Trust and the Psychological Contract - Coursework Example

Trust and the Psyсhоlоgiсаl Student’s Name Code + Course Name Professor’s Name University Name City, State Date Trust and the Psyсhоlоgiсаl Introduction A Psychological Contract refers to the perception of mutual obligations that are shared by organizations and their employees within the working environment (Thomas et al., 2010). Unlike the employment contract which is a formal and legal document, it aggregates the individual beliefs that are shaped by organizational culture in relation to the terms of arrangement and exchange between the employee and employer (Behery et al., 2012). The contract is significantly founded on trust, and trust here refers to the belief that the other party is being honest, reliable and effective (Kiazad, 2010). The fulfillment of psychological contract is a product of social exchanges and trust within the organization, and this has to be managed well if an organization is to maximize productivity. This paper discusses the critical nature of psychological contract within workplaces and the role played by trust in its fulfillment. The Social Characteristic of the Workplace The organization is a system comprising of technical, economic and social elements that coordinate material and human resources towards achievement of set objectives. Snell & Bohlander (2012) explain that in the social component, human beings come with varied needs and in order to achieve their objectives, they form groups. Effective management of such groupings and their expectations is inevitable in seeking efficiency and productivity. Human behavior therefore becomes an important aspect to be considered. According to Phillips & Gully (2012), human behavior within the organizational setting is highly complex, only comparable to the social system that develops. People differ in terms of values and needs hence demanding an understanding of interpersonal skills and the ability of people to work as teams towards effective and efficient attainment of organizational goals. Practically all organizations have a formal structure, but there is always a parallel informal characteristic. According to Sims (2007), the formalized structure arises when two or more individuals come together with a shared goal or objective that they seek to work towards, setting rules and regulations to be upheld by all members, and a system of coordination and authority that sets role distinctions between superiors and subordinates. Lambooij et al. (2009) on the other hand suggest that in the informal aspect, the people within a formal organization interact while working, and in the process become good companions or friends. There are therefore naturally many social groupings which even though not guided by rules, regulations, authority or co-ordination, they form a significant component of human relationships that determine job performance. The workplace therefore has to be managed as a social environment. The Social Exchange Theory and Psychological Contract Framework In explaining the expectations of employees within the social environment of the workplace, the Social Exchange Theory and subsequently the Psychological Contract as a framework were developed. According to Smith & Hitt (2005), the social exchange theory is traceable to Barnard (1938) and later refined by a sociologist, George Homans in 1958. According to him, social exchange involves the exchange of both intangible and tangible activity between two or more people. Blau in 1964 made a distinction between economic and social exchange. Economic exchange deals with the tangible aspects of reward for instance financial while social exchange deals with socio-emotional characteristics. According to McIntosh & Voyer (2012), Psychological contract arose in the works of Chris Argyris in 1960. Here, the employee and the organization establish psychological contracts which allow the gratification and expression of one another’s needs. If the employee feels that the management respects his right to develop and apply his own initiative, he in return respects the organization’s right to evolve. Denise Rousseau’s later conceptualization in 1989 distinguishes between two forms of psychological contracts; relational and transactional. Relational refers to the socio-emotional base that determines the expectation of shared values, ideals, support and respect in the course of interpersonal relationships. Transactional is on its part the monetary or economic basis that produces the expectation that the organization and its agents will offer fair compensation for employee performance. Psychological contract is basically what the individual believes to be the terms and conditions guiding his or her reciprocal relationship with the organization. According to McIntosh & Voyer (2012), the idea of a psychological contract is rather complex because it is founded on perceptions and beliefs. Different people within an organization are likely to have different understandings of it. George (2009) explains that it is not an explicit agreement. Rather, it is derived from the promises that an employee may be given or believe to have been given, and both sides formulate these basing on observing the behavior of the other. The psychological contract is founded on mutual exchange. What one party is willing to offer is therefore on condition that the other party acts in a given way. It is never static but rather might continuously change during interactions in which more promises or obligations may be implied. The Psychological Contract and Organizational Culture The psychological contract both shapes and is shaped by the organizational climate and therefore culture (George, 2009). Culture here refers to the observable and consistent behavioural patterns within the organization. Just like any other beliefs and values, the expectations of a psychological contract are shaped by the prevailing culture (Petersitzke, 2009). According to Nelson & Quick (2012), the organizational culture specifically determines how both management and employees behave. Organizational culture refers to the workplace environment which arises from employee interactions while at work. It comprises of all the life experiences, upbringings, education, weaknesses and strengths of the employees aggregated into one social context. Executive leaders may be responsible for the shaping of organizational culture, but it is contributed to by all employees. The fact that the two parties involved are at different power levels raises the issue of organizational structure and control in the contract. According to DeLamater & Ward (2013), the organizational structure and controls refers to the firm’s formalized procedures, role definitions, decision-making processes and control mechanisms. Managers typically have financial and strategic control over what happens in their units. Strategic control implies the application of strategically relevant and generally long-term criteria. Financial control is on its part the objective application of criteria by managers in evaluating the returns gained by a business unit.  Psychological Contract and Employee performance The psychological contract is an important feature to be considered in performance management. According to Shields (2007), it has a great implication on employee commitment, here implying the extent of identification of an employee with the organization, and his or willingness to remain a part of its ideals and structures. When there is for instance an effective relational contract, there would tend to be a higher prevalence of such commitment. There is a strong linkage between breaches of psychological contract and levels of employee commitment to their firms. The degree of employee engagement is also impacted on by the psychological contract. Engagement refers to the enthusiasm and involvement that an amployee has towards the assigned tasks at the workplace. Where there is a strong relational psychological contract, there is therefore for instance the likelihood of a higher degree of engagement. There is a relationship between fulfillment of the psychological contract and the feeling of support and therefore belonging to the organization. Sims (2007) explains that when employees consider their employer as being keen on keeping their end of the contract, there is a greater feeling of satisfaction and they feel that the employer truly values and appreciates their contributions to the firm. According to Shields (2007), employees who believe that the employer values and cares about them will tend to be more motivated. The perception of justice by employees is also affected by the contracts. Whenever the contract is viewed as having been breached, there is the feeling that someone is not being fair. Causes of Breaches in Psychological Contract There are a number of reasons why the psychological contract may be breached. One of these is the absence of effective human resource policies. Cardy (2011) explains that if for instance what is proclaimed as the values guiding the handling of employees by an organization differs from the actual policies laid out, there is the likelihood of a problem. The corporate values may state that training and innovation are highly facilitated, yet cost-cutting leads to the limiting funding for training and development. When an employee is hired, he might be expecting that training opportunities are available, and if they work towards qualifying for training then is disappointed, the realization might be demotivating to him. Breaches may arise from the shortchanging of employees by management. Management might at times opt to change the terms of employee existence. According to Kiazad (2010), a breach might for instance occur when organizational change has to be implemented, resulting in an unforeseen shift from a relational to transitional type of contract. For example, management can pursue restructuring, as a result of which many people have to be laid off. An employee may have come into the organization knowing that his job is secure for decades, only to be terminated. Phillips & Gully (2012) add that even if not actually terminated, seeing others going will affect his sense of security for a long time. A breach might arise from misunderstanding of what the contract itself entails. According to Kiazad (2010), there is often a natural mismatch between what the managers and what the employees perceive to be the content of the psychological contract. Being a matter of perception, the employees might for instance end up expecting too much from what they believe is a promise made to them by the organization. While they keep waiting, the organization might on its part believe that it is doing everything that it has been obligated to do under the arrangement. Breaches occur where employees feel that they are not adequately or appropriately supervised. Petersitzke (2009) explains that the organization might assume that the employees have conceptualized their contract with the employer, while employees on their part may be expecting that managers and supervisors should be guiding everything. With this in mind, if the manager might for instance fail to provide enough feedback, resources or support due to either not understanding what the employees need, lacking the appropriate competence or just perceiving his role wrongly. According to Cardy (2011), managerial competence refers a set of behaviours which offer a structured guide that facilitates the evaluation, identification and development of constructive behaviours among employees. The Cost of Breaches in Psychological Contract The psychological contract aims at capturing both present inducements and perceived obligations of the two parties (Petersitzke, 2009). The fact that the contracts are always about perception and feeling imply that whenever a breach occurs, the side that feels dishonoured is likely to have a lower level of trust towards the other. The commencement of the contract is also founded on trust, because each side will expect the other to do their best in playing their part. The trust is what leads to disappointment in case one feels that the other has not delivered (Kiazad, 2010). Psychological contract breaches are associated with undesirable organizational behavior and attitude. According to Cardy (2011), these include lesser ratings in job performance, reduced loyalty and self-sacrifice and an increased likelihood of leaving. They lead to reduced levels of commitment to the organization, a higher tendency towards labour turnover and reduced job satisfaction. Breaches can further heavily impact on an organization’s employees, and by extension, overall performance. Aspects such as employee productivity, performance and retention are greatly affected when the contract is not fulfilled. The Underlying Role of Trust in the Contract Breaches of contract are subjective experiences that are not only founded on an employers failure to uphold their end of the deal, but rather the individual's perception of such failure within a given social context. According to George (2009), the occurrence of a breach is therefore dependent on the psychological and social factors specific to a given employment relationship. One of the main factors that come into play is trust, in most cases of the employer. Trust may here be defined as an individual’s beliefs, expectations or assumptions on the possibility of another party’s future actions being, favourable or beneficial to their own interests. The social construct of trust shapes contracts and relationships, and determines the kind of behaviours that the parties will show towards one another. According to Houldsworth & Jirasinghe (2006), it provides a basis for influencing a person’s interpretation of any social behaviours that may be witnessed in the relationship. Because of this, trust plays a major role during the perception of a breach in psychological contract. If an employee trusts the employer, this will determine the extent to which he will perceive a breach, how he will interpret it and how he will eventually react to it. When there is high level of trust in an employee, there will be a reduced likelihood that he will perceive a breach. According to Kiazad (2010), people will tend to act in a manner that will support their previously held perceptions and knowledge structures. An employee who initially had little trust in the employer will end up looking for, identifying and remembering occurrences that constitute a breach. Where the employee had an initial trust of the employer, the likelihood of noticing a breach will be lesser, and incidents may be easily forgotten or overlooked. Employees generally assess organizational behavior in terms of the extent to which their unwritten psychological contract has been fulfilled or breached. Where the organization seriously breaches it, there is the likelihood of the employees reacting. Breaches may however arise as a result of the employees failing to understand the contract’s terms, hence need for management to clarify its terms by ensuring that it is as explicit as possible. Conclusion The psychological contract is the promise that an employee believes to have made to the organization and what they believe the organization has offered to do in return. It is highly significant because its perception eventually contributes to either negative or positive organizational and employee outcomes, as is the case in commitment, job satisfaction, loyalty and performance in general. The workplace indicates a social environment, and a breach of psychological contract is generally negatively related to performance, loyalty and commitment to the organization. Trust is the mediator between outcomes and breaches. A breach leads to reduction on trust, which subsequently mediates the relationship that exists between employee contributions and the perceived breach. The psychological contract draws attention to the need for management to be keen on individual-level employee issues. Bibliography Behery, M, Paton, R and Hussain, R. 2012, Psychological Contract and Organizational Commitment, Competitiveness Review: An International Business Journal, Vol. 22 (4): 299 - 319 Cardy, R. 2011, Performance Management: Concepts, Skills, and Exercises, ME Sharpe, New York DeLamater, J and Ward, A. 2013, Handbook of Social Psychology, Springer Books, New York George, C. 2009, The Psychological Contract: Managing and Developing Professional Groups, McGraw Hill University Press, Maidenhead Houldsworth, E and Jirasinghe, D. 2006, Managing and Measuring Employee Performance, Kogan Page, London Kiazad, K. 2010, Responses to Psychological Contract Breach: Moderating Effects of Organisational-embeddedness, University of Melbourne, Victoria Lambooij, M, Flache, A and Jacques, S. 2009, Shadow of the Future, Risk Aversion, and Employee Cooperation, Rationality and Society, Vol. 21 (3): 307 - 336 McIntosh, B and Voyer, B. 2012, The Perverse Psychological Contract, British Journal of Healthcare Management, Vol. 18 (6): 290 - 291 Nelson, D and Quick, J. 2012, Organizational Behavior: Science, the Real World and You, Cengage Learning, Andover Petersitzke, M. 2009, Supervisor Psychological Contract Management: Developing an Integrated Perspective on Managing Employee Perceptions of Obligations, Gabler, Wiesbaden Phillips, J and Gully, S. 2012, Organizational Behavior: Tools for Success, South-Western Cengage Learning, Mason Shields, J. 2007, Managing Employee Performance and Reward: Concepts, Practices, Strategies, Cambridge University Press, Cambridge Sims, R. 2007, Human Resource Management: Contemporary Issues, Challenges and Opportunities, Information Age Publishers, Greenwich Snell, S and Bohlander, G. 2012, Managing Human Resources, Cengage Learning, Mason Smith, K and Hitt, M. 2005, Great Minds in Management: the Process of Theory Development, Oxford University Press, Oxford Thomas, D, Fitzsimmons, S and Ravlin, E. 2010, Psychological Contracts across Cultures, Organization Studies, Vol. 31 (11): 1437 - 1458 Read More