidence in where the company is headed, how it's going to get there, what their contribution should be to that future and how they will be rewarded if those results are obtained.
Covey explains it this way:
"The low trust environment is a result of violating principles--not only individually, but organizationally. Leaders are missing the solution because they are not looking at the systems, structures, processes and policies that affect day-to-day behaviors. They are focused on the symptoms instead of the principles that promote trust.
"This misalignment creates symbols that represent and communicate underlying values to everyone in the organization. A symbol can be either negative or positive; from a 500-page employee handbook, to a newly appointed CEO who refuses to accept a pay raise because it might send the wrong message to workers."
In summary, get compensation right and you will see trust increase in your organization. If you increase trust, you increase speed--and when you increase both, costs go down and sustained results go up.