Importance of managing the psychological contract and the challenges associated with it - Essay Example

?Importance of ‘managing’ the psychological contract and the challenges associated with doing so Introduction The term ‘psychological contract’ is a form of oxymoron that combines two contradictory words. In simple terms, a contract refers to a legal binding between two persons or a person and an organisation, which involves financial exchange for a product or a service rendered, as for example, a contract for buying a house or signing up to acquire a credit card. A contract is therefore seemingly unrelated to anything psychological in nature, which is associated with the human mind, hence intangible, as for example, an experience, emotions and feelings about another person. In this context, the term ‘psychological contract’ thus refers to expectations within a relationship, and the manner in which these expectations transform, affecting one’s behaviour over a period. The term has gained recent popularity, and it is used for delineating mutual expectations between an organisation and its employees. Psychological contract, which is a form of unwritten agreement between an organisation and the employees, is fast changing its form after the 1990 and 2007 economic crises. Short-term and contractual employment is increasingly gaining more popularity within organizations, owing to which psychological contract, which is related to the concept of self-actualisation, is gaining significance amongst employees. This transformation in the nature of psychological contract has various ramifications on the employers that look for motivation among to its employees to achieve all organizations goals. This essay explores the concept of psychological contract and its management within current times, and the various challenges associated with it. Discussion Currently there are challenges for all organisations in the form of new business strategies that are specially designed to match the increasingly complex market scenario. In order to address these challenges, it is necessary that employees change their behaviours (Sims, 1994). The new behaviours as expected from an employee are designed by a firm’s human resource (HR) department (Rousseau and Wade-Benzoni, 1994). However, the real change in the behaviour of each individual employee is ascertained by interpreting a firm’s HR practices. These interpretations influence employee behaviour, by changing the understanding of what is meant by psychological contract for each individual employee (fig 1). Business strategies (implementation and resources) HRM (interpretation) Psychological contracts Fig 1: Link between business strategies of an organisation, its HR practices and psychological contract (Rousseau and Wade-Benzoni, 1994: 464). Defining the term ‘psychological contract’ Argyris (1960) first used the term psychological contract in order to delineate the subjective nature of an employer-employee relationship first used the term psychological contract. Rousseau (1990) suggested that a psychological contract refers to the mutual understandings, oral or written, concerning the commitments between employees and an organisation. From an operational perspective, psychological contracts perform two functions: they give the organisations an idea of results to be expected from their employees; They predict the gains that employees will receive in return for their time and effort invested in a firm. The relationship that comprises of mutual exchanges between an employer and his employees vary from being legal to psychological (Spindler, 1994). Agreements, laws, or a contract signed by the employee (containing details such as salary, working hours, benefits, etc.,) often frame this mutual relationship. Besides these, however, often an employment relationship is defined by what is known as the ‘subconscious’ (Spindler, 1994). In this context, a psychological contract refers to the ideology that creates a framework for comprehending the ‘subconscious’ relationship, or the ‘hidden’ arenas within an employment relationship (Shore and Tetrick, 1994). A review of the literature provides various traditional definitions for the term psychological contract. Rousseau and Wade-Benzoni (1994) claimed that psychological contract is a set of beliefs held by an employee, which is designed by the organisation, in context of an agreement related to exchanges between the two. Psychological contract, according to Newell and Dopson (1996), referred to the efforts put in by employees in return for something from their employers, such as, high salary, or job security. According to CIPD, psychological contract can be defined as: “‘The perceptions of the two parties, employee and employer, of what their mutual obligations are towards each other’. Attention has focused primarily on what the employer owes its employees. These ‘obligations’ may often be imprecise…Some obligations may be seen as ‘promises’ and others simply as ‘expectations’. The common factor is that failure to meet employee expectations is seen as some kind of breach of faith” (2005: 2). While defining psychological contract, Guest and Conway (2004) proposed a model, which provided a framework for this intangible employment relationship: Fig 2: A psychological contract model as conceptualised by Guest and Conway in 2004 (cited in CIPD, 2005: 2) The above figure (Guest- Conway) model suggested that: “The extent to which employers adopt people management practices will have a major influence on the state of the psychological contract; The state of the contract will be reflected in employees’ sense of fairness and trust and their belief that the employer will deliver on the ‘deal’ between them; A positive psychological contract will lead to greater employee commitment and satisfaction” (CIPD, 2005: 2). Unlike various employee-employer legal contracts, psychological contract is mainly perceptual, hence likely to vary where an employee and an employer may hold different views on the nature of implied obligations within the relationship (Lester and Kickul, 2001). Psychological contracts are different from legal contracts in the procedures adopted during a breach of contract (Lester, Turnley, Bloodgood and Bolino, 2002). In the case where a legal contract is violated, the aggrieved party can seek for court awarded justice; however, when a psychological contract in breached, there are no such recourses offered, and the aggrieved party can either breakaway from the relationship or stop contributing. Psychological contract in terms of the current employment scenario In the traditional form of psychological contract, the employee offers his commitment in return for a job security. However, owing to globalisation and the economic crisis of 1990s there have been changes in the traditional contract wherein job security is not offered by the organisations (Thomas, Au and Ralvin, 2003). The current contracts are based on offers of fair deal and fair pay by the organisations, along with training opportunities for further development to make the employees more marketable. However owing to a lack of job security, employee commitment has been seriously undermined. Spindler (1994) claimed that ‘old’ contracts, which comprised of an exchange of security for conformity, have changed considerably, while the concept of ‘job security for a life’ has completely disappeared. These changes have led to a weakening of the bond between an organisation and its employees, and loyalty towards one’s organisation has changed to loyalty for oneself. While some of the UK national surveys revealed that a majority of the employees are satisfied with their jobs, and four in five employees have no fear of losing of their jobs or finding another one, the relationship between an organisation and its employees has nevertheless changed in many ways that managers must necessarily understand (CIPD, 2005). From a survey of the available literature, differences between old psychological contracts and current contracts can be summarised as follows: Old/traditional psychological contracts Current form of psychological contracts Organisations served a caregiver’s role to the employees Here the organisations and employees enter a contract that are mutually beneficial Organisation shaped an employee’s value and identity An employee defines his/her own value and identity Those that remained for many years were termed as loyal Organisations maintain that a constant movement (inflow and outflow) of employees is a healthy process The employees followed the organisational rules until their retirement Long term relationship with an organisation is not a part of the contract and multiple relationships are preferred Promotions defined the route to success Personal sense of accomplishment defines success in the modern context Table 1: Differences between old and new psychological contracts (Kissler, 1994) Challenges associated with changes in psychological contracts and their management Currently there has been much concern over the changing format of employment relationship that shows less job security and a subsequent decrease in employee commitment, resulting from restructuring of the organisations that have taken place due to globalisation and economic crisis. Many researchers have claimed that the changes in the traditional psychological contract have resulted in an overall loss for the employees, wherein current organisations are demanding loyalty and involvement, without guaranteeing job security and career advancement (Guest, 2004). While stiff market competition is pressuring the organisations to demand for increased initiative and commitment from their employees, the latter is missing many job entitlements. Psychological contracts are dynamic in nature, and the HR of organisations change their tactics to address changing environmental and social conditions, while with a gain in experience the employees start re-evaluating their current psychological contracts in order to renegotiate the obligations that exist as part of employment relationship (Cullinane, and Dundon, 2006). The social information processing theory further claims that when employees start gaining information by observing their employer’s behaviour and their own behaviour, it will change their perceptions and expectations regarding their rightful dues, which might lead to a creation of employee outrage. Such a feeling would emerge, as now the employees are made liable for risks previously borne by the firms, while at the same time there are no provisions for employee rewards that would act as compensation. Often there are further complications, when diverse contracts exist within the same organisation (Janssens, Sels, and Van Den Brande, 2003). Owing to changes in employment conditions over a period, employees from different generations would have different views on employee duties and job entitlements, further adding to the complications. Researchers have shown that in redefining and moderating the changes within employment relationship, the middle management plays an important role (Grant, 1999). Therefore, during organisational change, the behaviours of middle managers assume great significance, thus making it necessary to consider them while managing the new psychological contracts. Successful organisations are the ones that effectively balance employee and employer needs (the unwritten ones). Companies therefore must invest both money and time to achieve this balance, and since managers represent the organisation, they automatically become responsible for achieving this balance, thereby showing their importance within the realms of modern contract management. Psychological contract is not static in nature and continues to evolve at all times, therefore, employers must necessarily understand the changes that are taking place, and grasp the right time to renegotiate contracts with their employees (Grant, 1999). An adoption of proactive procedures is more likely to decrease the risk of employees moving away, since in such cases the organisation takes care of their needs and expectations. In modern management of psychological contracts, communication is necessary and a failure to communicate effectively often leads to violations of psychological contract (Lester and Kickul, 2001). Open book management processes can be used for creating a framework that would open an effective communication between employees and the employer. To be a successful, an organisation must necessarily manage its psychological contract even before its starts taking in employees. Researchers claimed that job interviews, orientation programs, organizational publications, and negotiations all work towards forming a psychological contract between an employee and the organization. Once an employee is hired, the HR must direct him/her towards the process of self-employment, where the former must always be encouraged to have an up-to-date job experience, which in turn would make him/her capable of getting a new job, if faced with a lay-off. Within current markets, with increasing technologies and competitors, employers require skilled employees at all levels. To keep up with the competition, an organization must always perform its best, and for this, there must be a committed workforce persistently working towards achieving organisational goals. A perceived violation of psychological contract often takes place when an employee consciously reduces his/her efforts, and various studies have conclusively proven that satisfactory psychological contracts have resulted in high employee commitment. Therefore, by comprehending the basic aspects of psychological contracts and acknowledging that it is an ever-changing process, organizations can create an effective contract that would develop a motivated and committed workforce. Conclusion From the above review it can be suggested that by keeping the aforementioned management techniques in mind and synchronising them with organisational expectations, it would allow an employer to develop a psychological contract that is better understood by its employees, thereby reducing chances of contract violation. References Argyris, C., 1960. Understanding Organisational Behaviour. Homewood, IL: Dorsey Press. CIPD, 2005. Managing Change the Role of the Psychological Contract. Accessed 1st December 2013, http://www.cipd.co.uk/nr/rdonlyres/06b92739-19f8-4bb4-ae47-796ea5f5cb15/0/manachang1105.pdf Cullinane, N., and Dundon, T., 2006. “The psychological contract: A critical review.” International Journal of Management Reviews 8(2), 113-29. 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