The Importance of a Psychological Contract on Employers and Employees - Essay Example

PSYCHOLOGICAL CONTRACT Psychological Contract Introduction Psychological contracts are a set of expectations that are held by both workers and their employers. They represent the perceptions, mutual beliefs, and obligations between both parties; hence, setting a dynamic for their relationship and what is expected of them. In that case, during a recruitment process, the parties discuss the terms of their agreement and upon reaching a sound agreement, they expect all promises to be kept to ensure trust, loyalty, respect, and success in the organisation. Such contracts can be spoken or in the form of written agreements, depending on the culture of a given firm. A breach of a psychological contract can lead to turnover or decreased performance, low rate of morale, increased expenses in recruiting new employees and training them, as well as mistrust (Christeen 2009). Therefore, this treatise focuses on evaluating the importance of a psychological contract on both employers and employees, considering the negative and the affirmative implications. It is without doubt that the maintenance of a psychological contract is paramount in enhancing employee relations. Discussion All forms of relationships entail having psychological contracts. It is imperative to realize that employment relationships might weaken even in cases where they seem fair or have high rewards. In this case, both employees and employers should focus on avoiding cases of breach of contract because it has immense negative effects on attitudes and behaviour. Therefore, it is to be understood that preventing a breach is better than repairing it since it can be costly and emotionally draining. This means that to potentially manage the contracts in a sound manner, human resource managers should have competent communication skills and be open to discuss and explain issues that might resort to a competitive disadvantage. On the other hand, employees should make sure that they deliver as expected, and communicate often in case of ambiguities and misunderstandings. Therefore, understanding the employment relationship by maintaining and developing an affirmative psychological contract is important in ensuring high performance. In case of a breach, the party that is affected might end up responding negatively, a situation that can result to reduced commitment, loyalty, morale, and performance. Based on this, both parties should ensure that they fulfil their obligations to enhance productivity and ensure a competitive edge (Robinson & Morrison 2000). This makes it imperative to give a detailed analysis on the importance of the psychological contracts, giving both negative and positive implications. Positive Implications A relational psychological contract that is characterised by a healthy working relationship between employees and their employers often develop in case obligations are fulfilled. Therefore, when both employees and employers honour their terms of agreement, it cannot be doubted that there will be increased performance, and that employees are likely to volunteer in other projects since they are satisfied. Therefore, human resource professionals should strive to improve the relationship of the employees and the employer, and ensure that it is based on mutual trust, commitment, and respect. The psychological contract also helps organisations in understanding how changes in a firm can affect employees behaviours, willingness to take risks, attitudes, and wellbeing. In addition, the contract focuses on the employment relationship; hence, paves way for both employees and employers to discuss ways through which they can benefit each other and fulfil duties. In that case, when promises are fulfilled, there is a high rate of retention, increased morale among workers, high productivity, and an organisation is able to realise a competitive edge. Moreover, the contract is essential as it focuses on proposing a detailed understanding of the duties of the employers and employees, and ways through which employment relationships can be ineffective in case of a breach. Some of the likely causes of breach that organisations should be wary of are unsatisfactory practices by the human resource, lack of support from the management, and additional demands from the parties (Bull 2008). According to Gandolfi (2006), the extent to which human resource managers adopt work based practices can highly impact on the state of the psychological contract. Therefore, the contract should be based on the workers sense of trust and fairness, as well as the belief that their employers are honouring their agreement. It is then obvious that in case a psychological contract is affirmative, then there is enhanced employee satisfaction and commitment; hence, increased output of the business. The psychological contract is imperative as it gives a platform whereby employees promise to work hard, uphold the reputation of the organisation, show loyalty, and develop new skills. In addition, they promise to be flexible, courteous, and innovative. Similarly, employers are able to fulfil their obligations in regard to pay, ensuring that workers are fully trained, guarantee incentives such as promotions, and recognise workers that are innovative and reward them. Employers are also able to ensure that there is a respectful relationship, sound job security, and attractive benefits package. Therefore, the contract ensures that organisations work through their human resource managers to review job performances, encourage shared perspectives and perception, and carry out a comprehensive survey on employee attitudes. It also ensures that there are occasional team meetings to encourage teamwork and effective communication. Additionally, the contract makes certain that there are equal opportunities for all employees irrespective of their gender, ethnicity, and ideologies. To ensure there are no cases of breach, the line managers should embark on managing implicit comprehensions, ensuring open communication, establishing sound meta-contracts, and building flexibility in the contract. Additionally, the workers can clarify any form of ambiguities, be realistic on what they can offer and on the organisation, and anticipate reactions in case they breach the contract (Briner 2005; Conway& Briner 2005). According to Kazlauskaite, Baciuniene and Tarauskas (2011), the psychological contract empowers employees and has a direct effect on their attitudes and behaviour. In that case, an employer who fulfils the stipulated terms of the agreement ensures psychological empowerment among employees, job satisfaction, and high commitment to work. As a result, various human resource practices such as organisational empowerment through the use of psychological contracts help in guaranteeing positive attitudes among the employees, as well as increased productivity. As new competitors, markets, and technologies emerge, firms are increasingly seeing a need to have a skilled workforce to ensure a competitive edge. Therefore, to ensure success, firms must have employees that are motivated and committed to performing their best towards fulfilling the stipulated goals. In case such employees are satisfied with their psychological contract, they show immense support to the changes in an organisation and are committed to achieving the objectives that have been set. With this, organisations should understand the main elements of the contract and recognise the fact that they are continuously changing due to the current employment and economic pressures. They should also create a rational contract in which their workers will lead to a highly motivated and committed workforce (Lester & Kickull 2001). Negative Implications When a business invests in its staff members, the workers are obligated to remain with the firm and ensure high productivity. However, when employers fail to invest in its workers and breaks the psychological contract or prior commitments, the employees end up withdrawing or becoming less engaged; thus there is decreased performance and a competitive disadvantage. In worst case scenarios, the employee might end up leaving the organisation; hence, the employer incurs immense expenses in hiring new workers, training them and maintaining a positive image (Guest 2000). Moreover, during times of change, for instance, when there is an acquisition and merger, workers have fears and concerns in regard to the condition and stability of employment. Consequently, such fears can lead to reduced performance. In that case, to maintain effective employee relationship, communication to workers is vital when a company is going through a specific change (CIPD n.d). Similarly, Guest (2000) asserts that when an organisation is undergoing numerous changes, there is a negative impact in regard to job security and psychological contract. He argues that those who report changes have a poor psychological contract and tend to feel insecure. For instance, redundancy and reduction of staff has a negative effect on feelings in regard to job security, perceptions on whether the working climate is friendly, employment relations, commitment, and the state of the psychological contract. Therefore, it is sound to argue that changes at work are pervasive and reactions to major changes tend to be negative rather than positive. In addition, the contract has grave implications for a worker’s willingness to accept assignments that are outside their country of residence. For instance, multinational organisations face a major challenge in persuading female leaders to accept job assignments that are abroad. This is because of the family and work conflicts and in case there are low levels of a firm’s commitment to the psychological contract. Therefore, due to the poor psychological contract, the female leaders end up leaving the organisation; hence, the company incurs immense losses. Therefore, during repatriation as well as the expatriation process, the human resource professionals should work with the workers and their supervisors to ensure that the contract is understood and properly communicated to ensure future compliance and reduce mishaps (Society for Human Resource Management 2008; Guest & Conway 2002). It is also important to understand that when workers believe that their employers have failed to fulfil their expectations; this can lead to absenteeism, low morale, reduced productivity, and loss of profit. Therefore, when an organisation fails to honour its obligations in regard to pay, training, incentives, and job security among others, the employees lose trust; hence, become uncooperative. In that case, it is imperative for employers to clearly define their roles and focus on achieving them to avoid controversy. On the same note, in case a particular obligation cannot be met due to an economic downturn or other changes, the human resource managers should provide workers with honest explanations on the reasons behind the obligation not being fulfilled to reduce cases of lost talents when employees leave the firm (Kickul, Lester & Finkl 2002). Moreover D’Annunzio-Green and Francis (2005) assert that there are a number of unresolved issues when it comes to psychological contracts. This is because employees and employers might disagree on terms such as promises, obligations, and expectations since they have different meanings. Therefore, there are unrealistic expectations among employees; that might lead to future disagreements For instance, employees might feel that their employers have failed to honour their promises to them. In this case, a promise is a reward, which ought to have been discussed earlier. There is also the obligation that the employer ought to fulfil to ensure that there is a smooth working relationship. However, the problem comes with expectations and fantasies in case workers feel that they are likely to be rewarded or they need a reward because they desire it. In most cases, employers do not fulfil the expectations and fantasies of the employees since it is not often agreed on. Therefore, workers might feel aggrieved in case their expectations are denied; hence, the human resource professionals should work towards helping workers understand the terms of the contract and how an obligation is different from an expectation (Wan 2013). Various critics argue that the psychological contract concept serves to obscure and disguise the genuine and true nature of prerogative in the organisation and management power. They allege that the contract is a structural antagonism between employers and the workers where the latter uses their power to dictate the implicit and explicit conditions as well as the terms of employment in formal and informal contexts. Consequently, in some case, employees in an effort to keep their work end up accepting the contract terms as stipulated by the organisation. On the same note, most organisations often breach the psychological contract since they are focused on achieving their stipulated strategic goals rather than honouring the implicit contract that workers might think they have with them. Therefore, there are likely breaches when restructuring, downsizing, cutting costs, and re-engineering (Cullinane & Dundon 2006). Similarly, Jonge (2001) asserts that decentralisation and restructuring have enormous impacts on a psychological contract of an employee. It is also unfortunate that traditional beliefs such as fixed salary and job security in exchange of loyalty and hard work of the employees are replaced by other blurred obligations between an employee and an employer. Consequently, the psychological contracts end up resorting to negative effects such as decreased levels of loyalty as well as commitment among the workers. Insecurity cases can also lead to a situation in which it becomes complex for a firm to fulfil its obligations that are expected by the employees, leading to violation of the contract. In a study that was conducted by Robinson and Rousseau (2006) on psychological contract, it was determined that most employers end up violating the contract; hence, there is low turnover, mistrust, lack of satisfaction, and employees end up leaving the company. Therefore, to ensure that the contract is properly managed, its term should be explicit to avoid breaches that are caused by disagreements and misunderstanding. There should also be an honest and open discussion between the employees and management in regard to their mutual perceptions and expectations of obligations and promises. Moreover, the human resources should look for better ways to manage changes in the contract; hence, should anticipate, control, and recognise employee resistance. In that case, the organisation should ensure they communicate effectively in regard to changes, create and reinforce the vision and mission of the organisation, negotiate with resistors, use the reward systems effectively, and use implicit and explicit coercion (Brown & Harvey 2006; Christeen 2013). Various scholars allege that in today’s competitive environment, organisations are more focused on profit margins, goals, and prices in the stock market. As a result, the relationship between the employees and the employers has been greatly affected. In the past, employment was perceived as long-term where workers acquired new skills and rose in the corporate ladder. However, in the modern world, the business environment is dominated by contracts that are short-term for professional and technical employees. Therefore, there is lack of sufficient job security; hence, such changes have affected the psychological contract negatively. Before, the contract was based on relational exchange that was focused on mutual loyalty, respect, and trust between workers and their employers. In contrast, with the insecure working environment, transactional exchange is more prevalent; thus, cases of breach become more self-centred and transactional (Smithson & Lewis 2000). Moreover, in a research that was undertaken by Turnley and Feldman (2009) using a sample of approximately 800 managers on the relationship between breach of contract by the employees and their loyalty, voice, and neglect attitudes, it was determined that violations had immense negative effects. This is because there were decreased levels of trust and loyalty and increased cases of exit. In addition, it was noted that violations of the contract often occurred in organisations that were restructuring or downsizing since it affected compensation, job security, and prospects for advancement. Therefore, it is imperative for organisations to understand the reasons why employees breach their psychological contracts, focus on solving related issues, and ensure a positive relationship between the employees and the organisation. As a result, this will go a long way to ensuring a competitive edge, increasing the rate of retention, ensuring positive publicity, increasing profit, and enhancing the rate of morale. Conclusion It is apparent from the research that the psychological contract serves various functions in an organisation. However, it also has its drawbacks in cases of violation. For instance, when employees feel that their promises are not being honoured, they tend to withdraw, lose interest and morale, and there is a high rate of turnover, causing the organisation immense losses. In addition, there is loss of trust, respect and loyalty when the terms of the agreement are not complied with. In that case, the human resource managers should work with the organisation’s leaders to come up with a flexible contract and ensure they manage it effectively. In addition, they should fulfil their part of the bargain in terms of pay, training, and offering attractive incentives. Consequently, there will be high retention rate among the employees, increased morale, an effective relationship between employers and employees that is based on respect and trust, and high productivity. It is also important for both parties to understand the contract terms to avoid ambiguities and future misunderstandings. In that case, employers should communicate clearly on their duties and what they expect from employees. This will not only offer a platform to discuss issues in regard to work but will also create a sound relationship that is based on openness; hence, ensure a competitive advantage. References Briner, N, 2005, Understanding Psychological Contracts at work: a Critical Evaluation of Theory and Research. Oxford: Oxford University Press. Brown, D & Harvey, D, 2006, an Experiment Approach to Organisation Development, New Jersey: Pearson Prentice Hall. Bull, R, 2008, Psychological Contract under-Fulfilment: Leader-Member Crossover, Ann Arbour: Proquest. 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Wan, K.M, 2013, ‘the Effects of Psychological Breach on Employee Work Behaviours in the Airline Industry’, International Journal of Business and Social Science, Vol. 4, No.12, pp. 304-311. Read More