Psychological contract

Last updated

A psychological contract, a concept developed in contemporary research by organizational scholar Denise Rousseau, [1] represents the mutual beliefs, perceptions, and informal obligations between an employer and an employee. It sets the dynamics for the relationship and defines the detailed practicality of the work to be done. It is distinguishable from the formal written contract of employment which, for the most part, only identifies mutual duties and responsibilities in a generalized form.

Contents

Although Rousseau's 1989 article [1] as highlighted by Coyle-Shapiro "was very influential in guiding contemporary research", [2] the concept of the psychological contract was first introduced by Chris Argyris (1960):

Since the foremen realize the employees in this system will tend to produce optimally under passive leadership, and since the employees agree, a relationship may be hypothesized to evolve between the employees and the foremen which might be called the "psychological work contract." The employee will maintain the high production, low grievances, etc., if the foremen guarantee and respect the norms of the employee informal culture (i.e., let the employees alone, make certain they make adequate wages, and have secure jobs). [3]

Psychological contracts are defined by the relationship between an employer and an employee where there are unwritten mutual expectations for each side. A psychological contract is rather defined as a philosophy, not a formula or devised plan. One could characterize a psychological contract through qualities like respect, compassion, objectivity, and trust. [4] Psychological contracts are formed by beliefs about exchange agreements and may arise in a large variety of situations that are not necessarily employer-employee. [5] However, it is most significant in its function as defining the workplace relationship between employer and employee. In this capacity, the psychological contract is an essential, yet implicit agreement that defines employer-employee relationships. These contracts can cause virtuous and vicious circles in some circumstances. Multiple scholars define the psychological contract as a perceived exchange of agreement between an individual and another party. [5] The psychological contract is a type of social exchange relationship. [6] Parallels are drawn between the psychological contract and social exchange theory because the relationship's worth is defined through a cost-benefit analysis. [7] The implicit nature of the psychological contract makes it difficult to define, although there is some consensus on its nature. This consensus identifies psychological contracts as "promissory, implicit, reciprocal, perceptual, and based on expectations." [8]

These psychological contracts can be impacted by many things like mutual or conflicting morals and values between employer and employee, external forces like the nudge theory, and relative forces like Adams' equity theory. [4]

History

The concept of psychological contract became more popular among researchers starting in the 1990s, [8] but was named decades earlier in 1960 by Chris Argyris. As studies in industrial relations developed and grew more complex, it was revealed that employees are more likely to perform better in certain work environments. The works of Frederick Winslow Taylor in the first decades of the 20th century focused on how to enhance worker efficiency. Building upon this, Douglas McGregor developed Theory X and Theory Y in the 1950s to define two contrasting types of management styles that were each effective in attaining a certain goal. These differing management types hold different psychological contracts between employer and employee (described in more detail below in § The formation of the contract).

Works by Denise M. Rousseau and later described the psychological contract in more depth. [8] [9] [10] Sandra L. Robinson indicated employees commonly reported a breach of the psychological contract within several years of beginning their position, and that the effects of contract breach negatively affected employee productivity and retention. [11]

Maslach, Schaufeli and Leiter stated in 2001:

Now employees are expected to give more in terms of time, effort, skills, and flexibility, whereas they receive less in terms of career opportunities, lifetime employment, job security, and so on. Violation of the psychological contract is likely to produce burnout because it erodes the notion of reciprocity, which is crucial in maintaining well-being. [12]

The formation of the contract

Psychological contract formation is a process whereby the employer and the employee or prospective employee develop and refine their mental maps of one another. According to the outline of phases of psychological contract formation, the contracting process begins before the employment itself and develops throughout the course of employment. As the employment relationship grows, the psychological contract also grows and is reinforced over time. [13] However, the psychological contract is effective only if it is consented to voluntarily. [7] It is also useful in revealing what incentives workers may expect to receive in return for their employment. [7] There are two types of contracts depending on the nature of the relationship between employee and employer. These are relational psychological contracts and transactional psychological contracts.

  1. Transactional psychological contract: focuses more on the explicit elements of the contract without accounting much for the intrinsic motivations of workers. These are more common in organizations with authoritative management styles and hierarchal control. [7] Transactional contracts are found to be "related to careerism, lack of trust in employer, and greater resistance to change." [5] They tend to be shorter term in nature. [13]

    Some scholars consider McGregor's Theory X to be closely related to transactional employer-employee relationships or authoritarian management, which are bound by transactional psychological contracts that aim to keep people working for extrinsic reasons and maintain the status quo. [7]

  2. Relational psychological contract: stresses the interdependence of the organization and level of social exchange. These psychological contracts tend to be longer-term in nature. [13]

    McGregor's Theory Y is seen in participative management which emphasizes the role of leadership. This has similarities with relational psychological contracts in terms of common emphasis on commitment and belief in the intrinsic motivations of people who may want to work for something beyond merely monetary reasons. [7] Relational contracts are found to be associated with trust and increased acceptance of change. [5]

The content of psychological contracts varies widely depending on several factors including management style, as discussed earlier. It also depends on the type of profession and differs widely based on the stage in the career; for example, between graduates and managers. [13] Denise Rousseau is credited with outlining these 5 phases of contract formation:

  1. Pre-employment: The initial expectations of the employee form through professional norms and societal beliefs that may be influenced by information gathered about the organization and how certain occupations are portrayed by the media.
  2. Recruitment: The first instance of two-way communication involving promise exchanges between employer and prospective employee during the recruiting process.
  3. Early socialization: Promise exchanges continue with both parties actively continuing their search for information about one another through multiple sources.
  4. Later experiences: The promise exchange and search for information processes slow down as the employee is no longer considered new. There may be changes to the psychological contract introduced at this stage.
  5. Evaluation: The existing psychological contract is evaluated and possibly revised and it is determined whether a revision is needed. Incentives and costs of change impact revision. [13]

The psychological contract model is applicable not only to supervisor-subordinate relationships but also to business relationships. In 2015, a study was conducted on hotel franchising. [14] Franchising is an agreement between a brand owner and franchisee that grants the franchisee rights to use the brand in exchange for a fee. [15] According to the study, apart from this, the franchisee agreement includes an unwritten psychological contract agreement, consisting of unwritten promises and obligations between both parties.

Stages in career development

The employment relationship emerges through the interpersonal relationships formed in the workplace. How employers, supervisors and managers behave on a day-to-day basis is not determined by the legal contract. Employees slowly negotiate what they must do to satisfy their side of the bargain, and what they can expect in return. This negotiation is sometimes explicit, e.g. in appraisal or performance review sessions, but it more often takes the form of behavioral action and reaction through which parties explore and draw the boundaries of mutual expectation. Hence, the psychological contract determines what the parties will, or will not do and how it will be done. When the parties' expectations match each other, performance is likely to be good and satisfaction levels will be high. So long as the values and loyalty persist, trust and commitment will be maintained.

The map followed by the parties is the development of an individualized career path that makes only reasonable demands on the employee, with adequate support from managers and co-workers, for a level of remuneration that is demonstrably fair for a person of that age, educational background, and experience. Motivation and commitment will be enhanced if transfers and promotions follow the agreed path in a timely fashion.

The psychological contract changes over time. Since an employee's level of work changes as they advance in their career, the psychological contract that was established when they first began their career changes, too. As an employee is promoted throughout their career they expect more from their psychological contract because they are putting more of themselves into their work. Each stage of a career creates another editing process to the contract. The stages include apprentice, colleague, mentor, sponsor, exploration, establishment, maintenance, and disengagement. [16] The details of each step are as follows:

  1. Apprentice stage: Employees are new to the company and are expected to learn what they are supposed to do in this stage under the supervision of people in higher stages. Employees do their best to meet the expectations of the employer.
  2. Colleague stage: Employees in this stage work more independently and handle tasks without supervision. They work harder to prove to the employer they are capable of completing assignments alone.
  3. Mentor stage: Employees in this stage have the ability to oversee apprentices and guide them while also completing their own work.
  4. Sponsor stage: Employees in this stage take on managerial roles and help better the company rather than oversee apprentices like in the mentor stage.
  5. Exploration stage: Employees in this stage are new and have an unclear path in their career and are uncertain if they will stay with the same organization. They search for guidance and motivation from the organization to help them made decisions about their future.
  6. Establishment stage: Employees in this stage want to establish themselves in their organization. Employees want more responsibilities, more opportunities for promotion, and performance-based rewards.
  7. Maintenance stage: Employees in this stage feel as if their role in the organization has reached a stagnation and care to pursue other things in life besides just work.
  8. Disengagement stage: Employees in this stage are nearing the end of their career path. They are close to retiring, take on less work, and work at slower paces.

Studies from Canadian adjunct professor and psychology researcher Yani Likongo demonstrated that sometimes in organizations an idiosyncratic psychological contract is built between the employee and his direct supervisor in order to create an "informal deal" regarding work-life balance. These "deals" support the idea of a constructivist approach including both the employer and the employee, based on a give-and-take situation for both of them. [17] Similarities are drawn between the psychological contract and social exchange theory in that the relationship's worth is defined through a cost-benefit analysis. [18] The employee's attitude toward changes in the company which lead to changes in the psychological contract . An employee's attitude toward change in the job is directly linked to the employee's psychological contract with the manager or employer. An employee's attitude and mindset about what changes could benefit them in what ways could affect the psychological contract they have with the manager. [19]

If managed effectively, the relationship will foster mutual trust between the parties, matching the objectives and commitments of the organization to those of their employees. But a negative psychological contract can result in employees becoming disenchanted, demotivated and resentful of authoritarianism within the organization. This will result in an increasingly inefficient workforce whose objectives no longer correspond to the organization they work for. The main cause of disappointment tends to be that middle managers are protective of their status and security in the eyes of their superiors, and this can introduce conflicts of interest when they are required to fulfill their obligations to their subordinates.

Breach

Psychological contracts are largely reliant on promises between the employer and employee being kept, with trust being the basis for the social exchange. [20] A breach in the psychological contract occurs if employees perceive that their firm, or its agents, have failed to deliver on what they perceive was promised, or vice versa. Employees or employers who perceive a breach are likely to respond negatively as it may oftentimes result in an immediate response of mistrust from the other side. [20] Responses may occur in the form of reduced loyalty, commitment, and organizational citizenship behaviors. These feelings typically increase negative tension in the environment. Perceptions that one's psychological contract has been breached may arise shortly after the employee joins the company or even after years of satisfactory service. A breach in the contract may occur when the organizational changes are not necessarily beneficial for employees because of extenuating factors such as globalization and fast-changing markets. [20] The impact may be localized and contained, but if morale is more generally affected, the performance of the organization may be diminished. The risk for breach may be reduced when the organization knows and respects the contracts of the employees. Further, if the activities of the organization are perceived as being unjust or immoral, e.g. aggressive downsizing or outsourcing causing significant unemployment, its public reputation and brand image may also be damaged. [20]

Related Research Articles

<span class="mw-page-title-main">Industrial and organizational psychology</span> Branch of psychology

Industrial and organizational psychology is the science of human behavior in the workplace and work-life interface. It is an applied discipline within psychology. Depending on the country or region of the world, I-O psychology is also known as occupational psychology in the United Kingdom, organisational psychology in Australia and New Zealand, and work and organizational (WO) psychology throughout Europe and Brazil. Industrial, work, and organizational (IWO) psychology is the broader, more global title for the science and profession.

<span class="mw-page-title-main">Organizational commitment</span>

In organizational behavior and industrial and organizational psychology, organizational commitment is an individual's psychological attachment to the organization. Organizational scientists have also developed many nuanced definitions of organizational commitment, and numerous scales to measure them. Exemplary of this work is Meyer and Allen's model of commitment, which was developed to integrate numerous definitions of commitment that had been proliferated in the literature. Meyer and Allen's model has also been critiqued because the model is not consistent with empirical findings. It may also not be fully applicable in domains such as customer behavior. There has also been debate surrounding what Meyers and Allen's model was trying to achieve.

A performance appraisal, also referred to as a performance review, performance evaluation, (career) development discussion, or employee appraisal, sometimes shortened to "PA", is a periodic and systematic process whereby the job performance of an employee is documented and evaluated. This is done after employees are trained about work and settle into their jobs. Performance appraisals are a part of career development and consist of regular reviews of employee performance within organizations.

<span class="mw-page-title-main">Work design</span> Area of research and practice within industrial and organizational psychology

Work design is an area of research and practice within industrial and organizational psychology, and is concerned with the "content and organization of one's work tasks, activities, relationships, and responsibilities" (p. 662). Research has demonstrated that work design has important implications for individual employees, teams, organisations, and society.

Employment is a relationship between two parties regulating the provision of paid labour services. Usually based on a contract, one party, the employer, which might be a corporation, a not-for-profit organization, a co-operative, or any other entity, pays the other, the employee, in return for carrying out assigned work. Employees work in return for wages, which can be paid on the basis of an hourly rate, by piecework or an annual salary, depending on the type of work an employee does, the prevailing conditions of the sector and the bargaining power between the parties. Employees in some sectors may receive gratuities, bonus payments or stock options. In some types of employment, employees may receive benefits in addition to payment. Benefits may include health insurance, housing, disability insurance. Employment is typically governed by employment laws, organisation or legal contracts.

Equity theory focuses on determining whether the distribution of resources is fair. Equity is measured by comparing the ratio of contributions and benefits for each person. Considered one of the justice theories, equity theory was first developed in the 1960s by J. Stacy Adams, a workplace and behavioral psychologist, who asserted that employees seek to maintain equity between the inputs that they bring to a job and the outcomes that they receive from it against the perceived inputs and outcomes of others. According to Equity Theory, in order to maximize individuals' rewards, we tend to create systems where resources can be fairly divided amongst members of a group. Inequalities in relationships will cause those within it to be unhappy to a degree proportional to the amount of inequality. The belief is that people value fair treatment which causes them to be motivated to keep the fairness maintained within the relationships of their co-workers and the organization. The structure of equity in the workplace is based on the ratio of inputs to outcomes. Inputs are the contributions made by the employee for the organization.

Absenteeism is a habitual pattern of absence from a duty or obligation without good reason. Generally, absenteeism is unplanned absences. Absenteeism has been viewed as an indicator of poor individual performance, as well as a breach of an implicit contract between employee and employer. It is seen as a management problem, and framed in economic or quasi-economic terms. More recent scholarship seeks to understand absenteeism as an indicator of psychological, medical, or social adjustment to work.

<span class="mw-page-title-main">Employee engagement</span> Relationship between an organization and its employees

Employee engagement is a fundamental concept in the effort to understand and describe, both qualitatively and quantitatively, the nature of the relationship between an organization and its employees. An "engaged employee" is defined as one who is fully absorbed by and enthusiastic about their work and so takes positive action to further the organization's reputation and interests. An engaged employee has a positive attitude towards the organization and its values. In contrast, a disengaged employee may range from someone doing the bare minimum at work, up to an employee who is actively damaging the company's work output and reputation.

The leader–member exchange (LMX) theory is a relationship-based approach to leadership that focuses on the two-way (dyadic) relationship between leaders and followers.

<span class="mw-page-title-main">Emotional exhaustion</span> Chronic state of physical and emotional depletion

Emotional exhaustion is symptom of burnout, a chronic state of physical and emotional depletion that results from excessive work or personal demands, or continuous stress. It describes a feeling of being emotionally overextended and exhausted by one's work. It is manifested by both physical fatigue and a sense of feeling psychologically and emotionally "drained".

Realistic job preview (RJP) is a tool companies and organizations use as a way to communicate the good and the bad characteristics of the job during the hiring process of new employees, or as a tool to reestablish job specificity for existing employees. Realistic job previews should provide the individuals with a well-rounded description that details what obligations the individual can expect to perform while working for that specific company. Descriptions may include, but are not limited to, work environment, expectations, and Company policies.

Contextual performance is defined as the activities that employees carry out to contribute to the social and psychological functionality of an organisation.

Workplace deviance, in group psychology, may be described as the deliberate desire to cause harm to an organization – more specifically, a workplace. The concept has become an instrumental component in the field of organizational communication. More accurately, it can be seen as "voluntary behavior that violates institutionalized norms and in doing so threatens the well-being of the organization".

Perceived psychological contract violation (PPCV) is a construct that regards employees’ feelings of disappointment arising from their belief that their organization has broken its psychological contract of work-related promises, and is generally thought to be the organization’s contribution to a negative reciprocity dynamic, as employees tend to perform more poorly to pay back PPCV.

Personnel psychology is a subfield of industrial and organizational psychology. Personnel psychology is the area of industrial/organizational psychology that primarily deals with the recruitment, selection and evaluation of personnel, and with other job aspects such as morale, job satisfaction, and relationships between managers and workers in the workplace. It is the field of study that concentrates on the selection and evaluation of employees; this area of psychology deals with job analysis and defines and measures job performance, performance appraisal, employment testing, employment interviews, personnel selection and employee training, and human factors and ergonomics.

Denise Rousseau is a professor at Carnegie Mellon University. She holds an H.J. Heinz III Chair in Organizational Behavior and Public Policy, Heinz College and jointly Tepper School of Business.

Work motivation is a person's internal disposition toward work. To further this, an incentive is the anticipated reward or aversive event available in the environment. While motivation can often be used as a tool to help predict behavior, it varies greatly among individuals and must often be combined with ability and environmental factors to actually influence behavior and performance. Results from a 2012 study, which examined age-related differences in work motivation, suggest a "shift in people's motives" rather than a general decline in motivation with age. That is, it seemed that older employees were less motivated by extrinsically related features of a job, but more by intrinsically rewarding job features. Work motivation is strongly influenced by certain cultural characteristics. Between countries with comparable levels of economic development, collectivist countries tend to have higher levels of work motivation than do countries that tend toward individualism. Similarly measured, higher levels of work motivation can be found in countries that exhibit a long versus a short-term orientation. Also, while national income is not itself a strong predictor of work motivation, indicators that describe a nation's economic strength and stability, such as life expectancy, are. Work motivation decreases as a nation's long-term economic strength increases. Currently work motivation research has explored motivation that may not be consciously driven. This method goal setting is referred to as goal priming. Effects of primed subconscious goals in addition to goals that are consciously set related to job performance have been studied by Stajkovic, Latham, Sergent, and Peterson, who conducted research on a CEO of a for-profit business organization using goal priming to motivate job performance. Goal priming refers to the achievement of a goal by external cues given. These cues can affect information processing and behaviour the pursuit of this goal. In this study, the goal was primed by the CEO using achievement related words strategy placed in emails to employees. This seemingly small gesture alone not only cost the CEO very little money, but it increased objectively measured performance efficiency by 35% and effectiveness by 15% over the course of a 5-day work week. There has been controversy about the true efficacy of this work as to date, only four goal priming experiments have been conducted. However, the results of these studies found support for the hypothesis that primed goals do enhance performance in a for-profit business organization setting.

Employee motivation is an intrinsic and internal drive to put forth the necessary effort and action towards work-related activities. It has been broadly defined as the "psychological forces that determine the direction of a person's behavior in an organisation, a person's level of effort and a person's level of persistence". Also, "Motivation can be thought of as the willingness to expend energy to achieve a goal or a reward. Motivation at work has been defined as 'the sum of the processes that influence the arousal, direction, and maintenance of behaviors relevant to work settings'." Motivated employees are essential to the success of an organization as motivated employees are generally more productive at the work place.

Reward management is concerned with the formulation and implementation of strategies and policies that aim to reward people fairly, equitably and consistently in accordance with their value to the organization.

The gift-exchange game, also commonly known as the gift exchange dilemma, is a common economic game introduced by George Akerlof and Janet Yellen to model reciprocacy in labor relations. The gift-exchange game simulates a labor-management relationship execution problem in the principal-agent problem in labor economics. The simplest form of the game involves two players – an employee and an employer. The employer first decides whether they should award a higher salary to the employee. The employee then decides whether to reciprocate with a higher level of effort due to the salary increase or not. Like trust games, gift-exchange games are used to study reciprocity for human subject research in social psychology and economics. If the employer pays extra salary and the employee puts in extra effort, then both players are better off than otherwise. The relationship between an investor and an investee has been investigated as the same type of a game.

References

  1. 1 2 Rousseau, Denise M. (June 1989). "Psychological and implied contracts in organizations". Employee Responsibilities and Rights Journal. 2 (2): 121–139. doi:10.1007/BF01384942.
  2. ↑ Coyle-Shapiro, Jacqueline A.-M.; Parzefall, Marjo-Riitta (2008). "Psychological contracts". In Cooper, Cary L.; Barling, Julian (eds.). The SAGE handbook of organizational behavior . London; Los Angeles: SAGE Publications. pp. 17–34. ISBN   9781847875877. OCLC   260201157.
  3. ↑ Argyris, Chris (1960). Understanding Organizational Behavior . Homewood, Ill.: Dorsey Press. p.  96. OCLC   228977.
  4. 1 2 Chapman, Alan. "The Psychological Contract.", Theory, Diagrams, Definitions, Examples of in Work, Businesses, Organizations and Management. Businessballs Corp, n.d. Web. 20 Oct. 2016.
  5. 1 2 3 4 Rousseau, Denise M. (1998). "The 'Problem' of the Psychological Contract Considered". Journal of Organizational Behavior. 19 (S1): 665–671. doi:10.1002/(sici)1099-1379(1998)19:1+<665::aid-job972>3.0.co;2-x – via JStor.
  6. ↑ Turnley, William H., and Daniel C. Feldman. "Re-Examining the Effects of Psychological Contract Violations: Unmet Expectations and Job Dissatisfaction as Mediators." Journal of Organizational Behavior 21.1 (2000): 25-42. JStor. Web. 14 October 2016.
  7. 1 2 3 4 5 6 Gautier, Chantal (2015). The Psychology of Work. Kogan Page. pp. Chapter 7 – via ProQuest Ebook Central.
  8. 1 2 3 George, Christeen. Psychological Contract: Managing and Developing Professional Groups. Maidenhead, GB: Open University Press, 2010. Chapter 1: Introducing the psychological contract. ProQuest ebrary. Web. 14 October 2016.
  9. ↑ Denise M. Rousseau. "Schema, promise and mutuality: The building blocks of the psychological contract." Journal of Occupational and Organizational Psychology. Volume 74, Issue 4 November 2001 Pages 511–541. Web. 26 October 2016.
  10. ↑ Rousseau, Denise M. "The 'Problem' of the Psychological Contract Considered." Journal of Organizational Behavior 19 (1998): 665-71. JStor. Web. 14 October 2016
  11. ↑ Sandra L. Robinson. "Trust and Breach of the Psychological Contract." Administrative Science Quarterly Vol. 41, No. 4 (Dec., 1996), pp. 574-599. Web. 21 October 2016
  12. ↑ Maslach, C.; Schaufeli, W.; Leiter, M. (2001). "Job burnout". Annu. Rev. Psychol. 52 (52): 397–422. doi:10.1146/annurev.psych.52.1.397. PMID   11148311. See p. 409.
  13. 1 2 3 4 5 George, Christeen (2010). Psychological Contract: Managing and Developing Professional Groups. Maidenhead, G.B.: Open University Press. pp. Chapter 1 – via ProQuest ebrary.
  14. ↑ "Psychological Contract and the Hotel Franchising Relationship" (PDF). longdom.org. Retrieved August 6, 2022.
  15. ↑ "Analyzing the "Franchising" Definition". franzoom.com. 27 April 2012. Retrieved August 6, 2022.
  16. ↑ Low, Chin Heng (2016). "What Do Employees Want And Why? An Exploration of Employees' Preferred Psychological Contract Elements Career Stages". PsycINFO.
  17. ↑ "Archived copy" (PDF). Archived from the original (PDF) on 2016-10-09. Retrieved 2016-10-09.{{cite web}}: CS1 maint: archived copy as title (link)
  18. ↑ Gautier, Chantal (2015). The Psychology of Work.
  19. ↑ van den Huevel (2016). "What's In It For Me? A Managerial Perspective On The Influence of the Psychological Contract On Attitude Towards Change". Journal of Organizational Management.
  20. 1 2 3 4 van den Heuvel, Sjoerd, and Rene Schalk. "The Relationship Between Fulfillment Of The Psychological Contract And Resistance To Change During Organizational Transformations." Journal of Experimental Botany 66.6 (2015): 283-313. Academic Search Ultimate. Web. 21 October 2016.

Bibliography

This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.