Psychological Contracts in Organizations - Essay Example

Psychological Contracts Background Information The business world today is more dynamic than it has ever been in recent history. Companies must adapt to change, or they are forced to adapt by external influences. If they do not respond to the demand for change they can find themselves out of business. While change is often beneficial for the business it can impact the psychological contract which the company has with its employees in a negative manner and that can lead to certain problems. I was placed in such a situation during my part time employment with Company X which had gone under a recent take over from Company A. After knowing about the psychological contract and understanding its effect on part-time as well as the permanent employees of a company, I feel that I am in a better position to apply the concept usefully and to study the implications of a negative turn on the psychological contract. The learning from the notes and research on psychological contracts also allows to me to suggest ways in how a negative impact can be avoided or minimized. Introduction The central point which I came to notice about the two companies was that the cultures of the two organisations are vastly different. Company X was a traditional, bureaucratic and hierarchical company while Company A worked on the lines of a modern, fast moving firm. From the research on the topic, it can be seen that this fact alone is likely to lead to a culture clash (Hendry and Jenkins, 1997). However, the situation was somewhat worsened by the fact that the owners of the new firm decided to create a talent and leadership programme and sought employees who worked with the former Company X to join the programme and lead the business into the future. While the takeover itself certainly impacted the psychological contract, since as suggested by Garrow (2003), a mergers or an acquisition is one of the toughest storm a psychological contract has to go through. However, the process of identifying and selecting candidates for the new programme had an even bigger impact. Even before the process began there were four categories of employees, who were expected to show an impact the eventual selection results, i.e.: Employees who wanted to and were selected. Employees who expected and wished to join the programme but were not selected. Employees who were neutral about being in the programme but were eventually selected. Employees who neither wished nor wanted to join the programme but were selected. Robinson and Rousseau (1994) suggest that the psychological contract in all of the cases given above would be impacted differently and this was certainly shown to be true. As per the meaning of the term, psychological contract, it is the implicit contract of understandings between the organisation and the workers as they relate to both the expectations of the employees and the obligations of the employer (Emott, 2006). When employees are being selected for the leadership programme the psychological contract is bound to be affected in some way. Guest (2004) takes an even wider view of the contract in such situations where new bonds are being formed and firmly recommends that the full understanding of the psychological contract should incorporate fairness to both parties and mutual trust. This was difficult to achieve in this case because the takeover was still fresh and managers and employees from both the companies had little time to create implicit bonds. As Hendry and Jenkins (1997) suggest, since the contract is implicit, it is difficult to judge how it will be impacted with changes in the company, but at the same time it is important to consider the psychological contract before any change is announced to the workers. Impact on the Psychological Contract The first case of employees who wanted to and have been selected is easy to explain in terms of the psychological contract. For some reason, they considered themselves capable and deserving enough to be made a part of the talent and leadership programme and the company thought the same therefore there is no conflict between them. It does not come as a surprise to the employee; rather it comes as a reward or even as expected entitlement. This situation would validate the belief of the employee in his/her own abilities as well as improve the strength of the psychological contract (Rousseau, 1995). Guest (2004) mentions issues of power, trust and fairness as the central forces in making the psychological contract and all these issues reflect positively in this situation. The company displayed its trust in the employee; the employee expected the trust to be shown and that employee can be further expected to act at a higher performance level than before. The employee can be expected to show a greater amount of commitment to the company, be more satisfied with the new position and have a stronger intention of staying on with the company despite all the changes which were coming. However, there is one case in which the psychological contract might be affected negatively i.e. if the employee considers inclusion in the program to be only a reward for their previous performance and does not consider the additional responsibility placed on them as a part of the future management team. In such a case, if the person managing the program is responsible then s/he would follow the recommendations of Farrel (2003) and clarify the demands of the talent and leadership programme so the employees know exactly what is involved in the process. Similarly, a sense of entitlement should be replaced with a sense of responsibility since these employees can be expected to take future leadership positions at the locations where the company operates. The second set of employees, who expected and wished to join the programme but were not selected is the most difficult to deal with in terms of psychological contracts. Essentially they may look at their not being named as a breach of the contract and could also see the situation as being unfair. Fairness itself has been reported as an input, a result and an element of the psychological process by Guest (2004) and if this group of employees was not shown (either privately or publicly) why they were not selected while others in their place were, they may not have seen the process as being fair. Of course the issue may even be connected with these employees going as far as thinking that the company was making decisions based on preferential favouritism rather than performance feedback in which case this would certainly have negative consequences (Guest, 2004). It must be noted that such perceptions can come with a strongly negative emotional response which must be carefully handled by the managers. The emotional response and the feelings of the ‘rejected’ employee probably had little to do with practicality, objective reality or their actual standing in the company (Barnett et. al. 2004). It is also suggested that such employees’ measures for job satisfaction, commitment to the organization, perceived obligations to the company and their decision to remain with the firm will all suffer a negative impact (Guest, 2004). In a worse case scenario, the impact of a break in the psychological contract could be so severe that an employee can lose their motivation enough to reduce their input and contributions to the company. Barnett et. al. report that in the past, there have been (avoidable) situations where employees placed in similar circumstances have voted with their feet and left the company altogether. The third batch can be considered as those employees who were neutral about being in the programme but had been selected for the programme. This is one of the easier groups to deal with because their perception of what the organisation demands from them might change, but it is unlikely that the implicit contract was affected negatively. In fact, if the managers of the company could have a nice word with this group of employees and then enormous benefits could be gained from the improvement in the implicit contract. On the other hand, had the managers shown a lack of communication it could have led to cynicism and that must be avoided or it could turn into total apathy (Abraham, 2000). Since this group had no expectations to be included in the talent and leadership programme, it most likely came as a pleasant surprise and if the added responsibility could be coupled with other benefits, this group could produce many stars for the company in the coming years. From the manager’s side, going above and beyond the psychological contract is expected of nearly every good employee and the company which does the same would have plenty of rewards. The employees’ attitude in this case can be expected to show a higher level of commitment, improved motivation and they are likely to be more satisfied with their jobs (Garrow, 2003). The final case concerns employees who neither wished nor wanted to join the programme but were selected as a part of it. This again was a delicate situation since they might perceive the talent and leadership programme as a burden or as suggested by Hendry and Jenkins (1997), they may not be ready to change their psychological contracts. In this case, the value of the employee to the company becomes important because if the employee is valuable enough, they should be given the opportunity to bow out of inclusion in the programme. If done correctly, the value of the psychological contract would improve and the employee could be expected to show higher performance levels. In such situations, it is probably better if the company does not make joining this programme a compulsion since it would sit negatively with employees who do not wish to join it. For the employees that the company feels would provide immense value by joining this program it is up to the managers to make arrangements and provide suitable conditions which let them secure their position as future leaders in the company. Conclusion For all employees who were working at the company (full time or part time), the central consideration was the legitimacy of the decision which matters. An employee who feels that the psychological contract has been broken could be mollified and accept the company’s decision if they are convinced that the decision was legitimate and for the benefit of all concerned parties (Hau & Tung 2003). In many situations such as the ones presented above, it is not what is said to the employees, but how it is presented to them that can the day. With regard to employees who were selected in the program it should be clarified what is expected of them as well as what they shall be provided in order to maintain and strengthen their future psychological contracts with the company. I am proud to note that the company is doing well and it seems that the psychological contracts of the employees were not shaken or broken and the managers were able to control the negative effects of the changes taking place. I feel that the one management tool which was employed to the benefit of the company was communication since it saved the day for many managers and workers with the company. The takeover was certainly a significant event in the history of the company and I was certainly glad to be a part of the process since it gave me an insider perspective on how such things are bound to have a negative effect on the psychological contract. However, I also realised that with strong management abilities and excellent communication skills a manager can use such situations as an opportunity rather than threat. Word Count: 2,183 Works Cited Abraham, R. 2000, ‘Organizational Cynicism: Bases and Consequences’, Genetic, Social & General Psychology Monographs, vol. 126 no. 3, pp269-293. Barnett, R. et. al. 2004, ‘Unintended consequences of job redesign’, Community, Work & Family, vol. 7 no. 2, pp227-246. Emott, M. 2006, ‘A review of research into the making and breaking of psychological contracts’, People Management, vol. 12 no. 1, pp. 47-48. Farrel, C. 2003, ‘Employer branding: The attraction of talent and creation of an honest psychological contract’, Australian Journal of Psychology, vol. 55 no.1. pp 123-124. Garrow, V. 2003, ‘Pact to the future’, People Management, vol. 9 no. 25, pp26-30. 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. Hau, V. W. and Tung, A. W. 2003, ‘The art of explaining organisational changes to employees: Reducing negative reactions through effective communication’, Australian Journal of Psychology, vol. 55 no.1. pp 128-129. Rousseau, D. 1995, Psychological Contracts in Organizations: Understanding Written and Unwritten Agreements. Sage Publications Ltd., London. 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. Read More