The Psychological Contract - Essay Example

The Psychological Contract When a person is accepted for employment at a job, he enters into a set of overtly codified relationships, defined within legally binding documents that spell out the terms of employment, the compensation agreed upon, and organizational policies. These are in the form of tangible contracts; however, there also exists between all employers and employees an intangible understanding, embodying a set of mutual expectations each holds of the other. Known as the psychological contract, these expectations are underpinned by a shared sense of trust and mutuality, and would, if broken, tend to cause irreparable harm to the employer-employee relationship. If the infraction were serious enough, or occurred in times of “extreme change and turbulence (such as the current economic crisis),” it may cause a “significant risk to business continuity and operational resilience.” (McCoy & Elwood, 2009, p. 368) The psychological contract is defined by academic study as the “unwritten set of expectations operating at all times between every member of an organisation and the various managers and others in that organisation.” (Makin, 1996 in McCoy et al., 2009, p. 369) While the “psychological contract” may be a theoretical concept, its workings are evident in the real human resources environment. For instance, the causal relationship of the psychological contract with achievement motivation and work attitudes was the subject of study of Lee and Liu (2009). While the study focused on banks as a common context, results appear to indicate applicability to all industries. The researchers found that: 1. Achievement motivation significantly influences psychological contract; 2. Psychological contract significantly influences work attitude; 3. Achievement motivation significantly influences work attitude; 4. Achievement motivation significantly influences work attitude through psychological contracts. These series of causality relationships are important in order to understand alternatives open to management in effecting better performance from employees. It is possible for achievement motivation to fail to effect the desired work attitude among subordinates if there is an inconsistency or misunderstanding in the psychological contract. Employers and employees must have the aligned expectations of each other so that the former could provide the proper motivation and the latter the correct work attitude. Other than achievement motivation, there also have been inquiries into the links between the psychological contract and the perception of economic benefits implicit in the employer-employee relationship. Liang & Wang (2009) examined the integration of the economic contract with the psychological contract, since by nature they are both emotional bands between the enterprise and employees. Elements of the economic contract included compensation and differential incentive, among other things; without the economic contract, the psychological contract will lack innovation encouragement, for which reason the study described the two contracts as the two “legs” on which human resources management stand. The study concluded that their isolation from each other leads to the imbalances in the contract systems, and creates disharmony between employer and enterprise. Their integration, on the other hand, has the positive effect of promoting harmonious management of the modern enterprise. The table that follows provides a cursory comparison between the economic contract and psychological contract. Other than achievement motivation and economic incentives, issues bearing on cultural values of individualism and collectivism also have a bearing on the formation of the psychological contract in order to secure employee commitment (Street, 2009). The study determined that the importance conveyed by culture on individualism and collectivism provide antecedents to the type of psychological contract formed (whether transactional or relational), and the subsequent component of commitment realized (whether affective, continuance or normative). The relationships the study established were as follows: The study centered on Japanese and US firms as subjects operating in contexts of cultural collectivism and cultural individualism, respectively. The implications of said model for practice are set in the context of global competition in which most large firms presently operate. As global competition increases, firm-level strategic initiatives and organizational issues will exert greater influence in the determination of psychological contracts rather than societal institutions or cultural beliefs and values. While technology, management methods and business policy are predominant, a key aspect of manpower, organizational commitment, may also be a major factor in shaping the psychological contract. Understanding the antecedents and other factors that influence the construction of the psychological contract, the question most human resources managers face is what the consequences are of a possible breach in the contract. This formed the crux of the study by McCoy and Elwood, the conceptual model of which is reproduced on the page following. McCoy and Elwood explored the role of the psychological contract for resilience, and it attitudinal and behavioural consequences. It found that in the case of a perceived or real breach in the psychological contract, a context of crisis emerges, characterized by a breakdown in trust, feelings of betrayal by the company, and “ambivalent emotions of anger, frustration and vulnerability”. It acts similarly as Hertzberg’s hygiene factors, wherein a robust contract, while not capable of ensuring top performance, could result in lower levels of performance when violated. The result would be low levels of commitment, high levels of absenteeism and attrition, and poor performance. Potential implications for the future The studies by Street (2009) and McCoy and Elwood (2009) explicitly describe the future trends in the formation of the psychological contract. Globalisation, restructuring and downsizing, and heightened competition points to an inevitable distancing of psychological contracts from the traditional paradigm of long-term security for hard work, to a paradigm of continuous renegotiation and alteration of the terms of the contract in response to changing circumstances. There will be a gradual shift from the relational to the transactional model. In such a context, it is incumbent upon the organizational leaders to create a contextual sense of the new environment and communicate this understanding to their employees. Such leaders should convey an impression of unquestionable integrity and personal resilience, and competence in the anticipation, interpretation and articulation of the constantly changing milieu. Core values, beliefs and behaviours must be congruent, because misalignment will result in diminished credibility and, subsequently, a breakdown in the psychological contract. [Word count = 1,000 excluding title] References Berkley, R & Watson, G 2009 The Employer–Employee Relationship as a Building Block for Ethics and Corporate Social Responsibility. Employee Responsibilities & Rights Journal, Dec2009, Vol. 21 Issue 4, p275-277 Cortini, M 2009 New Horizons in CSP and Employee/Employer Relationship: Challenges and Risks of Corporate Weblogs. Employee Responsibilities & Rights Journal, Dec2009, Vol. 21 Issue 4, p291-303 Gupta, P R S & Choudhury, P 2009 Employee Information Needs and Corporate Responses. IUP Journal of Management Research, Sep2009, Vol. 8 Issue 9, p18-47 Havard, C; Rorive, B; & Sobczak, A 2009 Client, Employer and Employee: Mapping a Complex Triangulation. European Journal of Industrial Relations, Sep2009, Vol. 15 Issue 3, p257-276 Lee, H-W & Liu, C-H 2009 The Relationship Among Achievement Motivation, Psychological Contract and Work Attitudes. Social Behavior and Personality, vol. 37 issue 3, pp. 321-328 Liang F & Wang W 2009 Integration of the economic contract and psychological contract. China-USA Business Review, June, vol. 8, no. 6, pp. 56-59 Mamantov, C 2009 The engine behind employee communication SUCCESS. Communication World, Sep/Oct2009, Vol. 26 Issue 5, p33-35 Markel, K; Barclay, L 2009 Addressing the Underemployment of Persons with Disabilities: Recommendations for Expanding Organizational Social Responsibility. Employee Responsibilities & Rights Journal, Dec2009, Vol. 21 Issue 4, p305-318 McCoy, J & Elwood, A 2009 Human factors in organisational resilience: Implications of breaking the psychological contract. Journal of Business Continuity & Emergency Planning, Aug2009, Vol. 3 Issue 4, p368-375 Street J 2009 The Implications of the Cultural Values of Individualism and Collectivism in the Formation of the Psychological Contract and Employee Commitment. Journal of Behavioral and Applied Management, pp. 433-448 Read More