Why might a healthy psychological contract amonst its employees be important to an organisation's effectiveness - Assignment Example

This concept has been widely discussed by the scholars lately and showed to have certain impact on the overall performance of an organization. However, in order to determine why a healthy psychological contract among the employees is important to an organization’s effectiveness, it is necessary to build a clear definition of what a psychological contract is first of all. Defining psychological contract Since the concept is relatively new, the scientists are still arguing on what exactly psychological contract is.

The classical definitions state that psychological contract is either “the perceptions of both parties to the employment relationship, organization and individual, of the reciprocal promises and obligations implied in that relationship” (Guest and Conway, 2002, p.1) or “an individual’s belief in mutual obligations between that person and another party such as an employer” (Rousseau and Tijoriwala, 1998, p.679). A quite similar definition have Hall and Moss (1998), who claim that psychological contract consists of the mutual expectations in the employer-employee relationship.

So, in general it seems that the concept of psychological contract is more related to employees, because organizations, as employers, cannot have any beliefs or expectations. People are the ones who have them. Therefore, in short it can be said that a psychological contract might be described as an unwritten agreement between upper management and employees, that outlines how both parties see and understand their cooperation. Importance of healthy psychological contract to organization’s effectiveness It is rather well-know that a happy and satisfied employee is a good worker.

Consequently, good employees that show loyalty and devotion to their companies must have all their needs met and, thus, be happy. This is, according to Cyril van de Ven (2004), one of the major goals of psychological contract. It reduces employees’ insecurity regarding their jobs. Since it is physically impossible to state all the aspect of employee-employer relationships in a written contract, the psychological contract helps by means of filling the gaps of the official one. The psychological contact, consequently, helps employees to evaluate and measure their obligations to the company and those of the organization to employees.

So, if an employee believes that both parties fulfill their obligations, he or she is likely to show positive behaviors that contribute to the quality of his or her job performance. Another important function of psychological contract is giving employees the feeling that they have some power over events within the organization (Anderson and Schalk, 1998). This means that with the help of psychological contract employees percept the interrelation of roles and events as something they have agreed upon and have control over.

As a result, even their self-esteem gets higher. So, if the psychological contract does not get broken, the employee will feel secure in the job. In addition, he or she will be performing well, thus fulfilling own obligations on the contract, in response to the company’s fulfilling its obligations on the psychological contract. Consequently, when employees perform their jobs well the organization in general becomes more effective. A Healthy psychological contract ensures that employees are satisfied with their jobs, loyal to the organization, have adequate work-family balance, and feel fair treatment form the side of the employer.

As a result the company gets reduced employee turnover and absenteeism, as well as improved individual and organizational performance. Employers’ influence on the state of the psychological contract Employers, in their turn, should take all the possible measures