Theory of Psychological Contract - Critical Analysis and Usefulness in an Organizational Context - Research Paper Example

Introduction A psychological contract primarily refers to the relationship between an employee and an employer and is integrally linked with the mutual expectations of the employee and the employer regarding the inputs and outcomes. A psychological contract is traditionally visualized from the standpoint of the employees’ feelings, though in order for it to be understood in entirety, the perspectives of both the employees and the employer need to be considered. “The psychological contract is promissory as it can be defined in relation to the promises that employees believe were made to them by their employer probably prior to them entering the organization” (George, 2009). In an organizational context, the psychological contract is simply the balance or fairness as visualized by the employees between the effort employees make in a job and the way they are treated by the employer. In this description of the theory of psychological contract, the words “staff”, “workforce” or “employees” are equally usable. The concept of psychological contract becomes more complex as well as significant in management and work when assessed at a deeper level, particularly when studied in context of change management in large corporations. The principles and theory of psychological contract can be applied well beyond the organization to include human relationships as well as the society as a whole. Unlike a vast majority of the traditional theories of behavior and management, the theory of psychological contract and the ideas surrounding this theory are quite fluid in that they are yet to be completely understood and defined in their entirety. Accordingly, they are yet far from a very wide use and recognition in the organizations. Although the theory of psychological contract does not integrally belong to the field of Human Resource Management (HRM), yet it is frequently used as an analytical device for the explanation and propagation of the HRM matters. The practitioners and educationalists have equally expressed interest in the theory of psychological contract since sustaining the commitment and motivation of employees is a common concern for both. This imparts the need to scrutinize and evaluate the underlying theoretical assumptions that underpin the theory of psychological contract; specifically, the managerial discourse of the theory that is frequently used to understand the meaning of the positive psychological contract. This paper achieves this by first tracing the origins of the theory of psychological contract, then exploring certain theoretical contributions that have played an important role in promoting the knowledge and understanding about the theory. The paper subsequently addresses the main conceptual and theoretical issues surrounding the theory of psychological contract that have largely been left unresolved in the literature. Finally, the paper comments of the validity, reliability, and predictability of the theory of psychological contract that may contribute to an understanding of organizational success and failures. Origin of the theory of psychological contract The psychological contract is an aspect that has become increasingly relevant to human behavior in general and the workplace relationships in particular. The psychological contract’s descriptions and definitions started to surface during the 1960s, particularly in the work of such theorists of behavior and organization as Edgar Schein and Chris Argyris. Since then, numerous experts, educationalists, and theorists have contributed their ideas to the theory of psychological contract and many are still doing that. Some have focused on the psychological contract whereas others have approached the theory from specific perspectives. The psychological contract is a varied and deep theory and is subject to a whole range of theoretical studies and interpretations since its emergence in the 1960s. There has occurred a considerable expansion in the literature of the theory of psychological contract over the last decade, though the pedigree of the theory is much deeper and longer. The antecedents of the theory are evident in the theory of social exchange. The central proposition of this theory is that unequal distribution of power resources and unspecified obligations have always constituted the social relationships. Argyris (1960) described the embeddedness of the power of values held by the individual as well as the organization using the term “psychological work contract”. The earlier literature emphasizes upon the shaping of employment relationships by economic and social exchange. Levinson et al. (1962) explained the psychological contract in terms of “a series of mutual expectations of which the parties to the relationship may not themselves be dimly aware but which nonetheless govern their relationship to each other” (Levinson et al., 1962, p. 21). These mutual expectations between the employees and their organization not only covers the privileges, rights, and obligations, but also the amount of work that is supposed to be done for a certain compensation (Schein, 1978). This lays the basis of the idea that employee dissatisfaction, labor unrest, and employee alienation originates from the psychological contract violations that are comprised as such issues as working hours, compensation, and the employment conditions that lay the basis of a negotiable agenda instead of a psychological one. While the interest in the theory of psychological contract dates back to the mid 20th century, yet the consideration of its application to the management theory in an organizational context evolve more during the 1990s. At that time, interest of the practitioners and educationalists in the theory of psychological contract was driven by their desire to identify innovative practices of people management in the context of heightened international competition and economic restructuring. Rousseau (1990) led the renaissance in the theory of psychological contract who used the transactional psychological contracts so that they captured the labor market flexibility and employment relationship’s economic restructuring. The employees in these transactional psychological contracts do not foresee a relational process with the organization that would last for long because of their job security and loyalty with the organization. Instead, the employment is understood as a transaction wherein training and high contingent pay imparts the need of long hours of working. After an insight into the development of the literature regarding the theory of psychological contract, the following section explores the theoretical complexities of the theory of psychological contract Theoretical complexities in the theory of psychological contract Presently, despite the existence of an intense debate in the literature, a range of theoretical issues still remains unresolved that make the theory of psychological contract more of a myopic conceptual lens. The present theorizing and literature does not cover all sources of influence that affect the measurement of the theory of psychological contract. Till the time these ignored sources are not dealt with, efforts to attain a health psychological contract might pursue a cause that has been lost in the hunt of the organizational illusion. One of the main theoretical complexities is the very definition of psychological contract. Different authors define the psychological contract differently. While some emphasize upon the importance of the agreeing parties implicit obligations toward each other, others emphasize upon the need to comprehend the expectations of people from the employment. There is yet another school of thought that considers reciprocal mutuality a fundamental determinant of the theory of psychological contract (Atkinson et al. 2003; Rosseau and Tijoriwala, 1998). To what extent is the psychological contract a contract? The subjective interchange between the employee and the organization having a contractual status is a fundamental element of the theory of psychological contract. Various researchers and theorists including Boxall and Purcell (2003) and Guest (2004) to date have attempted to evaluate the extent to which the psychological contract can be justifiably considered as a contract. According to Boxall and Purcell (2003), the contractual status essential constitutes the central scaffolding of the theory. In the conventional legal terms, the term contract means an agreement between two or more parties or its outward appearance for the least. However, considering the orientation of the psychological contract toward the subjective perceptions, it seems problematic to locate a zone of acceptance or reach an agreement. In other words, the point at which the psychological contract may be discussed effectively between an employee and an organization is hard to pin down. It becomes even more of a problem when the contract is visualized as a kind of ongoing process (Herriot and Pemberton, 1997). “[W]here the implicit encounters the implicit, the result may be two strangers passing blindfold and in the dark, disappointed at their failure to meet” (Guest, 1998, p. 652). A legal contract, as opposed to a psychological contract, is clearly stated and documented between the parties in agreement, and is more formal. The parties bound together by a legal contract agree to the contract’s terms and conditions and know what their individualistic and collective rights, and duties and responsibilities toward one another are. In the case of a legal contract, no alteration or amendment in the contract can be done without the mutual consent of the parties involved. Unlike the legal contract, the psychological contract is subject to no contractual obligations or restrictions primarily because it results exclusively from the subjective feelings and expectations of the contracting parties that have not been voiced out. Consequently, there is hardly anything to prevent a psychological contract from being altered or modified secretly and casually by either of the parties that are into an agreement with one another. The ambiguities surrounding the psychological contract’s legitimacy extend even beyond the lack of restrictions. On the face value, it is accepted and is quite understandable that managers and employees in an organization form a contract with one another. However, to whom the contracting parties are in the psychological contract is extremely unclear. The employees and the organization are easily recognizable entities, but there is a lot of subjectivity around this in certain cases. For example, in a large organization, it is quite possible and likely for the employees to contract with different kinds of agents within the organization, thus creating multiple exchanges. It is quite unlikely for the agents to grant the employees their expectations which in turn leads to lack of clarity as to which agents within the organization can be the most influential or prominent in shaping or laying out the expectations. The non-standard forms of employment have made the notion of development of a contract in an organization complicated, particularly in the case of multi-site employers or the agency workers. The exact employing organization is often not recognizable. The development of the multi-employer organizational relationships and the undefined organizational boundaries have numerous implications for the human resources management as well as the development of the psychological contract. Cooke et al. (2004), for instance, talk about the airport baggage handlers that although strongly identify with their airline yet they do not know which outside agency contractor they are legally employed to. Despite the fact that the airline was not the actual employer of the employees, the workers were committed to the airline as they saw it as a means of gaining permanent employment. A lot of baggage handlers showed themselves to the passengers as the employees of the airline and hid their true employer’s identity from the passengers. One of them said, “Our commitment will be to Airline D because if they think we are not good enough, then we have to go back to FH [their employer]” (Cooke et al., 2004, p. 188). This illustrates the contradictions of the employees that interpret the messages of the management regarding their contractual obligations with respect to the psychological contract. Divergent expectations and mixed messages Management of a psychological contract may foster a climate where people are developed rather than used, considering the fact that employers usually tend to have more authority and power to design the expectations (Guest and Conway, 2002, p. 22). This creates room for the concern whether it is possible for the managers to communicate the required behaviors and expectations among the stakeholders of an organization or if they consciously invest time and resources in fulfilling their commitments with the employees. Psychological contract, as a concept, implies that reciprocity’s dimensions are undefined and implicit and are not easily quantifiable. “Because psychological contracts represent how people interpret promises and commitments, both parties in the same employment relationship (employer and employee) can have different views regarding specific terms” (Armstrong and Murlis, 2007, p. 51). Even when the measurable indicators are assumed to be present, there is still immense room for dialectic regarding poorly communicated messages and expectations on the part of the managers. When employees are not satisfied with the performance of the managers in an organization and think that managers are breaching the conditions of the psychological contract, it might be the employees who are at mistake rather than the managers because the employees had made false and unrealistic expectations from the managers in the first place while the managers might believe that they have adhered to the commitments they have made in the psychological contract. For a vast majority of employers, ownership of the time and effort of the labor can be viewed according to a legal contract and not a psychological contract with unspecified obligations, conditions, and restrictions (Boxall and Purcell, 2003). This interpretation implies that the theory of psychological contract tends to measure the unattainable objectives. What might be lacking is not necessarily managers’ commitment, but the true cause of concern might be the factors that cause the employees to form expectations and perceive the behaviors of the managers right from the beginning. Hallier and James (1997) provided a case in which they evaluated the way line managers and employees in an organization of air traffic service (ATC) used the psychological contract while introducing a change in the organization. Haller and James (1997) noted that the managers rapidly adjusted their expectations from the employees in times of acute pressure for change. The managers considered the need to take the consent of the employees before introducing a modification in their psychological expectations unimportant and the adjustments were rationalized on the basis of external factors of business. Failure to deliver on a deal expected by the employees resulted from pressures of the new business demands rather than lack of willingness of the management to communicate with the employees. The managers argued that as a result of increase in the pressure of having greater competition and costs, the previous commitments regarding satisfying the needs of job security and career preferences of the employees could not be maintained. The managers expected the employees to understand this and modify their needs keeping in view the changing commercial priorities. In addition to that, changes surfacing from the external pressures were thought to be externally justified as well as inescapable. The prerogative of the managers prevailed irrespective of the psychological expectations of the employees. The personal manager of ATC said, “Every one of them has an unreal expectation that ATC owes them a living. They have no perception of reality in the outside world. Even where they've been faced with potentially miserable futures outside, seeing that the market is paying so much lower than they're getting, they still adopt the view that says you owe me everything” (Hallier and James, 1997, p. 715). Any kind of imbalance in the compliance with the psychological contract was created because of the employees rather than the managers because the employees had attempted to sustain the conditions that had been established in the old contract and were not willing to give up the unrealistic expectations. As a result of that, employees that refused to have any adjustments made in their responsibilities would impart the need for the managers to change them. On the other hand, for the employees, the story was as simple as management having failed to live up to their expectations because of the unfulfilled promises. Other research provides evidence for the existence of mixed messages regarding the management’s fulfillment of its promises made to the employees. Guest and Conway (2001) carried out research upon the psychological contract’s state among the employees belonging to both the public and the private sector in the UK employing the data from a total of 2000 employees. The employees supported the theory of psychological contract generally. Most of the employees said that they had been promised by their employers to provide them with fair chances and treatment in the organization, though the employees were not quite as positive in such areas as career development and compensation. A very interesting result of the research by Guest and Conway (2001) was the dissonance between the employees according to whom, their employers had “promised” to them. The same researchers when subsequently carried out a survey upon the managerial respondents regarding the psychological contract’s state found a part of or complete undercurrent of the violation of contract. The researchers concluded, “Senior managers responsible for relevant policy acknowledge that their organisations often fail, partially or more completely, to keep their promises and commitments (Guest and Conway, 2002, p. 36). Although a psychological contract between an employee and an employer is very subjective and leads to a lot of doubts and confusions in a vast majority of cases, yet its usefulness in certain circumstances cannot be denied. A psychological contract is particularly useful when decisions have to be made in urgent circumstances or when the tasks are too small to make a legal contract in written form for. For instance, when an employer that otherwise has a legal contract with an employee sends the employee on such a small task that although is just a part of the job, yet is not recognized in the legal contract, the employee functions according to the psychological contract simply because it is more feasible. Even organizations that have a practice of forming legal contracts with their employees often make use of the psychological contracts. For instance, it is a psychological contract between the employees and the organization that the performance of each employee would be judged fairly and in an unbiased manner by the management and the increments would be assigned to the individual employees accordingly. The psychological contract’s validity is highly questionable because the concerns and interests of the parties in agreement with one another are never voiced out as a result of which, neither of the two parties knows for sure what are the expectations of the other party from it whereas one of the most fundamental objectives behind making a contract is to clearly state the expectations of the agreeing parties so that they are clear. The psychological contract’s reliability is highly questionable because different employees carry different expectations from the managers and vice versa. “psychological contracts represent a dynamic and reciprocal deal… New expectations are added over time as perceptions about the employer’s commitment evolve. These unwritten individual contracts are therefore concerned with the social and emotional aspects of the exchange between employer and employee” (Sparrow, 1999 cited in Armstrong, 2007, p. 226). Although it exists in no objective form, yet the psychological contract does provide a predictable explanation that may help in understanding the success or failure of an organization in certain circumstances. However, psychological contract is quite unlikely to lead an organization to success particularly when it is used in place of a legal contract in circumstances that are too important and grave for it to be used in. For example, when a new employee is hired, making a legal contract tells the employee the duration for which his/her job is secure, the salary and the benefits that would be given by the organization to the employee. Knowledge of these fundamentals helps the employee prepare himself/herself for the needs and demands of the work and the challenges lying ahead. The employee therefore works diligently and has objective grounds to question any unjustifiable move on the part of the management or the employer. On the other hand, when a new employee is hired and a psychological contract is formed between him/her and the employer in place of a legal contract, the employee feels himself/herself insecure because the job may be terminated any time without any prior notice. In addition to that, the employee has no firm grounds to establish what would the salary be or how it would change over the passage of time. Lack of awareness of these fundamentals inculcates a demotivation in the employee and this reflects in his/her performance in the form of poor productivity and poor quality of work. Establishment of a legal contract between an employee and an employer clarifies to both what their respective rights and responsibilities toward each other are whereas in the case of a psychological contract, no rights and responsibilities are established. As a result of lack of the clear depiction and statement of the rights and responsibilities, the employee and the employer are not able to connect to each other in a way that is favorable for the organization as a whole. Nevertheless, the theory of psychological contract provides a lot of potential for comprehending as well as improving the relationships outside the traditional context of organization. Presently, psychological contracts in human behavior and society outside the relationships between the employees and the employer are not widely appreciated (Businessballs, 2010). Conclusion First, the paper discussed the continued use of the theory of psychological contract. The paper then discussed the possibility of divergent expectations and mixed messages around its delivery. The paper also discussed the alternative culture, post-structural, and socio-political interpretations of the psychological contract construction. There is a lot of subjectivity about the status of psychological contract as a contract because of the immense deviation of it from the legal contract in a range of ways. One conclusion that can be drawn from the critical analysis presented in this paper is that the psychological contract between an employee and an employer is never as valid, reliable, and predictable as a legal contract in the written form is because the former does not have any clear restrictions, expectations, and mention of the rights and responsibilities of the parties in agreement with one another that the latter has. In fact, the fundamental status of a psychological contract between the employee and the employer as a contract is quite questionable because it is never recognized. Lack of any evidence of the psychological contract lays the basis of frequent changes in it over the period of time. Since management happens to be more powerful and authorized than the employees, the changes in psychological contract are more often than not introduced by the management rather than the employees. The management incorporates these changes into the psychological contract without any consent of the employees and expects the employees to understand the ongoing challenges and agree to the changes in the psychological contract thus made. This provides the management with an edge whereas the employees are mostly placed on the giving side of the contract. Since there is nothing written in the psychological contract, neither of the two parties can be held accountable for the violation of the conditions of contract. In the long run, the implications of a psychological contract between an employee and the employer are mostly negative because the employees feel deceived by the employers. This results in a decline in the employees’ level of motivation for work and loyalty with the organization, and this shows up in the form of lost productivity and poor quality of work by the employees. A psychological contract is ambiguous and carries a lot of uncertainties, yet it is frequently employed even by the organizations that otherwise do have a legal form of contract with their employees. So in certain circumstances that invariably occur in almost every organization, the usefulness of a psychological contract cannot be completely overlooked. Basically, a psychological contract has fair chances of leading an organization to failure when there is no legal contract made at any level. However, in cases where there is a basic legal contract in written form between an employee and an employer, and psychological contracts are made for urgent matters or for matters too petty to make a legal contract for, it is quite unlikely for the psychological contract to be the cause of failure of an organization. However, not failing does not necessarily mean that an organization is successful. While a psychological contract may or may not be the cause of failure of an organization, it is quite unlikely to be the cause of success of an organization. References: Argyris, C 1960, Understanding Organisational Behaviour, Homewood, Ill: Doresy. Armstrong, M, and Murlis, H 2007, Reward Management: A Handbook of Remuneration Strategy and Practice, Revised 5th edition, Kogan Page. Armstrong, M 2007, A Handbook of Human Resource Management Practice, USA: Kogan Page. 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