Psychological Contracts

INTRODUCTION

The psychological contract offers a structure for observing employee attitudes and priorities on those scopes that can be shown to effect performance (Chartered Institute of Personnel and Development (CIPD), 2010). Generally measured from an employee perspective though Guest (1998) points out that it is largely in the `eye of the beholder'. Employers have to know what employees expect from their work and vice-versa and it is where mutuality of either of the parties comes into existence.

The early methods of Argyris (1960), Levinson (1962) and Schein (1965;1978) towards extracting the psychological contract as a form of social exchange rested upon the need to understand the role of particular and indeterminate interactions between two parties: employer and employee. To this end, the expectations of both parties and the level of support and reciprocity needed to be considered jointly in order to explain the sources of agreement and disparity (Cullinane & Dundon,2006).

NATURE OF PSYCHOLOGICAL CONTRACT

Psychological contracts are an individual’s beliefs regarding reciprocal obligations. Beliefs become contractual when the individual believes that he or she owes the employer certain contributions (e.g. hard work, loyalty, sacrifices) in return for certain inducements (e.g. high pay, job security) (Rousseau, 1990).

Rousseau (1995) therefore debates that the nature of psychological contract is subjective to perception which differs between individuals. Second, the psychological contract is dynamic, which means it changes over time during the relationship between the employer and employee. Third, the contract concerns mutual obligations, based on given promises, in which both parties invest in their relationship with the expectation of a positive outcome for them. (Anderson & Schalk, 1998).

Despite the fact that the psychological contract is unique and idiosyncratic in nature, there are in general two kinds of psychological contract: transactional and relational contracts. These contracts have been argued to differ on four important dimensions with respect to the focus of the contract; tangibility, scope, stability and time frame (Rousseau and McLean-Parks, 1993; McNeil, 1985; Anderson & Schalk, 1998) to which two more dimensions were then added in the works of Sels, Janssens & Brande (2004) exchange symmetry and contract level.

IMPORTANCE OF PSYCHOLOGICAL CONTRACT

Looking into the necessity of psychological contract in organizations and institutions, it motivates workers to fulfill commitments made to employers when workers are confident that employers will give in return and fulfill their end of the bargain. Employers in turn have their own psychological contracts with workers, depending upon their individual competence, trustworthiness and importance to the firm’s mission (Rousseau, 2004).

In general employees claimed that they felt less secure in their jobs compared to a few

years ago. The reasons they gave were primarily associated with the declining levels of

demand and the consequent reduction in production levels (Martin; Staines; & Plate, 1998). It is important in determining the continuation of the psychological contract is the extent to which the beliefs, values, expectations and aspirations are perceived to be met or violated and the extent of trust that exists within the relationship (Middlemiss, 2011).

DEFINITION

`The perceptions of both parties to the employment relationship, organization and individual, of the obligations implied in the relationship. Psychological contracting is the process whereby these perceptions are arrived at' (Herriot and Pemberton, 1995). Despite the interest and wealth of literatures pertaining to the psychological contract, there remains no one or accepted universal definition (Anderson and Schalk, 1998).

Team members can provide inputs and carry out job responsibilities with very high commitment and Loyalty to the organization and in return will expect additional rewards appreciations and promotions. But from the organization point of view it could be serving the job responsibilities based on the Job Description provided to the employee. Hence will not provide anything else except the salary. This might lead employees to be demotivated and leave the company within a short period. For example, in my first employment where I worked for 5 years, it was promised, if the role was managed well certain other opportunities will be given. Based on this psychological contract I personally gave my fullest commitment to grow the category I was assigned to, as the best among all competitors. But the psychological contract was broken, when the company did not keep their end of the bargain and I had no choice but to hand in my resignation. Today single handedly I handle the largest high grown Tea catalogue in the country, where my new employer kept their end of the bargain and I held towards mine, which has benefitted both parties for the last 13 years.

Rousseau’s development in the field of psychological contract plays a defined role, the latest development made in 1995, in her book, defines psychological contract as, “individual’s beliefs, shaped by the organization, regarding terms of an exchange agreement between the individual and their organization”. Beliefs here are the promises, obligations and expectations of the parties to the contract (Conway, 2005).

Table 1.0: Understanding Psychological Contracts at Work

Belief	Definition	Examples
Promise	1.‘a commitment to do (or not to do) something’ (Rousseau and Parks, 1993) 2. ‘an assurance that one will or will not undertake a certain action, or behaviour’ (Concise Oxford Dictionary 1996)	“I will get the reward because that was the deal”
Obligation	1. ‘a feeling of inner compulsion from whatever source, to act in a certain way towards another, or towards the community; in a narrower sense a feeling arising from beliefs received, prompting to service in return; less definite than duty, and not involving, the ability to act in accordance with it’. (Drever, Dictionary of psychology, 1958) 2. ‘the constraining power of a law, percept, duty, contract, etc.’(Concise Oxford Dictionary,1996)	“I should get the reward because I worked hard”
Expectation	1. ‘expectations take many forms from beliefs in the probability of future events to normative beliefs’. (Rousseau and Parks, 1993) 2. ‘the attitude of waiting attentively for something usually to a certain extent, defined, however vaguely’(Drever, Dictionary of psychology,1958) 3. ‘the act or instance of expecting of looking forward; the probability of an event’(Concise Oxford Dictionary,1996).	“I am likely to get the reward as that’s happened occasionally in the past”

(Source: Conway & Briner, 2005)

TYPES OF PSYCHOLOGICAL CONTRACT

Transactional

Transactional contract are short term contracts that last only until the agreed period of contract. It is the place where they seek immediate rewards out of the employment situation, such as pay and credentials (Millward & Hopkins, 1998). Miles and Snow (1980) cited in their study that transactional contracts involve specific monetizable exchanges (e.g. pay for attendance) between parties over a specific time period as in the case of temporary employment or recruitment by ‘buy’-oriented firms (Rousseau, 1990).

Relational/Traditional

Relational contract establishes and maintains a relationship involving both monetizable and non- monetizable exchanges (e.g. hard work, loyalty and security) (Rousseau, 1990). According to the works of Blau (1964), mentioned in Millward & Hopkins, (1998) a transactional obligation is linked with economic exchange, while relational obligations are linked with social exchange. Unlike economic exchange, social exchange “involves unspecified obligations, the fulfillment of which depends on trust because it cannot be enforced in the absence of a binding contract. Rousseau (1990); Rousseau and McLean Parks (1993) in their works have argued that transactional and relational contracts are best regarded as the extreme opposite of a single continuum underlying contractual arrangements. In other words, the more relational the contract becomes the less transactional and vice versa (Conway & Briner, 2005).

It is broader, more amorphous, open ended and subjectively understood by the parties to the exchange. They are concerned with the exchange of personal, socioemotional, and value based, as well as economic resources (Conway & Briner, 2005) and they exist over a period of time.

The traditional psychological contract is generally described as an offer of commitment by the employee in return for the employer providing job security ‐ or in some cases the legendary 'job for life'(Cullinane & Dundon, 2006).

Rousseau (1995) has made the distinction between transactional and relational types of

contracts as below-

Table 2.0: A Continuum of Contract Terms

Transactional		Relational
Economic	--------Focus---------	Economic, Emotional
Partial	-------Inclusion-------	Whole person
Closed ended specific	-------Time frame----	Open ended, indefinite
Written	---Formalization----	Written, Unwritten
Static	-------Stability-------	Dynamic
Narrow	---------Scope---------	Pervasive
Public, Observable	-----Tangibility------	Subjective, understood

(Source: Rousseau, 1995)

Transitional Contract

Transitional contract, as the name suggests, is a passing phase of relationship between the two parties reflecting the absence of commitments regarding future employment (Aggarwal, & Bhargava, 2009). They are not a psychological contract form itself, but a cognitive statement, reflecting the consequences of organizational change and transitions that are at odds with a previously established employment arrangement (Rousseau, 2000).

Balanced Contract

Balanced contracts combine commitments on the part of the employer to develop workers (both in the firm or elsewhere if need be), while anticipating that workers will be flexible and willing to adjust if economic conditions change and such contracts anticipate renegotiation over time as economic conditions and worker needs change. Balanced contracts entail shared risk between worker and employer. (Rousseau, 2004).

EMPLOYMENT CONTRACT AND PSYCHOLOGICAL CONTRACT

Levinson (1966), in his work as cited in Spriggs, 1996 mentions expectations in legal

contracts are specified, explicit and defined, while expectations associated with the

psychological contract is unspoken, implicit and imprecise. Even when a legal contract

exists, it is a written obligation that can never be complete and must be supplemented by unwritten promises.

BREACH AND VIOLATION OF PSYCHOLOGICAL CONTRACT

Breach is a non-fulfillment of the promise, that is when one or both parties fail to meet the obligations of the other. Reactions to a broken contract can be severe and ultimately cause detrimental workplace outcomes. Breaches can lead to violation, the emotional response. These often encompass negative emotional states like anger, disappointment or betrayal and can lead to worsened job performance, withdrawal and leaving the organization (“The Psychological Contract,” n.d., “Breach and Violation,”para. 1).

Perceptions of breach arise from a complex and sometimes imperfect sense making process when perceived breach refers to the cognition that one’s organization has failed to meet one or more obligations within one’s psychological contract in a manner commensurate with one’s contribution (Robinson, 1996; Atkinson, 2006; Morrison & Robinson, 1997).

ANTECEDENTS OF BREACH

Conway (2005) has brought out the following reasons that cause breach; Firstly, inadequate provision of human resource management practices where employees are more likely to report psychological contract fulfillment if they notice that their organization adopts human resource management practices; Secondly, the cause of breach when employees feel unsupported by either their organization or their supervisors; The third type of cause of employee breach is events happening outside the organization or before the employee became a member of the organization.

Robinson and Morrison, (2000) has found that employees are more likely to perceive breach by their current employer where, first, they have experienced breach by former employers and, second, where employees perceive themselves to have many employment alternatives and finally, a breach can be caused when employees compare their deals unfavorably with other employees and perceive inequity (Conway & Briner, 2005).

CONSEQUENCES OF BREACH

If an employee believes that the employer has breached agreed terms under the contract, his reaction depending on the perceived seriousness of the breach will range from acceptance, mild complaint, withdrawal of effort or goodwill and the last resort, handing in his notice. Where employees hold strong beliefs in their entitlements under the psychological contract and they discover that what had been promised to them by their employer will not be forthcoming they can feel cheated or violated or that they have wasted their time working for them (Middlemiss, 2011).

VIOLATION OF CONTRACT

Psychological contract violation according to Dean et al., (1998) & Pate et al., (2000) as cited by Pate; Martin & McGoldrick, (2003) may lead individuals to become more cynical. Employee cynicism has been defined as a negative attitude and involves a belief that their organization lacks integrity, negative emotions towards the organization and a tendency for employees towards critical behaviour of their organization. The targets of such cynicism are usually senior executives, the organization in general and corporate policies.

CONCLUSION

Psychological contract forms the actions of the parties and also aids the organization to effectively manage their employee sand turns out to be beneficial for both the employers and the employees. For a psychological contract to be contented, and determining energetic and effective employees, the message of expectations between either of the parties plays a significant role.

Employer and employee will have to create good intentions, confidence and feelings of

attachment in the minds of each other which will in return strengthen their bond and also

guidance on how they intend to perform and counter their support towards each other.

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