Psychological Contract

 

According to CIPD (2022), the psychological contract refers to individuals’ expectations, beliefs, ambitions and obligations, as perceived by the employer and the worker (CIPD, 2022). Unlike the contract of employment, the psychological contract consists of no written and signed agreement of formal obligations of employer and employee. It purely exists on the understanding of the employer and employee relationship. Moreover, it carries a major impact on employee job performance. Thus, organizations may also benefit from ensuring that they begin their relationship with employees on a positive note (Woodrow & Guest, 2020). Therefore, line managers with direct contact with employees play a vital role in fulfilling the psychological contract.


Managing psychological contract

According to CIPD (2022), the psychological contract may cover the following aspects of the employment relationship and how they interact:

  • Job security
  • Career prospects
  • Training and development
  • Perceived fairness of pay and benefits
  • Manager support
  • Employer’s contribution in relation to the impact on communities and society (CIPD, 2022).

Wellin (2016), states that the concept of reciprocation is based on the idea of social exchange between people and suggests that once employees receive the rewards they expect, they will feel obliged to reciprocate and take steps to deliver what the company expects from them (Wellin, 2016). Establishing a commitment to trust goes long way in the fulfilment of expectations. On the other hand, breach of psychological contracts by managers could also affect employee performance. For example, an employee may feel that “I have not received everything promised to me in return for my contributions”. Robinson (1996), states that previous studies have shown that psychological contract breach is indeed related to decreased trust (Robinson, 1996). Therefore, it is imperative to maintain trust to have meaningful sustainable psychological contracts at the workplace. ‘In the modern economy, there can be no productive employment or successful firms without functioning psychological contracts’ (Rousseau and Schalk, 2000).

According to Zhao et al. (2007), employees have a psychological contract with their organization that is one-dimensional. In employees’ perception, the transactional nature of the psychological contract needs to be fair, trustworthy and benevolent. ‘Employees are likely to maintain a positive relationship with their employers as long as the employers meet the employees’ psychological contracts adequately’ (Abdullah, 2017). For that matter organizations too, have their share of the psychological contract. Thus, organizations’ expectations of employees are; effective work performance, employee commitment, and loyalty. Schein (1988), states that a major element of the psychological contract is an expectation on the part of the organization that a new employee will accept the authority system of that organization. However, according to Si et al., (2008), the fulfilment of a psychological contract does not necessarily result in employee loyalty to the organization, although breach of contract may result in feelings of disappointment and intention to leave it if employee concerns are not accommodated (Si et al., 2008). Therefore, organizations need to address the implications of psychological contracts among line managers. As the immediate managers who are in direct contact with employees, the line managers could ensure fair treatment when dealing with employees’ expectations. Thus, the line managers are in a position to avoid employees’ grievances which may turn into negative impacts on the organization.

 

Reference

Abdullah, A.B.M., (2017). Managing the Psychological Contract: Employee Relations in South Asia. Cham, Switzerland: Palgrave Macmillan

Chartered Institute of Personnel and Development. (2022, 2022a). The Psychological contract: Examines the history, state and strategic implications of the psychological contract CIPD: London. [Online] Available at: https://www.cipd.co.uk/knowledge/fundamentals/relations/employees/psychological-factsheet#gref [Accessed on November 25, 2022]

Robinson, S.L., (1996). Trust and Breach of the Psychological Contract, Administrative Science Quarterly, Vol. 41, No. 4, pp. 574-599 (26 pages), Sage Publications, Inc.

Rousseau, D.M., and Schalk, R. (2000). Psychological Contracts in Employment: Cross-National Perspectives, Sage Publications, CA, USA

Schein E.H. (1988). Organizational Culture, Sloan School of Management, MIT, MA, USA

Si, S.X., Wei, F., and Li, Y. (2008). The effect of organizational psychological contract violation on managers' exit, voice, loyalty and neglect in the Chinese context, The International Journal of Human Resource Management, 19:5, 932-944, DOI: 10.1080/09585190801995849

Wellin, M., (2016). Managing the Psychological Contract: Using the Personal Deal to Increase Business Performance, Routledge, NY, USA

Woodrow, C., and Guest, D. E. (2020). Pathways through organizational socialization: A longitudinal qualitative study based on the psychological contract. Journal of Occupational and Organizational Psychology, 93, 110–133. 

Zhao, H., Wanyne, S.J., Glibkowski, B.C., and Bravo, J. (2007). The impact of psychological contract breach on Work-related outcomes: a meta-analysis. Personal psychology, volume 60, p. 647 - 680

Comments

  1. Romeda WijewardeneDecember 6, 2022 at 12:26 PM

    Agreed on the content Farook. Further, the psychological contract must recognize that the work relationship is a two-way transaction, with the focus squarely on the perceptions of reciprocal promises and duties of both parties, to be a useful instrument for analyzing the relationship (Guest ,2004). A psychological contract cannot be deemed "contractual" in any meaningful sense if it is wholly subjective and created exclusively in the mind of the specific employee (Purcell, 2003).

    ReplyDelete
  2. Sachini NagahawattaDecember 7, 2022 at 3:46 PM

    Agreed on the content Farook and adding furthermore, the concept of the Psychological contract is commonly traced back to the early work of Argyris (1957) and to social exchange theory (Blau, 1964). The Latter explains social change and stability as a process of negotiated exchanges between parties. However, the key developments leading to its current use as an analytical framework were provided mainly by Schein (1965), who explained that: 'The notion of a psychological contract implies that there is an unwritten set of expectations operating at all times between every member of an organization and the various managers and others in that organization (Armstrong, 2009).

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    Replies
    1. Afzal FarookDecember 7, 2022 at 9:09 PM

      Thank you for your comment Sachini. According to Wellin (2016), the psychological contract can add value to people at work and to the prosperity of organisations due to three fundamental reasons and thus it helps in understanding and predicting how people behave, engaging people at work, and aligning people better to customers and strategic business goals. Therefore, Rousseau et al. (1995), believe that the psychological contract belief enhances commitment so that agreed-on actions are more likely to be performed.

      Delete
  3. Manula HimanshuDecember 9, 2022 at 5:17 AM

    Valuable content Farook. Additionally, Dundon (2016) states that there may be value in theorizing the psycho-logical contract, not only to illustrate the com-plex and paradoxical consequences of managerial thinking, but also to advance understanding through alternative critical forms of analysis and discourse.

    ReplyDelete
    Replies
    1. Afzal FarookDecember 9, 2022 at 11:59 PM

      Thank you for your comment Manula. According to Petersitzke (2009), a positive psychological contract exists when the employee perceives the organization to have kept its obligations in the past, agrees that a balanced exchange exists between the employee and organization and trusts the organization to keep its obligations in the future. Therefore, the fulfilment of trust and fairness by the organization plays a crucial part in upholding employee psychological contracts.

      Delete

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