Psychological Contracts and Equity - Essay Example

Equity Theory Introduction Please place your introduction here… There are two ideas I can give you such as you want to know more about managing equity in a relationship from the viewpoint of a manager or that you want to see how equity is applied to other managerial and organizational behavior constructs. Literature Review The Equity Theory was first proposed by Adams who used it to explain why individuals may perceive certain situations, environments and relationships to be unfair or fair. The concept of fairness ties to the concept of equity in terms of what a person puts into something compared to what s/he gets out of it. According to Adams, in relation to a given work situation, employees seek to maintain equity when it comes to the rewards they get from their jobs and the inputs they give to it. Without maintaining this equity, the employees would feel negatively about their work situation and be distressed about it. Overtime, the idea of equity has been developed to include and influence many other facets of organizational behavior. Two of these are the psychological contract and employee motivation since they stand out as primary examples where the equity theory becomes applicable. The idea of establishing or creating equity between the employee and the company is very clearly seen when it comes to motivation since according to the theory employees seek to create equitable relationships and rewards can be used to make individuals work harder. However, when it comes to the psychological contract, the application of the equity theory is more subtle therefore it would be important to understand how the psychological contract and the equity theory complement each other. Psychological Contracts and Equity Robinson and Rousseau (1994) say that the psychological contract is quite important for all facets of management and those employees who are given employment with a company hope to obtain equal benefits from their employment as compared to the input they are giving to the company. In essence, the psychological contract of an employee is based on the idea of creating equity. As per the meaning of the term, a psychological contract is the implicit contract of several deep understandings between the company and the employee as they relate to the expectations of the employee and the obligations of the company (Emott, 2006). Guest (2004) takes an even larger view of the psychological contract in employment situations where recommends that a full understanding of an equitable relationship should incorporate fairness to both parties and it should be based on mutual trust. This kind of equity is perhaps too idealistic since it may be difficult for new employees to immediately create implicit bonds with the company. Similarly as Hendry and Jenkins (1997) report, since the psychological contract is an implicit contract, it can difficult to judge how the equity relationship will be impacted with changes that come in the future. However, from a managerial perspective, it is important to consider the presence of an equitable psychological contract before any change is announced to the employees. A Broken Contract The literature reviewed on the topic of equity and psychological contracts gives many examples of how the psychological contract might be broken and create negative results for a company. However, it might be possible to break or alter a psychological contract if equity can be established soon afterwards or if the management is insightful enough to bring changes that benefit the company in the long run. The negative effect of betraying a psychological contract was experienced by Apple Inc. when Steve Jobs came back to the company as its CEO. As soon as he returned, he made several drastic changes to the organization. Under previous CEOs, the company had developed a leisurely atmosphere which had a good effect on the morale of the employees but was also hurting production and output. Deutschman (2000) describes the situation before Steve’s return and says that: “Before Steves takeover, the campus had a leisurely atmosphere. Staffers loved to hang around smoking and chatting in the courtyard of the R&D complex, which always had ashtrays stocked at the outside and inside doors of all six of its buildings. Some employees seemed to spend most of their time throwing Frisbees to their dogs on the lawns (Deutschman, 2000, Pg. 3).” Steve quickly changed that and created new rules that prohibited smoking anywhere on Apple property. Pets were banned and it appeared that, “Steve was pushing his own lifestyle on 10,000 others (Deutschman, 2000, Pg. 3)”. These steps made many people unhappy since smoking in the courtyard allowed some workers from different departments to interact with one another and employees who worked nights or weekends for Apple wanted to be with their pets during the day (Deutschman, 2000). In these circumstances, equity was being hurt and a long established psychological contact was being broken. It would seem that the decision was wrong and could lead to problems for the company. While these apparently inequitable steps seem to be going against the demands of maintaining the psychological contact, they worked at Apple due to the management skills of the leadership and the company turned itself around. The company posted record breaking profits, highest ever sale figures and the brand value appreciated as Steve Jobs worked his magic again (Deutschman, 2000). From not paying attention to changing CEOs at the top, the employees became proactive and started to interact with the CEO on a deeper level. Deutschman (2000) describes this change as: “People started to realize that Steve could assert his authority over seemingly any aspect of the companys life. Apple was going to follow the vision of a single person, from the no-smoking rules to the editing of the TV advertisements. Steve was clearly in charge, and Steve was seemingly everywhere (Deutschman, 2000, Pg. 3)”. At the same time, many individuals left the company citing personal differences with the policies initiated which had been created by Steve Jobs. The psychological contract was broken and equity was disturbed therefore the employees who could not handle the distress of the situation voted with their feet and left the company. As described by Clarke and Robertson (2005), inequitable relationships created by the breaking of this contact can create negative emotions and resentment leading to individuals leaving the company. To prevent this from happening, companies need to recreate equity by motivating individuals which can engage them in and create a deeper level of commitment. Equity and Motivation The Content theory of motivation which is related to ideas such as Maslow’s hierarchy of needs connects deeply with the idea of equity. At many top business organizations, rewards are given for excellent performance and poor output can cause the worker to be sent home. In this manner, rewards are an important part of the management system for a company that wishes to create equity and reduce the distress felt by the workers. For example, Welch (2005) reports that, “We publicly rewarded people who drove the mission and let go of people who couldn’t deal with it for whatever reason (Welch, 2005, Pg. 16)”. The idea of publicly rewarding top performers ensures that those who see it happen know why those individuals are being rewarded since the equity relationship has to be justified to them. On a deeper level with regard to equity, the individuals who were rewarded would have a harder time in leaving the company and their personal commitment to the company would only be strengthened. Others who see the rewards being given could be motivated to work harder and get the same level of rewards and improve their own equation for equity. Developing Equity As a practical example, GE gives a substantial bonus to their top employees to motivate them towards further achievements. Welch (2005) discusses the case where a scientist working for the company got an award from a public body for his achievements in science. Mr. Welch asked that the GE board immediately connect the scientist’s award with a cash bonus since even the Nobel peace prize comes with monetary figure attached to it to make it more equitable for the person receiving the award. This relationship is taken further down the path of equity as the reward system for GE evolves over the long term into a partnership between the employee and the company. Continual rewards and promotions come to those individuals who perform for GE while others are phased out (Grote, 2002). Thus the equity relationship builds with the time a person invests into a company and this follows the notion of having long term equitable relationships. It is to GE’s credit that their reward management system for creating equity in terms of employee relationships and engaging personnel has been used by some of the biggest businesses in the world. Their system of rewarding employees is used by Microsoft, Cisco, HP, Sun, Capital One, PepsiCo and Intel amongst many others. On average a fourth of all the companies in the Fortune 500 list have established this practice of division as a reward management standard (Grote, 2002). Opinion I think that motivation itself and a continued positive psychological contract depend on equitable organizational relationships and good managers would know how to use these to motivate other individuals in a company. Such equity is valuable for the company in both the long and short term because it keeps employees engaged and shows them what they need to do in order to have a more equitable relationship with the organization. It is certainly an attractive concept and one that can be easily used to understand the basics of how other processes in organizational behavior function. Focus of Longer Project It seems that a lot of the literature with regard to equity and the related topics covered is directly connected with the issues of power, trust and fairness. As these are the basic points in making and developing the psychological contract, establishing motivational systems and having equitable connections between the employees and the company, they can be studied further. For this purpose, on a larger project, it might be more useful to study the idea of individual power or organizational power when it comes to equity and how equity can be created if there are powerful individuals within the organization. Further, additional cases of equity creation, motivation and creating psychological contracts that take into account the idea of equity can be important starting points which show us if the level of motivation being offered to the employees is enough for their needs or not. Similarly, inequity created through damaged psychological contracts can also be an important topic to study when it comes to discussing employee layoffs and other situations where the employees have a damaged contract with the company. While the cases of GE and Apple show what impacts can be had with a positive and visionary management system, there are likely to be other cases which show other means of creating equity and these might be important starting points for deeper research. Essentially, it seems that the field for research with regard to equity creation, establishing equity and continuing an equity based relationship between the company and the employees is quite vast and a lot of research can be done on these topics. Word Count: 2,057 Works Cited Clarke, S. and Robertson, I. 2005, ‘A meta-analytic review of the Big Five personality factors and accident involvement in occupational and non-occupational settings’, Journal of Occupational & Organizational Psychology, vol. 78, no. 3, pp. 355-376. Cory, C. 2006, ‘Equity Theory And Employee Motivation’, [Online] Available at: http://www.buzzle.com/editorials/6-24-2006-100325.asp Deutschman, A. 2000, ‘The once and future Steve Jobs’, Salon.com, [Online] Available at: http://archive.salon.com/tech/books/2000/10/11/jobs_excerpt/index.html Emott, M. 2006, ‘A review of research into the making and breaking of psychological contracts’, People Management, vol. 12 no. 1, pp. 47-48. Grote, D. 2002, ‘Forced Ranking: Behind the Scenes’, Across the Boar, vol. 39, no. 6, pp, 40-46. Guest, D. 2004, ‘The Psychology of the Employment Relationship: An Analysis Based on the Psychological Contract’, Applied Psychology: An International Review, vol. 53 no. 4, pp541-555. Hendry, C. and Jenkins, R. 1997, ‘Psychological contracts and new deals’ Human Resource Management Journal; vol. 7, no. 1, pp. 38-44. Robinson, S. and Rousseau, D. 1994, ‘Violating the psychological contract: not the exception but the norm’, Journal of Organizational Behavior, vol. 15, no. 3, pp. 245-259. Welch, J. 2005, Winning, HarperCollins. Read More