Psychological Contract in Contemporary Organisation - Essay Example

Psychological Contract in Contemporary Organisation The world has become a global village after the advent of internet, which facilitated free flow of information followed by open communication. Indeed, the rapid advancements in communication technology and networks has fostered the concept of globalization that, in turn, led to creation of numerous business, investment and employment opportunities across the globe. For instance, the trade barriers have mostly been eradicated or reduced, through free trade agreements, to boost trade worldwide. Indeed, the theorists have come up with principles that suit the demands and challenges of new workplace. Also, the field of Human Resource Management is also largely impacted from such external and internal environment changes. Psychological Contract Theory has now become a regular debate because in involves both employers and employees, who operate in an unstructured, uncertain, unclear and unpredictable business environment where small changes may lead to adverse or sometimes uncontrollable consequences. The researcher will discuss the Psychological Contract in contemporary organisation in this paper. Indeed, the various types of Psychological Contract will also be presented and critical evaluated in the light of currently available pertinent literature to reach appropriate conclusions. The paper will be self – reflective as it will not only include a discussion of ideas, opinions and arguments of theorists but also will reveal the evaluation and analysis of such arguments by the researcher. Finally, the paper will end on a conclusion that will summarise the discussed thoughts and analysis as well as provide a specific recommendation to employers to enhance relationships with employees for financial, economic and monetary benefits. As far as the definition of Psychological Contract is concerned, it should be pointed out that it is a set of ‘beliefs’ that personnel have about their organisation, based on which, they decide to get indulged in an exchange agreement with their recruiters. According to Psychological Contract Theory, such type of contract is actually an exchange agreement in which employees pledge to showcase loyalty, optimal performance and results to accomplish defined goals and objectives of strategic planners; while they employers promise to offer job security, timely disbursements, extrinsic and intrinsic rewards such as skills development, promotions, bonuses, commissions, vacations, motivation and encouragement for excellent conduct, behaviour and performance. Indeed, it is worthwhile to mention that a company could not succeed without its human resources. Various theorists have agreed to the notion that happy and well – satisfied employees, with strong normative and affective commitment, high trust and morale with their respective organisation, portray their best skills, abilities and knowledge to make client satisfied and happy. Obviously, unsatisfied, unstable and insecure workers in a business firm would not be able to devote what a satisfied employee contributes and participates in growth, sustainability and prosperity and well – being of a business firm. Taking into account the above, it is justified to argue that weaker Psychological Contracts of employees followed by weak employee – employer relationships adversely impact an organisation’s overall productive efficiency, performance and effectiveness (Rousseau, 1996), (Cuyper & White, 2005) and (Aselage & Eisenberger, 2003, 492). Neil and Adya (2007) has discussed that the organisations that want to become sustainable and show persistent performance usually opt to retain the talented, well – educated, experienced and professional workers, so that they could minimise the costs incurred due to absenteeism, employee turnover and additional time consumed in hiring and recruiting near-to-perfect substitutes. Indeed, the productive losses because of low attendance also escalate the aggregate costs of doing business. Hence, there is dire need to ‘enter in strong psychological contracts’ so that a business firm could motivate and encourage its workers to openly communicate, collaborate, participate and contribute in timely achievement of business goals and objectives. For instance, there would be performance – related rewards for those who showcase their best. (Haslberger & Brewster, 2009) Rousseau (2004) and Haslberger & Brewster (2009) have demonstrated that there are four different types of Psychological Contracts that would be discussed for review and analysis in this paper. It should not be forgotten that these contracts actually impact the attitudes and behaviours of workers in their respective organisations because employees tend to react and behave based on treatment they receive in an organisational setting. The four major types of such contracts include transactional, relational, balanced contracts followed by ‘transitional arrangements’. Also, the contract differs because of “two dimensions; first of which is the promised duration or time frame of the relationship between the employee and employer (e.g. short-term or long-term). The second dimension is the organisational ‘performance criteria’ and standards, which are used as a basis to judge a worker’s individual performance as well as evaluate if he or she is heading in the right direction (i-e towards company goals and objectives) Neil and Adya (2007). Transactional contracts, as the word itself states, is more material in nature because it is considered to be a short term agreement between employee and employer. In fact, the employer hires a person to achieve some specific tasks and assignments in exchange for monetary disbursements and pay offs (Hui et al., 2004) summarised by Neil and Adya (2007). For instance, the job description and contract does not usually include a long list of duties, responsibilities and obligations, rather just includes some tasks for monetary exchanges that are to be achieved in limited time period. Hence, both workers and employers are unwilling to be involved in stronger relationships. Quite unequivocally, employees switch off as soon as they get better opportunities or quit if they perceive the employer does not offer just treatment or has been violating the terms of agreement. In such case of violation of contract by employers, the worker’s performance reduces and probability of getting fired increases. For example, most of the employees were said to be involved in transactional contracts at famous US based Starbucks Coffee Company because the employers had not developed any smart performance assessment and reward management system. Also, the company used to employ workers to exchange services and time for money, which compelled workers to switch in the short run as soon as they received better job opportunities. In addition, the absenteeism rate was higher followed by low normative commitment. As far as Relational contracts are concerned, these as the word implies, are usually long – term contracts, in which both employers and employees agree to work in collaboration for achievement of mutual goals with no specific performance restrictions for employed personnel. Indeed, this helps alleviating a sense of fear for results and performance which usually exists in transactional contracts. Nevertheless, the focus in such type of agreements is on creating we-feeling or cohesion (both socio – emotional and instrumental) that would help in building relationships and mutual consent followed by increase in morale, trust, ‘open – ended commitment’ and confidence (Cartwright & Holmes, 2006) and (Aselage and Eisenberger, 2003, p. 494). The next Psychological Contract, which is known as balanced contract, could be said as the mixture or combination of transactional and relational contracts. Indeed, the best part of balanced contract is that it focuses on results and performance – orientation as well as on construction of cordial employment relationships within an organisational setting. For instance, the contract focuses heavily on performance appraisal after which rewards are disbursed to retain employees and enhance their trust and confidence over employers. In addition, there is also open – ended relationships as the goals are mutually defined, which are realistic and achievable. The contract, in simple words, enhances psychological bondage between employees – employers as both parties are adaptable to changes in external environment and opt to collaborate with mutual consent for betterment of organisational performance (Baruch, 2006) and (Rousseau, 2004). Neil and Adya (2007) have summarized Guest (1998) that ‘transitional arrangements’ should not be considered as a psychological contract. It is worthwhile to mention to mention that transitional arrangements are still there even if there is not real psychological contract between the employers – employees. There could be any explicit or implicit reasons for such absence of contract between employees and their organisation such as violation of exchange agreements, failures to meet specific obligations etc. In addition, the transitional arrangements are developed when organisations have established better goodwill and ‘reputation’ among stakeholders in the industry as well as in the marketplace. Indeed, this entices potential candidates to apply in such business entities that have good working environment, unique internal culture and discrimination free policies; no matter they do not tend to offer higher pay - scale or periodic reward disbursements. For example, multinational or supranational firms such as KFC, McDonalds etc., may tempt applicants because of their reputation and goodwill among the associated stakeholders (Aselage and Eisenberger, 2003, pp. 494 - 495). Rousseau (2004) has raised a very important point as he reveals that working part – time, full – time or telecommuting (working from home) is not a predictor of psychological contract and employment relationship between the two parties. Rather, it is the commitment, dedication, trust and devotion of workers, which compel them to get associated with any particular group or business enterprise. If part – time, but non -regular, workers are higher in above mentioned features than the employment relationship could be viewed as positive and the probability that an organisation will retain a worker is higher. On the other hand, if employees score low in above mentioned then the probability regarding retention of workers will, obviously, be low because of absence of devotion and psychological bondage between the employee and its organisation (Neil and Adya, 2007) and (Hall, 1995). The author would like to mention the fact that he has himself had formed transactional contract during economic recession of 2008 - 2009 when there were barely any short – run employment opportunities in the marketplace. Indeed, the employers were reluctant to offer any financial rewards even after portrayal of optimal performance because of cash starvation. For instance, they were eager to dismiss, what they called unnecessary employees or at least, to cut down existing pay scale so that they could minimise total business expenditures. In such a scenario, the workers had no other option but to work because the ultimate goal at that time was to remain at job rather becoming jobless. Hence, the researcher had to act according to employers’ wishes and to accept their orders to ensure retention. In such a manner, there was absolute absence of relational or balanced contract because neither employer nor employee had inclination towards relationship building and rewards. Rather, the entire focus was to exchange money for services rendered for completion of assigned jobs and tasks. In the light of above, the author of this paper would like to conclude that the world has become more opportunistic in the last few decades after creation of transportation networks, developments in communication technology as this has facilitated the trade and commerce. For instance, the competition among has also increased due to entrance of new business entities, which at one extreme benefits candidates, while on the other hand it puts greater performance demands, standards, results and task accomplishment. The psychological contracts between organisation and workers is now of extreme importance because the stronger the bondage, the lower the costs and the higher the productive efficiency, performance and effectiveness. Indeed, employers have been focusing on ways to enhance worker’s participation and contribution through delegation, authority and empowerment, skill development and experimentation so that workers could relate and identify themselves with their respective organisation and could actively take part in business affairs. Indeed, the employers today are keen to build strong employment relationships and mutual consent to enhance psychological bondage between the organisation and employees. 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