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Theano Mamai
How useful is the concept of the psychological contract to today’s HR practitioners?
Abstract
The concept of the psychological contract has attracted much attention and concern in recent decades. Many researchers have argued about its existence and effects that can create within an organization. This paper examines the concept of the psychological contract by presenting both sides of the argument, including, the limitations and benefits of the psychological contract as identified by many researchers. The main objective of the paper is to provide evidence of the usefulness of the psychological contract to contemporary human resources (HR) practitioners. Current economic conditions play an important role in how HR specialists should treat the different needs of individuals and try to find and implement new strategies and techniques in order to achieve better results for both the employee and the organization.
Introduction
Changing economic conditions, global competition and technology have altered
the way both organizations and employees function. There are different arguments
concerning the value of the psychological contract to practitioners nowadays and this
work considers both positive and negative interpretations. However, nowadays,
changing expectation of both employees and employers have led to differences between
the ‘old’ and ‘new’ psychological contract.
According to Knights & Kennedy (2005 p.57) “the origins of the psychological
contract date back to the writings of Argyris (1960) and Schein (1980)”.
Argyris (1960) used the concept in order to explain an agreement between a group of
employees and their supervisor. Schein (2009) perceives the psychological contract as a
valuable construct for understanding the terms and conditions between employees and
their organization, and how that relationship can vary across organizations and time.
The psychological contract is an unwritten contract between an employer and an
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employee and each party has expectations that need to be fulfilled in order to achieve
the desired outcome. Although as a concept it has emerged from theories such as the
social exchange theory (Blau 1964) and the equity theory (Adams 1964), “the
psychological contract is somewhat awkwardly within conventional psychological
analysis. It is not a theory; nor is it a measure” Guest (1998 p. 650).
Psychological contracts are exclusive to each individual and as Guzzo and
Noonan (1994) state, they are therefore highly dependent on the individual’s personality
and perceptions. Concern has been raised in previous decades regarding the
psychological contract, Rousseau (1989) explored its content thoroughly and suggested
that the psychological contract is “an individual's belief regarding the terms and
conditions of a reciprocal exchange agreement between the focal person and another
party. A psychological contract emerges when one party believes that a promise of
future returns has been made, a contribution has been given and thus, an obligation has
been created to provide future benefits” (p.123).
In addition to the theoretical background and the existing literature on
psychological contract, in this essay I examine the substance of the psychological
contract and question its value to HR practitioners nowadays.
Arguments For The Psychological Contract
As Cullinane and Dundon (2006, p.113) mention, even though the psychological
contract has not emerged from the field of Human Resource Management (HRM) it is a
vital component to understanding it. As it is previously discussed, the psychological
contract is an unwritten contract between an employer and an employee and each party
has different obligations and criteria in order to meet mutual expectations and is highly
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dependent on trust and perceived fairness. The psychological contract is formed by the
time an individual is hired; the individual then forms specific impressions about the
nature of the work and it outcomes. Similarly, the employer expects a certain
performance from the employee in order to fulfill his/her expectations. At the heart of
these ‘negotiations’ are managers, and especially HR professionals. As Rousseau (1990)
mentions, the perceptions of those newly employed differ depending on the type of
employment, meaning the intentions of the individual to stay, long-term or short-term in
the organization and suggests the psychological contract is “a construct relevant to
employment”(p.398).
Over the years several searchers have treated the psychological contract at great
length and have concluded that it can generate to specific results. For example, Shore
and Tetrick (1994) suggest that the psychological contract can decrease employees’
uncertainty by creating a mutual agreement in the workplace; it can ‘shape’ employees’
behaviors without intense supervision and it can also provide the employee with the
feeling that they can influence the organization and achieve recognition by fulfilling all
the necessary obligations.
Moreover, it is argued (e.g. Sturges et al. 2005, McDonald and Makin 2000) that
the psychological contract can have a serious impact on employment relationships,
organizational commitment, job satisfaction and organizational performance.
According to (Knights & Kennedy, 2005 p.58), job satisfaction is the individual’s
expectations concerning payment, job appraisal, training, security, career development
and understanding from the organization. Similarly the employer has several
expectations of the employee, for example being effective in the workplace, being ready
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to work extra hours if necessary, being committed to the firm, working for at least two
years in the organization and treat the company’s information confidentially. These are
some general expectations that both sides may have and they are dependent on trust and
perceived fairness.
As it is written in the report ‘the psychological contract’ by CIPD (2010) Guest
suggests that there are several points about the psychological contract that should be
emphasized nowadays. First, the level of people management practices that a company
implements has a strong influence on the psychological contract. These practices are
highly dependent on HR practitioners and the human resource strategies and techniques
that a company implements. In addition, employees’ perception of fairness and trust can
lead to valuable outcomes for both parties. Compliance with the psychological contract
can result in job satisfaction and benefits for both employees and the organization. It is
suggested (CIPD 2005) that managing the psychological contract is an ongoing process
for human resources managers nowadays in order to make the mission and vision of the
company clear and maximize employees’ performance.
As Guest (2004, p.545) states, “the notion of psychological contracts (e.g. Shore
& Tetrick, 1994; Rousseau, 1995) has proved useful for understanding employment
relations, since many of their important aspects are based on perceptions: most
employment relations are implicit or at least not written, and thus parties may have
different understandings about them”. The effectiveness of the psychological contract
can be found in the results of the study by Guest and Conway (2002). They concluded
that the presence of the psychological contract in organizations is beneficial in relation
to employment relationships. More specifically, they imply that the psychological
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contract is valuable in order for senior managers meet employees’ needs and for
employees to fulfill their responsibilities, which enhance job satisfaction and employee
commitment. When the organization fails to fulfill promises and obligations towards an
employee, a breach of the psychological contract occurs and violation of the contract is
the employee’s response to the breach. Both parties can experience a psychological
contract violation or breach at some point (Robinson and Rousseau, 1994). Violation
may lead to a lowering of the individual’s performance and a lack of commitment
toward the organization. As mentioned before psychological contracts are explicit to
each individual, so (Chen et al. 2008) it is very unusual that all employees would have
similar reactions to contract breach as well as not all supervisors would react in the
same way to the violation.
Aichinger and Barnes (2010, p.190) suggest that since the mid 1990s the literature
on the psychological contract has evolved significantly. Some of the reasons that have
contributed to this change are economic conditions, intense competition, evolution of
technology and long working hours. The psychological contract can play a significant
role in the maintenance of good employee relations and organizational performance.
Nowadays, job descriptions may include long working hours and through the use of
technology constant work even outside the office. However, HR practitioners should
ensure that employees maintain a balance between work and life, otherwise a breach of
the individual’s psychological contract can occur and this can have a negative impact on
the employee’s performance and to the company as a whole.
As CIPD (2005) mentions, in ‘Managing change: the role of the psychological
contract’, the psychological contract can play an important role in organizational
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relationships given the today’s need for change and is viewed as an accepted term
among contemporary HR practitioners. As it is suggested, psychological contract can
facilitate HR managers to implement beneficial practices and policies concerning
people’s management during this period of change and monitor effectively the
implementation and results of those practices.
Arguments Against The Psychological Contract
On the other hand, it has been highlighted that the psychological contract refers
to the subjective interpretation and perception of the individual; it is not an objective,
universal approach that managers can take into consideration in order to achieve the
desired outcomes, such as strong organizational performance and employee
commitment. This is considered to be one of the major limitations concerning the
psychological contract and its usefulness to an organization.
Moreover, throughout the extensive literature on the psychological contract,
greater emphasis is given to employees’ perspective. Most articles refer to the
individual’s subjective expectations of the organization and the results if these are not
met. This statement can be associated with the opinion of Guest (2004) who suggests
that a potential challenge of the psychological contract is that there is not a lot of
research on the perspective of the employer and how the organization reacts to the
violation of expectations by the employee. Rousseau (1990) distinguishes between the
expectations and obligations of both parties and argues that not all expectations are
considered to be obligations. An employee’s expectations concern the general nature of
working conditions, while obligations that are not fulfilled can have an emotional effect
on the employee.
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At this point it is crucial to introduce the two different types of psychological
contracts. Anderson and Schalk, (1998, p.641) identify these as transactional and
relational contracts, which are influenced by five dimensions. The first is focus, which,
refers to the scope of the employee. Is his motivation based solely on money or are
emotional and social needs included? It is very important for a HR manager to
understand the different needs of individuals. The second dimension is time, which
refers to the agreed length of the contract between the individual and the organization.
Third is stability. Transactional contracts are stable and inflexible while relational
contracts are more adaptable and dynamic in relational contracts. Forth, scope indicates
the level of influence of the work on the individual. Fifth, is tangibility, which varies
between relational and transactional contracts. Employees’ responsibilities are more
abstract in relational contracts, whereas in transactional contracts the expectations of
employees are clear and specific.
Psychological contracts can therefore differ depending on the nature of the
organization and the type of contracts and this is why it is very difficult for HR
practitioner to place great emphasis on psychological contracts. Age and work
experience play an important role in shaping employees beliefs and opinions and alter
the way individuals comprehend mutual obligations within the organization. Thomas
and Feldman (2009) suggest that there is a definite gap and thus further research is
required on psychological contracts, specifically the different interpretations and
perceptions at different stages of an employee’s life and work experience in order for
HR managers be able to understand them. Contemporary global social and economic
changes imply a shift in traditional organizational management and thus there is
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adjustment in the way people form psychological contracts. There are significant
differences between the old and new psychological contracts. In the former, the
organizational relationships were much simpler; the employee wanted job security and
the job was considered for “life”. Nowadays, managers have to deal with several other
issues, including employee training and development, perceived fairness by the
individual, work-life balance. Furthermore change is an ongoing process and thus the
psychological contract may fail to be indentified by HR practitioners.
It is said (e.g. Dulac et al., 2008 and Conway and Briner 2002) that at some
point, all psychological contracts will be violated by both parties. If the consequences of
breach or violation have a great impact on employee commitment and organizational
performance, the hypothesis of the psychological contract implies that there will be a
decline in the performance of all organizations at some point. As Robinson and
Rousseau (1994) present in their article ‘Violating the psychological contract: not the
exception but the norm’, some aspects of the psychological contract need more in depth
investigation. For instance, they suggest that “employee behavior goes beyond the
contract, in terms of ‘extra-role’ behavior and organizational citizenship behavior (e.g.
Organ, 1998,1990)” and that in addition to breach by the employer there should be a
focus on the employee’s violation of the contract.
Arnold (1996, p.518) concludes that although the in-depth focus on the
psychological contracts in recent years has led to key findings, the ‘concept’ seems to
have some gaps. There is a collective acceptance that the psychological contract derives
from explicit subjective individual perception of the organization, and this is why there
cannot be general guidance about how human resource manager should deal with the
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contracts of different employees. Moreover, he argues that it is not totally clear whether
the concerned parties are even conscious of the existence of these contracts and that that
is why he recommends further research.
Discussion
Throughout this essay I have provided evidence for and against the clarity and
usefulness of the psychological contract. Although there is extensive background on the
subject and researchers offer definitions and highlight the impact of the psychological
contract on individuals and organizations, they suggest that further research needs to be
conducted because some points are vague. The main issue of the psychological contract
is that it is based on individuals’ perceptions and each employee can have different
needs and perceptions. For this reason the psychological contract cannot be generalized
and have collective acceptance. On the other hand, research on managing the
psychological contract has proved to be useful for human resources practitioners in
understanding how it can be used to enable employees to achieve job satisfaction that
can have a positive impact on organizations’ performance and growth. There are some
empirical challenges concerning the subjectivity of these contracts, meaning that they
depend on the personality of the individual and different interpretations can be made
upon justice or fairness can appear to different employees that a human resource
professional may fail to identify.
Although further research is needed in order to clarify the content of the
psychological contract and how HR specialists should manage it, it is nevertheless
already a vital tool for the effectiveness of a company. That is why nowadays while the
whole world is in recession and organizations and people are facing the impacts of
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global crisis, it is important for human resources managers to ensure that bottom-up
communication exists within organizations. In addition to, taking into consideration
what employees want, they should also take into account the changing needs of the
organization. Thus, they should have a dual perspective that psychological contracts
may lack. With cuts in wages and the uncertainty that has overcome employees it is
useful to take into consideration the needs of people in order not to breach
psychological contracts and face the negative results of violation. HR professionals
should engage people in the changing process and not leave them uninvolved. As Sims
(1994 p.380) states, the “psychological contract requires an emphasis on talking with
people, not at people”. Moreover he suggests that HR professionals should implement
pioneering strategies that enhance employees’ motivation and take account of the
distinctive needs of each individual in order to achieve a desirable outcome for both
parties. This should include career-planning programs, as well as workshops, and
communicate messages throughout the organization in order to be sure that all
employees have a clear understanding of the changes and current conditions that an
organization is facing. (CIPD 2005) Managing change is very challenging for
contemporary organizations and the psychological contract can play a significant role.
Notwithstanding some limitations that need to be clarified, I believe that the
psychological contract is useful for today’s HR professionals and is an essential tool for
successfully managing the changing needs of organizations arising from current
economic conditions.
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