Psychological Contract for Employee Relations

This paper builds on the argument of whether psychological contract helps or hinders our understanding in employee relations. One side of this argument stands in the point that some employees are finding it difficult to adjust to the new psychological contract, resulting in stress and hence becoming a more prominent employment relations problem. Furthermore, some research showed that organisations were struggling to carry out components of the psychological contract that their employees valued most (Claire, Kickul, and Lester 2001, p. 0).

Discrepancies between perceived importance and perceived fulfilment considerably brought an impact on employee satisfaction and intention to leave the organisation. Even though to a lesser extent, such discrepancies also significantly affected employee performance. These reasons become the rationale for this article in the prescription of psychological contract for orderly employee relations.

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In response to the discrepancies, family-friendly policies are being introduced by organisations along with reshaping the psychological contract. In addition, well-being programmes are also being disseminated in order to encourage employees to adopt healthier lifestyles and to provide employees feeling stressed with quick easily accessed preventive services. New procedures in addressing employment problems on an individual basis are a further improvement in employee relations.

In addition to the previously stated developments, current organisations arrange certain devises in handling employment grievances. These arrangements include company-level ombudspersons, employee counsellors, and the like which are especially devised for resolving problems in employee relations as quickly and effectively as possible. All these new alternative dispute arrangements supplement that comes along from new psychological contract established collective bargaining methods and grievance-handling procedures.

For the above reasons, the rise of the new psychological contract is not only the source of new employment grievances, but also the generator of new institutional remedies that are likely to have far-reaching effects on how employment conflicts are resolved both at organisational and national level. In managing employment conflicts and employee relations, preventive mediation with the help of psychological contract is most certainly start to play a more pronounced role.

Nowadays, employees are often selected and recruited into an organisation because of their particular skills and expertise that can assist the organisation in attaining high performance standards. At the same time as the competition for the best employees increases, managers, human resource directors, and recruiters are all looking for the right combination of inducements in attracting these individuals. Gaining a better understanding of what employees desire for their employment relationship is essential to the success of these efforts.

Accordingly, these are the learning outcomes that are being aimed in this article for finding out whether psychological contracts help or hinder our understanding and prescription for orderly employee relations. Finally, this text also endeavours to support the claim of Rousseau (2001) that it is fundamental to advance our understanding regarding the origins of agreement for cooperative and mutually beneficial employment relations. Concept of Psychological Contract The psychological contract concept significantly influences employees’ beliefs and behaviour in the workplace due to its subjective nature.

This contract can have a profound effect on the individual’s attitudes and well-being right from the employee’s recruitment stage to resignation or retirement. Contemporary researches have failed to precisely define psychological contract and its elusive construct. Nevertheless, there is a common understanding between the individual and employer about the terms and conditions of a reciprocal exchange agreement and some form of promise that are all accepted by all parties involved.

In general, psychological contracts are referred to as the set of beliefs held by an individual employee about the terms of the exchange agreement between the employee and the organisation (Rousseau 1989). For instance, an employee may recognize that he/she has been promised competitive wages, promotional opportunities, job training, and meaningful work, and in return has promised to give the organization his/her energy, time, technical skills, and commitment.

In contrast to formal employee-employer contracts, the psychological contract is essentially perceptual and hence one party’s interpretation of the terms and conditions of the obligations within the contract may not be shared by the other (McLean Parks and Schmedemann, 1994; Rousseau, 1995, 1998). Digging Deep in Psychological Contract Psychological contracts are much more common than overt, negotiated, agreed contracts. In our heads we work out an agreement with someone else, a team or an organisation. Unconsciously, we make them mentally sign it and afterwards it has all the force or an adhering agreement.

There is a psychological agreement in place when you hear phases such as: ‘But I had expected you to … I thought we would … I understood it to mean that … I hoped … anyone can see that is what should be done … I believed that … I assumed …. ‘ Breaking the psychological contract (where someone else or an organisation does not keep the promises I have made on their behalf) often results in more pain and distress than breaking an actual contract. It has been said that failed or discontinued treatment in therapy is mainly caused by a difference in expectations between participants, i. . , differences in the psychological contract (Sills 1997).

Hewson (1999) asserts that contracts are like icebergs with the formal, agreed and overt contract as the part of the iceberg that is above water, while the unseen, unnegotiated psychological contract is the part beneath water. Like most icebergs, the part below water is much larger than the part above water, and much more lethal. Understanding psychological contracts and how they appear for individuals, teams and organisations, is a key idea in fostering and enhancing healthy relationships.

Not being aware of their existence and their power, on the other hand, often leaves people confused as to why certain behaviour takes place. Psychological contract requires understanding by both parties. Rousseau (1995) writes ‘the psychological contract is individual beliefs, shaped by the organisation, regarding terms of an exchange agreement’ (p. 9). The subjective side of the contract does not come solely from within the individual but is shaped by outside factors. Generally, contracts and the psychological contract, particularly, are ‘promises about the future’ (Rousseau 1995, p. i).

Society, culture, race, religion and a host of other sociological and environmental factors influence contracts, and the psychological contract. Rousseau and Schalk (2000) define the psychological contract as ‘an individual’s interpretation of an exchange of promises that is mutually agreed on and voluntarily made between two or more parties’ (p. 284). Analysis of the current situation in context Current situations have increasingly seen many organisations moving from a traditional or old to new or contemporary psychological contract.

Due to changes occurring to workplaces and people management policies, there emerge important pressures for new conflict management. This is through implicit contract commonly referred to as psychological contract. Psychological contract is a supplement to most formal employment contracts between employer and employee. This contract can be perceived as a set of unwritten mutual expectations held by both parties about how each should act upon and be treated at the workplace. Comparison between New and Old Psychological Contract The old psychological contract’s main institution was the internal labour market.

The core purpose of these internal labour markets was to sustain employment practices – job ladders, seniority rules and the like – leading to long-term job security. The value system of this traditional psychological contract is based on the concept of a “fair day’s work for a fair day’s pay. ” In return for considerable loyalty to the organisation, employees expected a job-for-life. This old contract turns to collective bargaining as the main procedure for organising relationships between managers and unions and for establishing pay and conditions at work.

Distinct of this contract is the division set between skilled employers who possessed quite deep technical knowledge of their craft and unskilled workers being governed by scientific management principles with reduced jobs into routine tasks. Job boundaries and demarcations is consequently a feature of the old psychological contract. On the other hand, the new psychological contract endeavours to improve business performance. Because markets, technologies and organisations are moving faster than ever before, employers consider competitive advantage as only temporary and emphasise on concepts such as continuous improvement and innovation.

With these developments, organisations develop psychological contracts that lay out new set of beliefs and assumptions about the mutual relationship between employers and employees. Unlike the old contract, employers are no longer expected to deliver a job-for-life in the new psychological contract. Job security is now replaced with employability as the core organising principle of the employment relationship in the current labour market. The responsibility lies on the employees’ initiative in mapping out career pathway through engaging in lifelong learning.

Increasingly, pay is based on performance and some type of financial participation arrangement is a growing feature of employment contracts. The old style job evaluation procedures originally designed in creating job hierarchies have been weakened by team-based working. Competence-based training stressed on the importance of soft skills such as persuasion and motivation that gradually replaces the traditional skill-based training that puts greater emphasis on technical knowledge.

The Changing Psychological Contract In the old economy, the employee-employer relationship was characterised by enduring commitments where growth and compensation came from expanding domestic markets (Kochan, 2001). This psychological contract supported lifetime employment and loyalty between employee and employer. The new economy is profoundly influenced by global economies and tough international competition. This globalisation has provided regional labour expendable and interchangeable.

At the same time as employees in the past could rely on their employer to provide stable wages, Kochan (2001) agreed that we now have a noticeably new economy where job security, task assignment, and organisational stability are uncertain. The new psychological contract stresses the need for a short-term orientation in the employment relationship (Rousseau, 1995). In a variety of ways, modern organisations are resizing themselves. Mergers, acquisitions, restructurings, outsourcings, and layoffs all play a prominent role in the current employment landscape.

Indeed, research of M&A (2001) has shown that mergers and acquisitions, as well as layoffs, have reached record levels during recent years. Global merger and acquisition activity reached a record $3. 5 trillion in the year 2000, an increase of almost 700 percent over the $514 billion of reported merger activity in 1995. With regard to layoffs, in the first quarter of 2001 alone, there were 1,664 mass layoff actions resulting in a loss of 305,227 jobs. According to U. S. Bureau of Labour Statistics (2001) this is the highest number of layoff events and job loss in any quarter since the government started collecting the data in 1995.

As well, over 50 percent of employers believe these reductions in force are permanent, and as a result the affected workers have little or no possibility of being recalled. The consulting firm Challenger, Gray and Christmas reported that during April 2001, organizations announced 165,564 new job cuts, which is the fifth consecutive month with cuts exceeding 100,000 (“Announced Job Cuts, ” 2001). During the early 1990s, many experts believed that mass layoffs were a temporary event and eventually employment stability would return to normal. Nevertheless, each year has seen a constant flow of new layoff announcements.

These 2001 figures follow record layoffs in 1999 and 2000, in which all sectors of the economy were represented (manufacturing, retail, service, and now the dot-com companies) (cited in De Meuse and Marks 2003, p. 78). The major impact that these resizing strategies have on the changing psychological contract is that they weaken perceptions of long-term job security. Because job security does not appear to be a core principle of the new employment relationship, employees now are focusing more attention on other inducements, such as autonomy, continuous training, and added responsibilities (Jaffe & Scott, 1998).

By and large, today’s employees want to be endowed and expect to maintain their marketability in case their current employment relationship is cut off. Integration of theories to the relevant modules Psychological Contract Breach Psychological contract breach is defined as the cognition that one’s organisation has failed to fulfil one or more obligations comprising the psychological contract (Morrison & Robinson 1997).

According to studies of Rousseau and McLean Parks (1993) and Robinson et al (1994) this type of breach can cause the employee to have intense attitudinal and behavioural reactions toward the employer. A variety of unfulfilled promises can deprive the employee of desired outcomes and benefits by the time breaches or violations occur within an employee’s psychological contract (Robinson ; Morrison, 1995; Robinson ; Rousseau, 1994). Adams’ (1965) equity theory perspective asserts that individuals strive to find an unbiased balance between what they receive from the organisation and their own contributions.

Employees have the possibility of withholding their own designated contributions by either reducing their performance or refusing to engage in expected organisational citizenship behaviours once employees perceive that their employer has failed to fulfil promised inducements. In a particular study, approximately 55 percent of employees believed their psychological contract had been violated by their organisation during the past two years (Robinson ; Rousseau 1994). This study also found out that employee trust and satisfaction were inversely related to violations of the psychological contract.

Furthermore, Robinson and Rousseau (1994) found that psychological contract violations were positively related to employee turnover. At the conclusion of their study, careerism appeared to moderate the relationship between contract violations and trust, satisfaction, and intentions to remain with the employer. They revealed that employees high on careerism “perceived their current employer as an instrumental stepping-stone up the inter-organisational ladder” (p. 249). In other words, the more careerist the employee was, the stronger the relationship was between perceived contract violations and lack of trust in the organisation.