International Human Resources Management: a Psychological Contract - Essay Example

Running Head: International Human Resources Management The role of Psychological contract in employment regulations of the of the University] International Human Resources Management The term psychological contract was introduced in the 1960s. It had become popular in the 1990s when there was a recession in the economy. A psychological contract can be construed as the perceptions of employees and managers with regard to their mutual obligations towards each other. Mutual obligations are informal and ambiguous. They derive from current acts or from something that had occurred in the past. They may be inferred from the promises or statements made by the employer (The psychological contract, 2007). For instance, at the time of recruitment the employer may promise to offer something to the employee or at the time of appraising an employee’s performance the employer could declare a reward for his satisfactory performance. Mutual obligations sometimes act as promises and sometimes as expectations. However, the employee is required to have trust in such promises or expectations as part of the relationship with the employer (The psychological contract, 2007). There is a vast difference between a legal contract and a psychological contract with regard to employment. Legal contracts offer a limited set of expectations and imperfect identification of the relationship involved in the employment. With the exception of refusing to accept such terms and conditions, the employee can do anything about the relationship mentioned in legal contracts. The courts and employment tribunals examine the nature and content of the legal contract of employment. These enforcing bodies interpret the nature of employment on the basis of the legal contract (The psychological contract, 2007). A psychological contract examines the practicality and reality of the work place environment as perceived by the employer and the employees. It has greater effect than a legal contract in determining the activities of the employees and the management. Under a psychological contract, the employees have a clear idea of their duties and the necessity to discuss them by adopting the process of collective bargaining. It also explains to them their expectations from the employer (The psychological contract, 2007). A psychological contract does not require to be enforced strictly. The courts examine the underlying relationship between employer and employee while interpreting the common law principles with regard to mutual trust and confidence. Researchers claim that there would be a negative effect on job satisfaction and a deterioration of employee commitment towards their job, if the management fails to fulfill its promises to its employees or if the management fails to execute its commitments (The psychological contract, 2007). Furthermore, a psychological contract would be breached if the managers of an organization failed to reward their employees as promised or if the management failed to bestow the promised training on the employees. In addition, such contracts fail if the management indulges in the intentional degradation of the performance outcomes of the employees. However, it is a fact that managers cannot fulfill their commitments all the time. Such failure can be attributed to various reasons such as deterioration of employment prospects, mergers and acquisitions and restructuring the whole organization (The psychological contract, 2007). When employees discharge their duties with the feeling that the management had failed to carry out its promises to them, it could be said that there was a psychological contract violation. For instance, an employee could be reasonably expected to have the expectation that the management would provide him with adequate training and promotional opportunities. His expectation forms the foundation of the psychological contract. If the management fails to provide him with such training or development opportunities, then the result would be the breaching of the psychological contract. This would further affect the efficiency and commitment of the employees and produce negative consequences on the entire organization (Restuborg, Bordia, & Tang, Jun2006). In the field of organizational psychology, the notion of a psychological contract is very useful in evaluating the relationship of employment. The psychological contract is a perceptive relationship between employees and their employer, which is based on implicit expectations. It is not an overt contract and it is less frequently discussed. Moreover, it is the subject matter of debates that revolve around its nature. It could be a contract based on perception that originated in the mind of the employee, or it could be some kind of a contract that involved both the employer and employee, in order to reciprocate each other in the relationship of employment (DAnnunzio-Green & Francis, Sep2005). A psychological contract’s rationale is socio emotional in character. It is mainly concerned with loyalty and discretionary behaviour in return for job security. Moreover, there will be financial rewards, development opportunities and the provision of training facilities by the employer to the employees of the organization. A psychological contract is principally based on mutual interdependence. It is bestowed with an ideal and moral employment relationship (DAnnunzio-Green & Francis, Sep2005). Such psychological contracts are the indicators of high commitment models of Human Resource Management and they engender progressive human resource practices. They result in a positive state of contract, which would enhance the performance of employees and consequently, the performance of the entire organization (DAnnunzio-Green & Francis, Sep2005). The concept of a Psychological contract plays a vital role in Human Resources Management. In order to propagate and explain the theories and philosophy of Human Resources Management or HRM, the notion of a psychological contract is essential. A Psychological contract is an analytical tool, which is useful in motivating and instilling commitment among employees. Therefore, it is regarded as important instrument by scholars and practitioners of HRM. Employment relationships are social and economic relationships and can also be referred to as social and economic exchanges (Fox, 1974). A Psychological contract is an unseen binding relationship in respect of an array of mutual expectations. The parties to it may not aware of its existence but this relationship firmly regulates and governs their association (Levinson, Price, Munden, & Solley, 1962 p21). Mutual expectations that exist between the organization and the employee consist of the terms of employment. Some of these are the amount of work, the salary to be paid for that work, the complete obligations of the employment and the rights and the privileges extended by the organisation. This detailed description of the mutual expectations covered by a psychological contract gives rise to the total work environment picture. Some examples of the components of this picture are labour unrest, dissatisfaction of the employee with the working conditions and the development of hostility in workers due to violation of the psychological contract (Schein, 1978). The psychological contract mainly deals with indirectly suggested obligations and unseen promises. Initially, the academicians attempted to formulate psychological contracts in terms of social exchange. The latter depends on understanding the interaction between the employee and employer. This requires a consideration of the expectations of both the parties involved and their interaction with each other. This would explain the causes of agreements and dissatisfactions. Under the law, a contract is a legally binding agreement between two parties, wherein one of the parties executes something in return for remuneration from the other party. A psychological contract, on the other hand is subjective and based on an individual’s undeclared perceptions. These contracts belong to the domain of subjective perceptions (Rousseau, 1995 p6). A legal contract comprises of a formal, carefully written and negotiated agreement between two parties. These elements are absent in a psychological contract. It is difficult and unlawful to alter contractual terms in a legal contract, without obtaining the mutual consent of the contracting parties. There are no such restrictions on psychological contracts, which are formed, solely, on perception and through unseen expectations and subjective feelings (Rousseau, 1995 p6). Therefore, the contents of a psychological contract can be changed easily, by either the employees or the employer. In practice, workers and managers of an organization enter into contractual agreements. Employees in large organizations are liable to enter multiple contracts with several representatives of that organization, which results in multiple exchanges (Setton, Bennett, & Liden, 1996). In instances of imbalance of power in overt contracts, the employers exercise their powers to distribute resources in accordance with their predefined needs. The employers try to correlate this distribution of resources to the latent expectations of the employees. At this juncture the importance of psychological contracts is realized (Morrison & Robinson, 1997). The relation between the employee and the employer, is distinguished by the following factors, first, labour power is bought by employers from employees (Offe, 1985. p. 14). In general, there is a conflict of interest in such transaction, because what benefits the management, in such deals, is likely to prove detrimental to the employees (Edwards & Scullion, 1982. p. 3). Disagreements also arise on account of the amount of effort to be made for the wages paid, because it is impossible to exactly quantify the amount of work to be done, beforehand. Such a difference in what is perceived to be adequate work for the remuneration made is always present in labour contracts (DArt & Thomas, March 2006). Moreover, organizations always support a hierarchical framework, with management having greater powers and benefits in comparison to the employees. In addition, management always dominates the employees. This power is utilized by management to restrict the employees. The purpose of the unions is to mitigate this power imbalance, between the management and the employees (DArt & Thomas, March 2006). The workforce is treated like any other commodity to be purchased and sold in the market. This results in a number of serious differences between the management and the employees. The reason is that labour comprises of humans and by no stretch of the imagination can a human be expected to behave like an automaton or robot. Humans have emotions and thinking capacity. Thus it can be seen that the employer employee relationship entails opposites like disagreement and support, and adjustment and opposition. Accordingly, managers have to simultaneously exercise control and discipline over employees, while motivating and increasing their productivity (DArt & Thomas, March 2006). There are two sets of promises in psychological contracts; one set is made by the management and the other by the employees. The employees give assurances to the effect that they will safeguard the organization’s reputation, work to the best of their ability, be punctual and regular, always display loyalty towards the organization, put in additional work hours if the situation warrants such action, acquire new skills, work in a flexible manner, extend courteous service to customers, maintain the decorum of the workplace and refrain from dishonest behaviour (Armstrong, 2002. pp. 46 - 50). The management, promises to pay wages that are proportionate to the work done, provide for promotions, training and development, give extracts containing salient features of performance reviews to employees, treat employees with respect, provide realistic levels of job security and to make the work place sufficiently safe and comfortable (Armstrong, 2002. pp. 46 - 50). The reality is that the practices adopted by management, under the garb of HR practices, have on a number of occasions, resulted in demotivating employees. Many amongst such employees have subsequently, left such organizations. This has led to some authorities suggesting that the psychological contract could be employed as a management tool. The thinking is that employees could be better managed if the implied expectations were rendered explicit. However, there a number of instances that have come to light, wherein, such attempts have served to aggravate the extant problems (Armstrong, 2002. pp. 46 - 50). Moreover, if organizational changes take place on a continuous basis, then the management is faced with great difficulty in making good the promises made by it to the employees. In addition, management will be explicit in the demands it makes on employees, but it will be unable to clearly specify the remuneration. This situation is bound to make the employees harbour misgivings about the intentions of management. Therefore, it could be contended that the success of the psychological contract lies in its being inherently implicit (Briner & Conway, 25th November, 2004 ). Any organization has some expectations regarding its workforce and similarly, the workforce also has some hopes from the management. The psychological contract consists of a collection of such mutual expectations. Further, it generates approaches and feelings that shape and control conduct. Moreover, it is not only implied but also vibrant, because it matures over a period of time, whenever there is an accretion of experience, alteration in employment circumstances and reassessment of prospects by employees (Armstrong, 2002. pp. 46 - 50). There are two queries that are always uppermost in the minds of employees, these relate to what they can hope to obtain from the employer and what they have to do in return. The psychological contract provides some semblance of a reply to these questions. The hope of every employee is to be treated equitably, to be allotted work that fully exploits his knowledge and skills, to receive remuneration that is commensurate to performance, to obtain a review of the work that they are doing for the organization and to be permitted to improve their employment status (Armstrong, 2002. pp. 46 - 50). Likewise, management wants the employees to put in their best efforts for increasing the profits of the company and to promote the image of the organization in every situation. When these mutual expectations are satisfied, there is all round harmony; however, on several occasions it has been observed that this does not hold true. Thus we find lack of understanding, mutual distrust, accusations being hurled by the management at the employees and vice – versa and the discontinuance of employment, in short the creation of bad blood between them (Armstrong, 2002. pp. 46 - 50). In the absence of an objective psychological contract harmonious relations between the employee and the employer cannot exist. This is due to the fact that the expectations of the employees and the organization are unstated. Moreover, this lack of articulation results in frequent disenchantment with each other. This situation can be bettered to a significant extent if the management makes it crystal clear to the employees as to what the organization expects of them in respect of performance, job skills, interpersonal skills, motivation and the values that they should support. This requires the management to take active and proactive measures to engender these qualities in the employees (Armstrong, 2002. pp. 46 - 50). The commitment of workers towards their employer is determined by the extent to which their expectations regarding what the organization expects of them and what they will obtain in return, corresponds to what the organization expects of them and what it gives them in return. However, the trend in recent times has been that employers are least interested in providing employees with job security, a meaningful and fulfilling career and work that provides job satisfaction. On the other hand, they want more work from their employees and they also want them to adapt to sudden and unexpected changes and a high level of uncertainty, while drastically reducing job security and severely curtailing career prospects (Armstrong, 2002. pp. 46 - 50). Hitherto the psychological contract had not been subjected to significant change. Of late, phenomena like globalization and outsourcing have deprived business organizations of their stability. Job security is no longer assured and there is a signal lack of interest in maintaining a stable employee base. The catch word is adaptability and the faster an employee or organization is in this respect, the better its chances of survival in the fast paced world of today (Armstrong, 2002. pp. 46 - 50). At the present juncture, organizations require employees who can add value to their extant services and make innovative changes. The task of improving profitability has devolved to a certain extent on the employees. In exchange for providing a job to an employee, the employer seems to be empowered to demand innovative and exemplary work. The wages earned reflect the contribution made by the employee. There is neither job security nor loyalty (Armstrong, 2002. pp. 46 - 50). At present, vast changes in technology, economics, demography and culture have transpired. These changes have had a far reaching effect on labour and as a result on psychological contracts between employees and organizations. Such contracts, discuss work related issues that are beyond the purview of the usual work contract. The flexibility of a psychological contract makes it evident that it can play a crucial role in the work relationship. It achieves this highly commendable result by characterising this relation in a better fashion than other means. Its importance in business relationships between employers and employees cannot be understated. These contracts can change at any time during the pendency of the business relationship; however, their subjective nature makes their violation a distinct possibility. An extremely efficient means of improving quality and efficiency in an organization is provided by such contracts. References Briner, R., & Conway, N. (25th November, 2004 ). Promises Promises . People Management , Vol. 10 Issue 23, p42-43. 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