The relationship between ethical leadership, employee satisfaction and
personal and impersonal reward power
Topic 13: (Un)ethical leadership, bases of power and effects on employees
Sacha Katinka Luca van Dijk 11715790
University of Amsterdam
Bachelor’s Thesis and Thesis Seminar Management in the Digital Age Supervisor: Juliana Guedes Almeida
10 July 2020 Wordcount: 6014
Statement of Originality
This document is written by Sacha van Dijk who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document are original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
Abstract
Ethical leadership has been a widely researched topic and has been linked with numerous positive effects on employees. These positive effects on employees can be of great benefit for the organization, since it can enhance the employees’ performance which in turn can enhance the organization’s performance. Even though it is a widely research topic, there are still numerous issues with leaders behaving unethically. The goal of this thesis is to show the importance of ethical leadership and investigate the relationship between ethical leadership and employee satisfaction, moderated by two forms of reward power, personal and impersonal. The research tested whether there was a positive relationship between ethical leadership and employee performance, and if this relationship was enhanced by personal and impersonal reward power. The testing showed support for the first hypothesis, about the positive relationship between ethical leadership and employee satisfaction, but did not support the second and third hypothesis.
Index
Introduction ... 5
Theoretical Framework ... 8
Methodology ... 11
Design, sample and procedure ... 11
Measures ... 11
Analytical plan ... 13
Results ... 14
Correlation test ... 14
Assumptions for linear regression ... 14
Hypotheses testing ... 15 Discussion ... 18 Findings ... 18 Limitations ... 19 Practical implications ... 19 Conclusion ... 21 References ... 23 Appendix ... 26
Appendix 1 – item list of the variables used for this thesis ... 26
Appendix 2 – descriptive statistics followers and leaders (age, gender, organizational- and dyadic tenure) .. 26
Appendix 3 – assumptions for linear regression ... 28
Appendix 4 – reliability analysis variables Ethical Leadership, Personal Reward Power and Impersonal Reward Power ... 30
Introduction
The way leaders lead can be of great influence on their employees. Leadership style can be linked to, for example, employee burnout, workplace deviance and lower employee performance (Mo & Shi, 2017). Given that employee performance correlates to the firm’s overall performance it is desirable that the employee’s performance is as optimal as possible (Uysal, 2014). Two forms of leadership style are ethical leadership and unethical leadership. When a leader behaves unethically, this can lead to the three examples mentioned above (Mo & Shi, 2017). For example, unethical leadership can lead to employees feeling unsafe or not welcome in the workspace which may cause them to leave their job to remove themselves from such a situation. Moreover, employees may imitate the unethical behavior of their leader, which can cause more harm to the firm’s overall performance (Mo & Shi, 2017) (Brown, Trevino & Harrison, 2005).
Ethical leadership has been a point of attention in firms because of the many scandals involving ethical lapses of high-level leaders that occurred over the past decade and a halve (Den Hartog, 2015). Ethical behavior is essential to leaders’ credibility and their potential to meaningfully influence followers at all levels in an organization (Den Hartog, 2015, Brown et al., 2005, Piccolo et al., 2010). Ethical leadership has many definitions, but they all have in common that leaders should act appropriate and responsibly. Ethical leaders should also set ethical standards for the company and make sure the entire company follows these standards (Brown & Trevino, 2006). De Hoogh and Den Hartog (2008) define ethical leadership as “the process of influencing activities of a group toward goal achievement in a socially responsible way” (p. 412). Also mentioned in the different definitions of ethical leaders is that they influence people, mainly by focusing on the employees’ intrinsic motivation (Yidong & Xinxin, 2013), and the use of rewards and punishments. Influence, rewards and punishment resources can be found in the bases of power.
Bases of power are resources that give one person the potential to influence another person. Raven, Schwarzwald and Koslowsky (1998) defined social power as the resources one person has available so that he or she can influence another person to do what that person would not have done otherwise. This article defined eleven social power measures, which were based on the original six bases of power (French & Raven, 1959). Of these eleven factors, impersonal and personal reward power will be used for the thesis. Impersonal rewards are non-personal rewards that concern tangible physical matters, these include a promise of a promotion or a promise of a monetary or nonmonetary compensation (Raven, Schwarzwald, & Koslowsky, 1998). A personal reward is when the agent promises to approve or like the target if the target
does comply with the agent (Raven, Schwarzwald & Koslowsky, 1998). There are multiple examples in literature about the distinction between the impersonal and personal type of power base, with the main distinction being that impersonal rewards are tangible physical matters and personal rewards are intangible (Heinemann, 2008). Impersonal and personal reward power can both have a moderating role between leadership style and employee satisfaction (Elangovan & Xie, 1999). However, if this moderating role is positive or negative is unclear in current literature.
Employee satisfaction is essential to the success of any business (Gregory, 2011). Multiple studies show that satisfied employees are highly motivated, have good morale at work and work more effectively and efficiently (Eskilden & Dahlgaard, 2000; Matzler & Renzl, 2007). Therefore, businesses should focus on continuous employee satisfaction (Gregory, 2011). Trust is seen as an important driver in employee satisfaction and this trust can be linked to the leadership style leaders apply (Matzler & Renzl, 2007; Dirks & Ferrin, 2002). Taking ethical leadership as an example, part of the definition of ethical leadership is that ethical leaders behave appropriate and responsible, which can be linked to higher levels of trust in employees (Mo & Shi, 2017).
Analyzing the relationship between ethical leadership, personal and impersonal reward power and employee satisfaction is socially significant. This is because it can give leaders relevant information on how to best motivate and satisfy their employees to get the most desirable outcome for many organizations, which is high employee performance (Gregory, 2011). However, ethical leadership can be hard to interpret, since followers cannot always distinguish a leader’s true intentions (Den Hartog, 2015). Current literature lacks the follower’s perspective on what ethical leadership entails and how this affects employee satisfaction. Therefore, ethical leadership and employee satisfaction will be follower rated.
The current literature implies there is a positive relationship between ethical leadership and employee satisfaction. However, whether the moderating role of impersonal and personal reward power on ethical leadership and employee satisfaction has a positive effect on the relationship between ethical leadership and employee satisfaction and which one of the two has a stronger influence is not completely clear. Thus, research is lacking on the effect of impersonal and personal reward power on the relationship between ethical leadership and employee satisfaction. Therefore, the thesis will examine the following research question:
“Does ethical leadership have a positive relationship with employee satisfaction and does this relationship increase when impersonal reward power and personal reward power are used by a leader?”
This question will be answered by analyzing survey results and testing the hypotheses (figure 1). The first hypothesis will be tested with linear regression. The second and third hypothesis will be tested using the PROCESS macro of Hayes (2018) Model 1. Firstly, theories about the variables mentioned in the introduction will be explained in the theoretical framework. Secondly, the methods and results will be discussed. This paper will end with a discussion and a conclusion.
Figure 1.
Conceptual model of the expected relationship between ethical leadership (IV), employee satisfaction (DV) and impersonal reward power (Mod) and personal reward power (Mod).
Theoretical Framework
This section will discuss the variables mentioned in the conceptual model (figure 1). Moreover, the relationships between the variables in the model are discussed using the existing literature on this topic.
Ethical leadership has many definitions. And before there were distinct definitions on the term ethical leadership, it was often related to other leadership styles, like transactional or transformational leadership. This was because of the similarities in the characteristics of these leadership styles (Yang, 2014). This can be an explanation for the different definitions of ethical leadership, because there are different characteristics that fit with this type of leadership. Another reason for the different definitions of ethical leadership is that the definitions vary across different cultures (Yang, 2014). One definition of ethical leadership by Brown and Treviño (2006) states that emerging research suggests that ethical leaders are honest, caring and principled individuals who make fair and balanced decisions. Moreover, they frequently communicate with their followers and they set clear ethical standards and use rewards and punishments to see that those standards are followed. Finally, according to Brown and Treviño (2006) ethical leaders practice what they preach and are proactive role models for ethical conduct. Two key characteristics in all definitions of ethical leadership are appropriability and responsibility (Den Hartog, 2015). Appropriability is key for businesses to obtain a competitive advantage and responsibility means a leader holds himself or herself accountable for its own actions, which makes a leader more credible which in turn increases employees’ perception of leaders being trustworthy. Trust is an important aspect of an ethical leader (Matzler & Renzl, 2007; Dirks & Ferrin, 2002). Lastly, a concept proposed by Brown et al (2005) said to divide ethical leadership in three layers, being an ethical role model, treating other fairly and leading other people to behave in an ethical manner.
An important note is that there has been research showing that when leaders behave too ethical, this can have unwanted effects. For example, when ethical standards of a leader are too extreme and the employee feels judged by the leader on their own ethical standards, the employee can see this as an insult on their own standards and can start to see their leader as arrogant and inconsiderate (Stouten et al., 2013).
Since ethical leaders are defined as honest and caring and as people that make fair decisions (Brown & Treviño, 2006), there has been previous research that suggest a positive relationship between ethical leadership and employee well-being (Kalshoven & Boon, 2012). Employee well-being is an important measure for many organizations, because it can be linked to employee performance (Juniper, 2011). It can be defined as the part of an employee’s overall
well-being that they perceive to be determined primarily by work and can be influenced by workplace interventions (Juniper, 2011). Since it can by influenced by workplace interventions, it can also be influenced by personal and impersonal reward power, which are also discussed in this paper. Employee well-being has numerous dimensions, like health, motivation, morale and employee satisfaction (Rahimnia & Sharifirad, 2015; Findler, Wind & Barak, 2007; Grawitch, Gottschalk & Munz, 2006). This thus relates ethical leadership with employee satisfaction through employee well-being.
One way to influence employees is through bases of power. Bases of power are a way of social power in which someone, in this can a leader, has control over the behavior or outcomes of another in a dependent position, in this case an employee, while having social exchanges (Mossholder, Bennett, Kemery, 1998). Studies and the forming of a theoretical framework on the topic were first done by French and Raven (1959). They defined the six original types of power bases, which included reward power. Reward power is based on the follower’s perception that their leader has the ability to mediate reward for him or her (French, Raven & Cartwright, 1959). Raven, Schwarzwald and Koslowsky (1998) later defined eleven power bases out of the original power bases by French and Raven (1959). In these eleven power bases, reward power was further specified into personal and impersonal reward power. Reward power is different from the other power bases in that the influence is not only socially dependent, given the principal agent relationship between leader and follower, but also requires surveillance by the agent that is influencing the principal (Raven, 2008). The main distinction between personal and impersonal reward power is the type of the reward, with personal rewards being promises about liking someone and impersonal reward being monetary in nature, like the promise for a pay raise (Raven & Schwarzwald, 1998).
As mentioned before, ethical leadership has been linked with employee well-being in previous research. With employee satisfaction being one of the three dimensions of employee well-being (Rahimnia & Sharifirad, 2015; Findler, Wind & Barak, 2007; Grawitch, Gottschalk & Munz, 2006), this research hypothesizes:
Hypothesis 1 ethical leadership leads to higher employee satisfaction
Literature on reward power shows that employee rewards are of high importance to employees, since they have a lasting impression and can affirm the employees’ perception of their value to the organization they work in (Shoaib, Noor, Tirmizi & Bashir, 2009; Kwenin, Muathe & Nzulwa, 2013). However, when using ingratiating strategies, targets were more
concerned about whether the agent will like or dislike them, thus making them more susceptible to the personal types of power than to impersonal types of power (Raven, Schwarzwald, & Koslowsky, 1998; Godfrey, Jones & Lord, 1986). Therefore, this research hypothesizes: Hypothesis 2 impersonal reward power increases the positive relationship between ethical leadership and employee satisfaction
Hypothesis 3 personal reward power increases the positive relationship between ethical leadership and employee satisfaction more than impersonal reward power
Methodology
Design, sample and procedure
The research for this thesis used a cross-sectional design. The data needed was collected through online surveys. These surveys were part of a larger study than just this individual thesis. Therefore, the survey contained more variables than examined in this particular study. The collection time for the data was one month and used convenience sampling. These respondents were contacted by the Bachelor students participating in this study, who study at the University of Amsterdam. Each dyad contains a follower and a leader, who have a leader-follower relationship with each other. This provided multi-source data. In total, 216 participants responded to the survey and of these 216, 96 dyads were formed and included in the sample. This gave a response rate of 88.9%. Lastly, the privacy of the participants was guaranteed and the surveys were therefore anonymous and used codes to link the leader and the follower. Of the followers, 60.4% of the respondents was female. The age of the followers ranged from 18 to 62 years (M = 35.21, SD = 13.943). Organizational tenure had a minimum value of 2 months and a maximum value of 405 months (M = 77.12, SD = 94.655). The minimum value of dyadic tenure according to the followers was 2 months and the maximum value of this variable is 204 months (M = 31.96, SD = 34.698) (Appendix 2). Of the leaders, 46,9% of the respondents was female, and 1% of the gender was unspecified. The age of the leaders ranged from 20 to 64 years (M = 43,73, SD = 12.664). Organizational tenure had a minimum value of 4 months and a maximum value of 444 months (M = 116.80, SD = 108.951). The minimum value of dyadic tenure according to the leaders was 2 months and the maximum value of this variable is 240 months (M = 34.72, SD = 42.277) (Appendix 2).
Measures
Of the variables used in this research, ethical leadership, employee satisfaction, impersonal and personal reward power were all follower rated. Ethical leadership, impersonal reward power and personal reward power were measured with a 7-point Likert scale, ranging from 1 = completely disagree, 2 = disagree, 3 = somewhat disagree, 4 = neither agree nor disagree, 5 = somewhat agree, 6 = agree 7 = completely agree. Employee satisfaction was measured with a 4-point scale, with 1 = I like it very much, 2 = I like it fairly well, 3 = I dislike it somewhat and 4 = I dislike it very much. Both leader and follower answered some demographic
questions as well, to use as control variables in the research. These demographic questions contained both multiple-choice and open-ended questions. The demographic variables included in this research were age, gender, organizational tenure and dyadic tenure for both
leader and follower. Ethical leadership
Ethical leadership was measured using a 10-item scale of Brown, Treviño & Harrison (2011) (Appendix 1). Some examples from this list are “My leader defines success not just by results but also the way that they are obtained”, “My leader sets an example of how to things the right way in terms of ethics” and “My leader when making decisions asks, “what is the right thing to do?”. The scale showed sufficient reliability since the Cronbach’s alpha is 0.872, which is above 0.70 so it is an acceptable value (Appendix 4).
Employee satisfaction
This variable was measured using a 1-item scale from Trevor (2001) (Appendix 1). The item is “How do you feel about the job you have now? Do you like it very much, like it fairly well, dislike it somewhat, or dislike it very much?”. Since employee satisfaction is measured using only one item, there is no need for a reliability analysis.
Impersonal reward power
Impersonal reward power had a 3-item scale (Raven, Schwarzwald & Koslowky, 1998) to measure this variable (Appendix 1). Some examples from this list are: “A good evaluation from my supervisor could lead to an increase in pay” and “My supervisor’s actions could help me get a promotion”. The scale showed sufficient reliability since the Cronbach’s alpha is 0.832, which is above 0.70 so it is an acceptable value (Appendix 4).
Personal reward power
Personal reward power was measured using a 3-item scale of Raven, Schwarzwald & Koslowky (1998). Two examples from this list are: “It made me feel personally accepted when I did as my supervisor asked” and “My supervisor made me feel more valued when I did as requested”. The scale showed sufficient reliability since the Cronbach’s alpha is 0.810, which is above 0.70 so it is an acceptable value (Appendix 4).
Control variables
Besides questions about the main variables used in the research, leader and follower answered some demographic question. This was done to rule out some effect on the hypothesis. The variables used in this research were age, gender, organizational tenure and dyadic tenure. Gender was measured using 3 items; male, female and rather not specify. Age was measured in
years. Organizational tenure and dyadic tenure were both measured in months. Age and gender of both the leader and the follower can play and important role in the relationship between the two. Gender stereotypes can influence how leader and follower perceive each other and previous research also suggest that when age increases satisfaction increased accordingly (McCann & Holt, 2009) (Ho et al., 2015) Organizational tenure and dyadic tenure can influence the way the leader and the follower perceive each other, which in turn influences if leaders are perceived ethical (Bouckenooghe, Zafar & Raja, 2015). Generally, when leader and follower have been working in the organization and in a team for longer, the leader and follower can have a more complete perception of each other (Bouckenooghe, Zafar & Raja, 2015). Given that the literature suggested these variables affected the relationship between the main variables, these demographic variables were included in the hypothesis testing.
Analytical plan
The first hypothesis, about the relationship between ethical leadership and employee satisfaction, will be tested using linear regression. Ethical leadership will be the independent variable and employee satisfaction will be the dependent variable. The second hypothesis, about the moderation effect of impersonal reward power on the relationship between ethical leadership and employee satisfaction, will be tested using the PROCESS macro of Hayes (2018) Model 1. Ethical leadership will be the independent variable, employee satisfaction will be the dependent variable and impersonal reward power will be the moderating variable. The third hypothesis, about the moderation effect of personal reward power on the relationship between ethical leadership and employee satisfaction, will be tested using the PROCESS macro of Hayes (2018) Model 1. Ethical leadership will be the independent variable, employee satisfaction will be the dependent variable and personal reward power will be the moderating variable. The model was tested with the outliers kept, given that the significance did not improve and the coefficients slightly decreased when the outliers were removed (Appendix 3). Since employee satisfaction is reverse coded in comparison to the other variables, this variable will be recoded for the hypothesis testing.
Results
Correlation testThe correlation table below shows the means, standard deviations and correlations of ethical leadership, personal and impersonal reward power, employee satisfaction and the control variables used for this thesis (table 1). There is a significant correlation between ethical leadership and employee satisfaction. The correlation is 0.377, a moderate positive correlation. This correlation was significant at the 0.001 level. All the control variables except gender of the follower have a significant correlation with the dependent variable. Age, organizational tenure and dyadic tenure of the follower are moderate positive correlations, the rest are weak correlations, with gender of the leader being the only negative correlation. Impersonal and personal reward power have a weak positive correlation with each other that is significant. Table 1
Descriptive statistics and correlations
Assumptions for linear regression
The first hypothesis will be tested using linear regression. Assumptions for linear regression were tested (Field, 2018), assumption 1 and 4 were not met due to employee satisfaction having a one item scale. Assumption 1 is that the relationship between the independent variable and the dependent variable is linear, this assumption was not met. The second assumption is that the values of the residuals are independent, since this research used
a survey with a cross-sectional design, this is not a concern here, so this assumption is met (Appendix 3). The third assumption states the residuals should be normally distributed, this assumption is met (Appendix 3). Assumption 4 is that the residuals are equally variable, this assumption was also not met (Appendix 3). The fifth assumption is about the outliers, there were 5 outliers found and after testing the model with and without these outliers, the outliers were kept in for further the rest of the hypothesis testing, since the significance of the model did not improve when removing the outliers (Appendix 3). The last assumption is about multicollinearity, there was no multicollinearity because tolerance was above 0.20 for all predictors and VIF is below 5 for all predictors, so this assumption is met. Given that two assumptions were not met, the results from this study should be treated with caution.
Hypotheses testing
Hypothesis one, stating that there is a positive relationship between ethical leadership, was tested using linear regression.
In the first model the demographic variables from table 3 were added as control variables in the first block as independent variables and in the second block ethical leadership was the independent variable. Employee satisfaction was added as the dependent variable in both models. The output of SPSS shows that the R2 of model 1 is 0.251 and the R2 of model 2 is 0.347. This means model 1 explains 25.1% of the variance in employee satisfaction, the dependent variable, and model 2 explains 34.7% of the variance in employee satisfaction. Thus, model 2 improves the amount of variance explained by 9,6% (Appendix 5). Moreover, both models are significant, having a p-value of 0.001. Model 1 has a R2 change of 0.251, model 2 has a R2 change of 0.096 (Appendix 5). This means the independent variables in model 1 explain 25.1% of the variance and the independent variable in model explains 9.6 % of the variance. Ethical leadership, the independent variable in model 2, has an unstandardized beta of 0.323, a t-value of 3.515, a standard error of 0.092 and a significant p-value of 0.001. This outcome supports hypothesis 1, confirming there is a positive relationship between ethical leadership and employee satisfaction. However, these results are not completely reliable, giving the fact two assumptions of linear regression were not met.
The second hypothesis will be tested using model 1 of the PROCESS macro (Hayes, 2018). The results did not support this hypothesis, since they showed no significant interaction effect between the independent variable and the moderator. With the coefficient of the interaction effect being b = -0.0730, the standard error = 0.0621, p = 0.2427 and 95% Confidence Interval [-0.1965, 0.0504] (Appendix 5). Moreover, the R2 change (0.0108) of the
interaction effect X*W is therefore also not significant, with the p-value being 0.2427. Thus, these results do not support hypothesis 2, so they do not conform that impersonal reward power increases the positive relationship between ethical leadership and employee satisfaction. Table 2
Outcomes for interaction effect between ethical leadership and impersonal reward power on employee satisfaction
Coeff (B) Standard Error (SE) t-value p-value
Constant 3.0554 0.3994 7.6504 < 0.001 Age_F -0.0002 0.0071 -0.0261 >0.10 Gender_F 0.2348 0.1420 1.6530 >0.10 OrgTen_F 0.0011 0.0010 1.0797 >0.10 DyaTen_F 0.0038 0.0028 1.3502 >0.10 Age_L 0.0055 0.0062 0.8814 >0.10 Gender_L -0.3371 0.1418 -2.6588 <0.05 OrgTen_L -0.0001 0.0008 -0.0798 >0.10 DyaTen_L -0.0006 0.0025 -0.2548 >0.10 Ethical Leadership (X) 0.2966 0.0942 3.1477 <0.05
Reward Power Impersonal (W) -0.0284 0.0452 -0.6289 >0.10
X*W -0.0730 0.0621 -1.1768 >0.10
Notes. R-square = 0.3613, significant (p-value = 0.0001)
The last hypothesis will be tested using model 1 of the PROCESS macro (Hayes, 2018). The results from this output did not support this hypothesis either, again not having a significant interaction effect between the independent variable and the moderator. The coefficient of the interaction effect is b = 0.0114, the standard error = 0.0635, p = 0.8581 and 95% Confidence Interval [-0.1149, 0.1377] (Appendix 5). Moreover, the R2 change (0.0003) of the interaction effect X*W is therefore also not significant, with the p-value being 0.8581. In conclusion, these results do not support hypothesis 3, so they do not conform that personal reward power increases the positive relationship between ethical leadership and employee satisfaction, also not more than impersonal reward power. This is because the interaction effect of both personal and impersonal reward power with ethical leadership is not significant. So, it cannot be concluded that either improves the positive relationship of ethical leadership and employee satisfaction, neither that personal reward power does this more than impersonal.
Outcomes for interaction effect between ethical leadership and personal reward power on employee satisfaction
Coeff (B) Standard Error (SE) t-value p-value
Constant 2.9444 0.4004 7.3536 <0.001 Age_F -0.0008 0.0073 -0.1101 >0.10 Gender_F 0.2647 0.1414 1.8722 >0.05 OrgTen_F 0.0010 0.0010 1.0022 >0.10 DyaTen_F 0.0031 0.0029 1.0884 >0.10 Age_L 0.0072 0.0063 1.1382 >0.10 Gender_L 0.3617 0.1432 2.5253 <0.05 OrgTen_L -0.0002 0.0008 -0.2037 >0.10 DyaTen_L 0.0002 0.0025 0.0623 >0.10 Ethical Leadership (X) 0.3368 0.0984 3.4236 <0.05 Reward Power Personal (W) -0.0245 0.0474 -0.5170 >0.10 X*W 0.0114 0.0635 0.1793 >0.10
Discussion
FindingsThe goal of this study was to investigate the relationship between ethical leadership and employee satisfaction, moderated by personal reward power and impersonal reward power. Hypothesis 1, saying ethical leadership leads to higher employee satisfaction was supported by the results. So, the results say that is ethical leadership is high, there will also be high employee satisfaction. However, this hypothesis was tested using linear regression. The assumptions for linear regression were tested, assumptions 1 and 4 were not met. The reason these assumptions were not met was because of the fact that the variable employee satisfaction only has one item. Because 2 of the 6 assumptions were not met, the results from the hypothesis testing should be treated with caution. The second hypothesis, saying impersonal reward power increases the positive relationship between ethical leadership and employee satisfaction, was not supported by the results. The results were not significant and therefore did not support this hypothesis. The third hypothesis, stating personal reward power increases the positive relationship between ethical leadership and employee satisfaction more than impersonal reward power, was not supported by the results. The results were not significant and therefore did not support the hypothesis.
The support for hypothesis 1 correlates with the previous findings in literature that ethical leadership increases employee satisfaction (Rahimnia & Sharifirad, 2015; Findler, Wind & Barak, 2007; Grawitch, Gottschalk & Munz, 2006) (Kalshoven & Boon, 2012). One of the reasons ethical leadership increase employee satisfaction is because ethical leadership has been linked with employee well-being in previous research (Rahimnia & Sharifirad, 2015; Findler, Wind & Barak, 2007; Grawitch, Gottschalk & Munz, 2006). With employee satisfaction being one of the three dimensions of employee well-being. The literature on reward power shows that employee rewards are important to employees (Shoaib, Noor, Tirmizi & Bashir, 2009; Kwenin, Muathe & Nzulwa, 2013). And that employees are more susceptible to the personal types of power than to impersonal types of power because employees are more concerned about whether the agent will like or dislike them, thus making them more susceptible to the personal types of power than to impersonal types of power (Raven, Schwarzwald, & Koslowsky, 1998; Godfrey, Jones & Lord, 1986). (Raven, Schwarzwald, & Koslowsky, 1998; Godfrey, Jones & Lord, 1986). This does not correlate with the hypothesis testing, because the results did not support hypothesis 2 and 3 and thus do not align with the literature findings.
Limitations
There are numerous limitations of the research in this paper. First, all the three variables used in this research were rated by the follower and none were rated by the leader. This is not necessarily an issue for doing research, but it is an issue if the research was to be published and it does give a more one-sided research. For example, previous research on bases of power also has been mainly employee rated (Raven, Schwarzwald, & Koslowsky, 1998; Godfrey, Jones & Lord, 1986), and it would have been interesting to see how leaders judge their own rewards. For future research, having leader-rated variables as well would make a more complete research and it would allow for publishing.
Moreover, the sample for the research was small, only containing 96 dyads. This did not meet the requirements of a minimum of 100 dyads and therefore is a limitation for this research. The reason the sample only contained 96 dyads was because collecting the dyads posed a challenge, because not all people contacted to fill in the survey responded or had time to fill it in. Small research samples can lead to less statistical significance, which can partly explain why hypothesis 2 and 3 were insignificant (Field, 2018). If future research was done, the sample size should at least meet the minimum requirements of 100 dyads, and preferably more. However, the sample size should not be too large either, since this could cause weak correlations to be significant, which could give incorrect results (Field, 2018).
Lastly, as mentioned before, the assumptions for linear regression were not all met because of the one scale item of employee satisfaction. When any of the assumptions are not met, this could give an inaccurate test statistic and p-value which could mean the outcome of the hypothesis testing is not correct (Field, 2018). This could lead to drawing the wrong conclusions from the hypothesis testing. Even though the findings from the hypothesis testing correlated with the findings in the literature, they still should be treated with caution. For future research, variables should have a larger item scale than one, in order to prevent violating the assumption for linear regression.
Practical implications
Regardless the limitations of this study on the relationship between ethical leadership and employee satisfaction, moderated by impersonal reward power and personal reward power, it still has some potentiation practical implications for firms.
First of all, the study does, to some intend, show that ethical leadership has a positive relationship with employee satisfaction. Employee satisfaction is a key element for businesses to understand and keep up, since employee satisfaction is essential for any firm to
succeed (Gregory, 2011). This is because high employee satisfaction can be linked to more motivated employees who have good work morale and who work more effective and efficient (Eskilden & Dahlgaard, 2000; Matzler & Renzl, 2007). Moreover, there is a consistent and significant link between high employee satisfaction and lower turnover, which is also desirable for firms (Mobley, 1977). One possible explanation for the positive link between ethical leadership and employee satisfaction is trust, trust is seen as an important driver in employee satisfaction and this trust can be linked to the leadership style leaders apply (Matzler & Renzl, 2007; Dirks & Ferrin, 2002). Taking ethical leadership as an example, part of the definition of ethical leadership is that ethical leaders behave appropriate and responsible, which can be linked to higher levels of trust in employees (Mo & Shi, 2017). So, this research suggests that leaders should behave appropriate and responsible, and influence employees toward the firm’s goal in a socially responsible way (De Hoogh & Den Hartog, 2008). Furthermore, leaders should base their relationship with their employees on trust, since this increases employee satisfaction (Mo & Shi, 2017). By doing this, employee satisfaction should increase.
Moreover, even though the results were insignificant on the second and third hypothesis, this study still recommends to use both personal and impersonal reward power as a tool to increase employee satisfaction. This is because there are numerous literature findings that suggest a positive relationship between reward power and employee satisfaction. Rewards are important to employees since they can affirm the employee that they are valued in the organization that they work in (Shoaib, Noor, Tirmizi & Bashir, 2009; Kwenin, Muathe & Nzulwa, 2013). However, an important comment on this is that there is a distinction between the types of rewards. Impersonal rewards seem to have less of a positive influence than personal rewards. Personal rewards effectively motivate employees, can make employees feel appreciated and makes the employee see the organization as supporting and caring, which leads to high employee satisfaction (Abdullah & Wan, 2013). A possible explanation for personal rewards being more appreciated is that employees generally are more concerned about whether the leader will like or dislike them, thus making them more susceptible to the personal types of power than to impersonal types of power (Raven, Schwarzwald, & Koslowsky, 1998; Godfrey, Jones & Lord, 1986). Ethical leadership is a fitting leadership style with personal rewards, since ethical leaders are typically seen as more personal and caring than professional and make use of rewards and punishments to make sure ethical standards are followed (Brown & Trevino, 2006). So, leaders trying to enhance employee satisfaction should try to behave ethical and should focus on using personal rewards more so than impersonal reward. However, both types
of rewards can help employees feel valued in the company, so both types of rewards can enhance employee satisfaction.
Important to note is that leaders should be aware of how they use reward power. When validating employees with the use of rewards, it is important for any leader that they use this power in a fair and equal way. What is meant by this is that leaders should not over reward one employee and under reward another, since this could lead to employees seeing their leaders as unfair and unethical ((Mo & Shi, 2017). When an employee feels unappreciated, this could lead to workplace deviance, employee burnout and employee turnover, which are all undesirable for any business (Mo & Shi, 2017). So, leaders wanting to be seen as ethical should monitor themselves if they treat all employees equal and in a fair manner. Another important note is that there is something as leaders behaving too ethical, which could lead to for example workplace deviance. The reason this can happen is because when ethical standards of a leader are too extreme and the employee feels judged by the leader on their own ethical standards, the employee can see this as insulting and arrogant of their leader (Stouten et al., 2013). This is undesirable and therefore leaders should be aware of how they bring across their ethical standards.
Lastly, important to note is that leaders should be careful that when giving personal rewards, these rewards are still appropriate within the leader-employee relationship. If the rewards were too personal, this could be seen as overstepping the boundaries of the working relationship and this could one make the employee feel uncomfortable and two make the leader be seen as someone who is not professional and should not be in a leadership position (Mo & Shi, 2017).
Conclusion
The current literature showed there is a positive relationship between ethical leadership and employee satisfaction. However, whether the moderating role of impersonal and personal reward power on this relationship was positive and more importantly which type of power has more influence was not completely clear. Thus, research is lacking on the effect of impersonal and personal reward power on the relationship between ethical leadership and employee satisfaction. Therefore, the thesis examined the following research question: “Does ethical
leadership have a positive relationship with employee satisfaction and does this relationship increase when impersonal reward power and personal reward power are used by a leader?”
The results from the hypothesis testing showed that there was a positive relationship between ethical leadership and employee satisfaction, as expected by the literature findings. However,
the results did not support the second and third hypothesis. Thus, from the hypothesis testing it cannot be shown that impersonal reward power and personal reward power increase the relationship between ethical leadership and employee satisfaction. So, more research needs to be done on the effects on reward power, and what types of reward power have what kind of effects on employees and how it influences the business overall. Specifically, research on whether personal reward power has a stronger effect on employee satisfaction than impersonal reward power, and why this is the case. In conclusion, this research shows there is a positive relationship between ethical leadership and employee satisfaction and whether this relationship increases by the use of impersonal reward power and personal reward power cannot be concluded from the hypothesis testing.
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Appendix
Appendix 1 – item list of the variables used for this thesis Ethical leadership
Brown, M. E., Treviño, L. K., & Harrison, D. A. (2005). Ethical leadership: A social learning perspective for construct development and testing. Organizational Behavior and
Human Decision Processes, 97(2), 117–134.
https://doi.org/10.1016/j.obhdp.2005.03.002 1. Conducts h/h personal life in an ethical manner
2.Defines success not just by results but also the way that they are obtained 3.Listens to what employees have to say
4.Disciplines employees who violate ethical standards 5.Makes fair and balanced decisions
6.Can be trusted
7. Discusses business ethics or values with employees
8.Sets an example of how to do things the right way in terms of ethics 9. Has the best interests of employees in mind
10. When making decisions, asks “what is the right thing to do?” Employee satisfaction
Source: Trevor, C. O. (2001). Interactions among actual ease-of-movement determinants and job satisfaction in the prediction of voluntary turnover. Academy of management journal,
44(4), 621-638.
1. How do you feel about the job you have now? Do you like it very much, like it fairly well, dislike it somewhat, or dislike it very much?
Impersonal reward power
Raven, B. H., Schwarzwald, J., & Koslowsky, M. (1998). Conceptualizing and Measuring a Power/Interaction Model of Interpersonal Influence1. Journal of Applied Social Psychology,
28(4), 307–332. https://doi.org/10.1111/j.1559-1816.1998.tb01708.x
Reward Impersonal
1. A good evaluation from my supervisor could lead to an increase in pay. 2. My supervisor could help me receive special benefits.
3. My supervisor’s actions could help me get a promotion. Personal reward power
Raven, B. H., Schwarzwald, J., & Koslowsky, M. (1998). Conceptualizing and Measuring Power/Interaction Model of Interpersonal Influence1. Journal of Applied Social
Psychology, 28(4), 307–332. https://doi.org/10.1111/j.1559-1816.1998.tb01708.x
Personal Reward
28. I liked my supervisor and his/her approval was important to me. 29. My supervisor made me feel more valued when I did as requested. 30. It made me feel personally accepted when I did as my supervisor asked.
Appendix 2 – descriptive statistics followers and leaders (age, gender, organizational- and dyadic tenure)
Appendix 3 – assumptions for linear regression Assumption 1: linear relationship between IV and DV
Relationship between IV ethical leadership and DV job satisfaction Assumption 2: The values of the residuals are independent
Since this research used a survey with a cross-sectional design, this is not a concern for linear regression, the assumption is met.
Assumption 3 – Normally distributed residuals
This assumption is met à the residuals are normally distributed Assumption 4 – The residuals are constant (equally variable)
Assumption 5 – Outliers
There are 5 outliers that have a value bigger than 2 (>2)
And there are no outliers that are smaller dan -2 (<-2), so the total amount of outliers is 5. Model tested with outliers kept
Model tested with outliers removed
Assumption 6 – No multicollinearity
There is no multicollinearity, because tolerance is above 0.20 for all predictors and VIF is below 5 for all predictors, so assumption 6 is met.
Appendix 4 – reliability analysis variables Ethical Leadership, Personal Reward Power and Impersonal Reward Power
Personal reward power
Appendix 5 – hypothesis testing Hypothesis 1
