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What Is the Psychological Contract?

Introduction

Kotter (1973) defines the psychological contract as “an implicit contract between an individual and his organization which specifies what each expects to give and receive from each other in their relationship”. Schein (1980) described it as “a set of unwritten reciprocal expectations between an individual employee and the organization”. According to both these definitions and that of Herriot and Pemberton (1995) psychological contract involves exchange and an implied contract involving two parties. The concept of psychological contract has increased in popularity recently due to the growing concern that the world of work has been changing and people who have entered employment expecting the traditional career promises of a fair pay for fair work and employment security are likely to find that this promise has been broken. The traditional career promises are not able to be maintained because of the increasing pace of change in organizations.

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Articles relevant to the report

Due to recent changes in the management scenario due to globalization, restructuring and downsizing, psychological contracts are become more and more significant factors in the workplace. Sandra L. Robinson (1996) explains that organizations, which are forced to adapt to the changing circumstances have to alter employment relationships and also the psychological contracts that are intertwined with them. Thus changing circumstances in the management sector are the reasons behind the changing nature of psychological contracts. It may no longer be possible to balance the traditional contract of long-term job security and the hard work of the employees and hence there is increased probability of psychological contract breach (Robinson, 1996). Sandra L. Robinson’s article on “Trust and breach of the psychological contract” reports on the application of a theoretical model of the role of trust in the psychological contract breach experience. Robinson explores the various roles played by the past and current trust in the context of psychological contract breach. De Meuse et al (2001) test the extent to which perceptions of the relational component of the psychological contract have changed during the past 50 years. The study also discusses the role of generational differences or differences in employment status in shaping perceptions of the psychological contract. Lester et al (2001) examine the issue of psychological contracts from the employees’ perspective and has examined to what extent organizations fulfill the important aspects of the psychological contract. Niehoff and Paul (2001) have provided an explanation of how psychological contracts may be violated and how they can be developed and maintained. Paul R. Sparrow (1998) has found that a series of cross-cultural and psychological dimensions must be considered in the context of changes in the psychological contract. Kickull (2001) has investigated the role of the psychological contract and the types of promises made and communicated by small business organizations to attract and retain their employees. These are some of the relevant research studies in the context of psychological contracts.

Literature Review

Studies show that psychological contract has two components – transactional and relational. In a transactional exchange, organizations agree to provide specific remuneration for certain services provided by the employee. The relational component emphasizes a socio-emotive interaction between the employee and employer and relational elements revolve around trust, respect, and loyalty developing over time. Meuse et al (2001) conducted their study involving 204 individuals spanning three generations. Each participant was asked to complete a survey about the psychological contract. It was found that perceptions of the relational component of the psychological contract have changed over time – relations scores being different for different time periods. However there was no difference in perception among the three generations. The findings also revealed that part-time employees view the psychological contract differently than their full-time counterparts in the fact that full-time employees perceived a greater decrease in the relational component over time. Likewise, Paul R. Sparrow in his analysis warns that one must be careful while interpreting the employee response through the psychological contract and suggests that cross-cultural and cross-national differences must be taken into consideration. Managers must realize that national values such as individualism-collectivism and the factor of power distance influence the social cues that they use to interpret information in the contract with their employees (Sparrow 1998, p. 30).

Lester et al (2001), in their study involving 268 employees enrolled in a part-time MBA found that employees were most concerned about intrinsic outcomes in a company such as “open and honest communication, managerial support, and challenging and interesting work” (Lester et al. 2001, p. 10). The study also revealed that the psychological contract obligations that employees value most are also the ones that companies find most difficult to fulfill such as open and honest communication to their employees. The findings also reveal that when psychological contract obligations are left unfulfilled, it can lead to attrition or job dissatisfaction. Robinson (2001) has studied the role of trust in the case of violation of a psychological contract and makes three findings: a prior positive attitude and trust in one’s employer at the time of hire may reduce the likelihood that a contract breach will be noticed; a psychological contract breach will reduce the contribution of the employees to the firm; a sense of unmet expectations and a loss of trust will mediate the relationship between the contract breach and the contributions of the employees to the firm. Robinson also found that prior trust will moderate the relationship between the contract breach and subsequent trust. Those employees who had low prior trust are likely to be impacted more by a psychological contract breach than those who had high prior trust. Robinson arrived at these conclusions based on surveys involving 125 alumni of a Midwestern graduate business school held over several points in time.

Analysis and evaluation of literature

The inability of employees to keep up their promises to their employees due to increasing pace of change in organizations has led to increasing research in the area of psychological contracts. Literature regarding psychological contracting uses distinctions between transactional features and relational features of psychological contracts. The transactional elements include timing of holidays, the basis for overtime payment, criteria for achievement of performance targets etc. whereas relational elements include implication understandings about fair treatment, support for a promotion application, opportunities to get on key development programs and so on. (Schbracq et al 2003, 145). Rousseau (1995) was one of the earliest researchers of psychological contracts. McLean Parks et al (1998) have built on this research by identifying seven dimensions along which the psychological contracts of workers may be measured: stability, scope, tangibility, focus, time frame, particularism, multiple agency and volition. Due to the wide variety of workers and organizational contexts, there is a lot of variation in the content of the psychological contract; much of the research is focused on identifying the content or the important factors of the psychological contract. This has been carried out mainly using survey questionnaires as in the case of Robinson (1996), Lester et al. (2001) and Sparrow (1998). However, Herriot et al (1997) used the critical incident technique to identify the content of the contract and Rousseau and Anon (1991) used a policy capturing methodology to explore the exchange in psychological contracts. Much of this research has been theoretical as in the case of Sandra L. Robinson who used a theoretical model to study the role of trust in the organization. Lester et al (2001) have investigated psychological contracts from the viewpoint of the employees and found that though employees placed a high level of importance to all areas of the contract, eight of the ten items that received the highest employee importance ratings dealt with intrinsic outcomes. This finding suggested that employees are interested not only in monetary rewards that the employers provide but also in non-monetary factors such as communication, support and challenging work. This finding has greater meaning for recruiters, who need to go beyond a discussion of compensation and benefits and highlight aspects of their organization that job candidates will find intrinsically satisfying. This study also has implications for employers who need to understand that they must pay more attention to things such as “meaningful work, recognition, creative freedom, and opportunities for personal growth” (Lester et al, 2001, 10). Some of the studies on psychological contract have been conducted with only MBA students (Robinson, 1996; Lester et al, 2001) and the limitation of these studies is that these students may not truly represent the managers in real life due to different goals, needs and expectations. Another gap in the literature is that only a small number of studies have considered breach or violation of psychological contracts (Schabracq, 2003, p. 151).

Conclusions relating to the literature

Psychological contracting is a two sided unwritten unspoken agreement between the employer and the employee which is considered more of a promise. When the psychological contract is broken, it leads to inefficient work from the employees. To avoid such inefficiency, it is important to understand what the psychological contract is and how it is to be developed and maintained. The existing literature distinguishes between two components of the psychological contract-transactional and relational and these two components emphasize different types of exchange relationships between the employee and employer. Studies have shown that employees pay more importance to the relational aspects of the psychological contract and desire things other than money from their employers. Trust is a very important aspect of the psychological contract and those who have a high level of trust in their employers while joining work are found to be more resistant to mental disappointments through unmet expectations. Otherwise, employees whose expectations are unmet tend to underperform in the workplace. Time, work status, nationality and culture tend to play a role in the content of the psychological contract. These are some of the conclusions arrived at by the available literature on psychological contracts.

References

  1. De Meuse, PK; Bergmann, TJ; Lester, WS 2001, An Investigation of the Relational Component of the Psychological Contract across Time, Generation and Employment Status, Journal of Managerial Issues, Volume: 13, Issue: 1, 2001, p. 102.
  2. Herriot, P and Pemberton, C. 1995, New Deals: The Revolutin in Managerial Careers, John Wiley and Sons, Chichester
  3. Kotter, JP 1973, The psychological Contract: managing the Joining up Process, California Management Review, 15, 91-9.
  4. Lester, WS; Claire, E and Kickul, J 2001, Psychological Contracts in the 21st Century: What Employees Value Most and How Well Organizations Are Responding to These Expectations, Human Resource Planning, Volume: 24, Issue: 1, 2001, p.10
  5. Niehoff, PB and Paul, JR 2001, The Just Workplace: Developing and Maintaining Effective Psychological Contracts, Review of Business, Volume: 22, Issue: 1, 2001, p. 5.
  6. Parks, MJ; Kidder, D and Gallagher, D. 1998, Fitting square pegs into round holes: mapping the domain of contingent work arrangements onto psychological contracts, Journal of Organizational Behavior, 19, 697-730
  7. Robinson, LS 1996, Trust and Breach of the Psychological Contract, Administrative Science Quarterly, Volume: 41, Issue: 4, 1996, p. 574+.
  8. Rousseau, DM 1995, Psychological Contracts in Organizations, Sage Publications, Thousand Oaks: California
  9. Rousseau, DM and Anton, RJ 1991, Fairness and implied contract obligations in job terminations: the role of contributions, promises and performance, Journal of Organizational Behavior, 12, 287-99
  10. Schabracq, JM; Winnubst, AMJ and Cooper, CL 2003, The Handbook of Work and Health Psychology, John Wiley & Sons, Chichester, England. 2003.
  11. Schein, EH 1980, Organizational Psychology, Englewood Cliffs, Prentice Hall, NJ
  12. Sparrow, RP 1998, Reappraising Psychological Contracting: Lessons for the Field of Human-Resource Development from Cross-Cultural and Occupational Psychology Research, International Studies of Management & Organization, Volume: 28, Issue: 1, 1998, p. 30+.

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