Psychological Contract - Essay Example

PSYCHOLOGICAL CONTRACT Background Employment contracts certainly affect the performance and commitment of employees towards the business organizationthat they work for. This fact is not only logical but also natural because people’s attitudes and behaviors are generally affected by motivations. In this respect – in the employment setting – such motivation is mainly based on the contract because it outlines an individual’s status in the socio-economic relationship within the organization. Numerous studies have been undertaken to investigate this element in the employment contract, which constitutes what is now known in human resource terms as the psychological contract. This paper will cite a number of significant studies. These will be cited to underscore the fact that psychological contracts are extremely important for business organization for the simple fact that it is directly linked to productivity and efficiency, and, henceforth, profitability. The psychological contract concept was first coined and identified sometime in the 1990s to the 2000s although some semblance to it has been mentioned in previous literature as early as the 1970s and perhaps earlier. This fact underscores that the principle at work here is that one involving a system that is present in all interpersonal relationships wherein there are implicit and explicit promises. (Conway and Briner 2005, 20) There are numerous definitions to psychological contract and certainly psychologists, academics and other stakeholders could and would not agree on a standard or universal meaning. One of the most comprehensive, however, was that definition suggested by Denise Rousseau. According to her, psychological contract is something that exists in the mind of an individual and that it is consisted of “individual beliefs, shaped by the organization, regarding terms of an exchange agreement between individuals and their organization” or that, in simple terms, it is “the actions employees believe are expected of them and what response they expect from the employer.” (Cited in Wellin 2007, 27) Central to this variable is the so-called employee’s agency, which, for its part, “manifests itself as self-actualisation, action influence and creativity” – all of them contributing to the employees conception of the contract. (Seeck and Parzefall 2008, 473) It is important to underscore here that since the contract exists between two parties both of these exist in their respective minds – from the employee and the employer’s points of view. Further on, Makin et al. (1996, 6) differentiated the psychological contract from the economic, stating that it is more concerned with the process when the latter is primarily concerned about the content of the contract. For example, in economic terms the contract may be after the economic or financial gain but in psychological contract an individual gives importance to organizational citizenship, wherein he factors in and gets consulted, say, in the development of a new policy or work schedule. Psychological contract is also distinguished from the economic in the sense that it is in a constant flux instead of being stable. The dynamics is absolutely dictated by the changes in the way that the work within an organization is organized. It is, hence, always being revised. Because of the rapidly changing economic and labor landscape today, the employment contracts evolve as well to accommodate new variables and reject those deemed obsolete. Globalization – the integration of the international market – is much to do with this development. This paper would explore the subject and present its analyses along with this context. Summary Again psychological contract is widely recognized across the human resource field. Its foundation lays in the basic principle that guides the relationship of people interacting with each other especially in the economic and social context of working for an organization. What makes it important is that it is directly linked to the performance of individuals and, henceforth, their ability to contribute to the profitability and efficiency of an organization. It is distinguished from the economic contract because instead of being explicit, it is implicit in the way “terms” for the contract is “outlined.” Review of Literature The academic interest on psychological contract is quite extensive. Numerous studies have been undertaken throughout the years and they properly documented how the subject has developed. For example, Aggarwal and Bhargava (2009) have devoted their study on investigating the relationship between human resource practices in shaping employee psychological contract. To achieve this data from the period of 1972 to 2007 were extensively analyzed, revealing some interesting facts that include: Organizational strategy influences employment strategy and both in turn have an impact on HR practices that an organization chooses to implement. HR practices are the means through organization signals its intentions about the exchange relationship and results in formation of psychological contract. Psychological contract influence attitudes and behaviors of employees and influence organizational performance. Employee conception of employment relationship can influence the HR practices of an organization. HR practices shape the organizational culture, which in turn shapes and is shaped by psychological contract of employees. (19-20) The last element listed above was examined more in detail by Jeffrey Street (2009) in the same year Aggarwal and Bhargava’s work was published. The main premise of Street’s study was to determine and relate the cultural values of individualism and collectivism within an organization to psychological contract or its formation. One of the interesting examples used, for instance, was the traditional Japanese corporate practice of “welfare corporatism” that takes three forms: concern for employee welfare or paternalism; 2) employment stabilization for regular workers; and, 3) emphasis on employee skill development. (Street, 439) These practices, wrote Street, are instrumental not only in obtaining the commitment from employees but also the achievement of cooperation and flexibility for organizational changes that are being pursued by the company. There are many other examples cited from the experiences of the United States, among other countries that are helpful in this investigation. O’Donohue and Nelson (2009, 251) contributed to the studies on how psychological contract is shaped and shapes corporate culture. They have specialized their research, however, on expanding the psychological contract in order to include ethical values content. The idea is that social values and belief systems are potent elements in shaping and changing the attitudes and behavior of individuals and organizations. In using the ethical values-variable, an organization is addressing the current need of employees for meaning in their work wherein they are able to see and feel that they are contributing to the broader community. The authors argue that this factor characterizes the psychological contract of today and that organizations are better off in integrating this in how they strategize and implement their own psychological contracts. The study emphasized that such initiative would lead to achieving a degree of consistency in the type of relationship the organization is seeking with its employees as well as the type of ethical climate it wishes to develop within the organization. (O’Donohue and Nelson, 261) With regards to specific case studies on employees and the psychological contract’s effect on their behaviors within the workplace, Chambel and Castanheira’s (2006) research offered invaluable insights. Particularly, their comparative analysis on contractual and permanent employees in the context of the subject is very enlightening. This is relevant to the study because it reinforced the direct relationship between psychological contract and corporate profitability. A similar study was conducted by Chang and Hsu (2009) but this time it was conducted in the public sector in Taiwan. Their investigation was also concerned with the temporary employees and how psychological contract impacted their behaviors. One of the most important findings that they were able to posit was what constitutes the ideal psychological contract. To quote: “the ideal psychological contract of the temporary employee is very similar to that of a permanent employee.” Chang and Hsu (725) referred to Rousseau’s eight elements that make up the ideal psychological contract: performance salary, expansivity, training, high salary, promotion, support, working guarantee, and working culture and environment. These elements lead the motivations of employees to adopt and display positive attitudes towards work. A research on a curious aspect of psychological contract was presented by Lemire and Rouillard (2005). The main premise of their study revolves around the consequence of violating the psychological contract. The research was undertaken using data collated from employees of the Quebec government. Here, the so-called psychological contract “infringement” has been studied and it revealed the complex but significant individual reactions of “offending” employees. In the end, it was suggested that psychological contract is pivotal in the assurance of compliance with normative and regulatory constraints. (Lemire and Rouillard, 150) A general overview of the psychological contract concept as well as a general critical review were offered by Cullinane and Dundon (2006, 113) and in their words, they stated that their study “addresses some of the central problems presently confronting the theoretical side of the psychological contract literature.” Indeed, this study was able to present a comprehensive review of the extant credible resources on the subject, which made it an excellent starting point of reference for this study. It was able to outline several related and important studies, documents and accounts that are helpful in the pursuit of this paper’s own objectives. Evaluation The corpus of literature on psychological contracts is not only extensive but also comprehensive as well. It has been underscored by this paper, for instance, that psychological contract is constantly changing due to several factors such as technology and the integration of international market because of globalization. But the available studies on the subject are so diverse, chronicling different experiences that are not limited to one country but a number of them, that they, in effect, represent different cultures, economic status and political environments as well as organizational structures. And so, while the fact about the psychological contract as in constant flux, the sheer breadth of information provided by the related literature enables scholars and researchers to determine universal patterns, especially those highlighting the direct relationship between psychological contract and performance. Conclusion All in all, based on the extant studies and researches on the psychological contract, one can say, with a high degree of certainty, that it impacts individual behavior and employee work attitude. In addition, it also has both direct and indirect bearing on the organizational culture, the relationship among employees and between employee and employer, and on the performance and profitability of the organization as a whole. The review of literature underscores the level of interest on the subject, reflecting its importance on business organizations. The various experiences that have been documented serve as invaluable resources for organizations and human resource managers that seek to develop and cultivate their own psychological contract according to their specific needs and organizational objectives. With these points in mind, psychological contract or its development and strategic adoption in the employee-employer relationship is pivotal in the achievement of organizational objectives. References Aggarwal, U., and Bhargava, S. 2009. Reviewing the relationship between human resource practices and psychological contract and their impact on employee attitude and behaviours A conceptual model. Journal of European Industrial Training 33(1): pp. 4-31. Chambel, M., and Castanheira, F. 2006. Different temporary work status, different behaviors in organization. Journal of Business and Psychology 20(3): 351-367. Chang, C., and Hsu, P. 2009. The Psychological Contract of the Temporary Employee in the Public Sector in Taiwan. Social Behavior and Personality 37(6): 721-728. Conway, N., and Briner, R. 2005. Understanding psychological contracts at work: a critical evaluation of theory and research, Oxford: Oxford University Press. Cullinane, N., and Dundon, T. 2006. The psychological contract: A critical review. International Journal of Management Reviews 8(2): 113-129. Lemire, L., and Rouillard, C. 2005. An empirical exploration of psychological contract violation and individual behaviour: The case of Canadian federal civil servants in Quebec. Journal of Managerial Psychology 20(2): 150-163. Makin, P., Cooper, C., and Cox, C. 1996. Organizations and the psychological contract: managing people at work. Oxford: Wiley-Blackwell. ODonohue, W., and Nelson, L. 2009. The Role of Ethical Values in an Expanded Psychological Contract. Journal of Business Ethics 90(251): 251-263. Seeck, H., and Parzefall, M. 2008. Employee agency: challenges and opportunities for psychological contract theory. Personnel Review 37(5): 473-489. Street, J. 2009. he Implications of the Cultural Values of Individualism and Collectivism in the Formation of the Psychological Contract and Employee Commitment. Institute of Behavioral and Applied Management 433-448. Wellin, Michael. 2007. Managing the psychological contract: using the personal deal to increase business performance. Hampshire: Gower Publishing, Ltd. Read More