Impact of Psychological Contract on Employment Relations & Employee Motivation

The psychological contract is an abstract term that ‘pundits’ like to coin while vaguely referring to the relationship between employers and employees (Clutterbuck, 2005). Although the concept of psychological contract is widely researched in recent years, this concept can be traced back to the work of Argyris (1962, cites in DelCampo, 2007). Rousseau (1995) specifies ‘Psychological Contract’ as the views and opinions of the employees, which is shaped by the organization, towards the expressions of the mutual agreement between employees and their organization.

An extensive literature has investigated the psychological contract as a sound concept to study current employment relationships (Guest, 2004). Previous research findings support the suitability of psychological contract to study employment relationship and to understand the mutual expectations of employers and employees in an organizational setting (Rousseau, 2001). The evaluation of psychological contract arises from the assessment of the terms expected from the employment agreement and what has been delivered by the employer? (Guerrero and Herrbach, 2008). If a differential between these two factors is identified, individuals will probably increase or reduce their participation and involvement in the organization (ibid). The terms – breach and – violation are often used, sometimes synonymously, by researchers to illustrate an employee‘s perception that the ‘organization has failed to adequately fulfill its obligations’ (ibid). However, Morrison and Robinson (1997) have clearly distinguished between breach and violation: breach is the perception that an organization has failed to realize the commitments made under a psychological contract corresponding to the contributions of their employees. Violation, on the other hand, is the emotional state of the members of an organization with the understanding that their organizations have failed to oblige the psychological contract (Morrison and Robinson, 1997). Traditional outcomes of the psychological contract fulfillment (or breach of it) are generally related to organizational commitment (Sturges et al., 2005), organizational citizenship behaviors (Turnley et al., 2003), and turnover intentions (Sutton and Griffin, 2004). Research has identified that fulfilling the psychological contract fosters the feelings of being valued, which bring forward positive affective outcome (Coyle-Shapiro and Kessler, 2000) such as enthusiasm, self-worth, and being cared for (Conway and Briner 2002) and an emotional ?uplift? (Lawler and Yoon, 1996). DelCampo (2007) argues that the ‘management’ of the psychological contract can result in increased job performance, lower staff turnover and higher job satisfaction for both employee and supervisor (DelCampo, 2007).

An organization should use flexible work option as a strategic tool to attain enhanced individual and organizational performance. Further, reinstating employees’ trust is an important matter for employers nowadays. This can be restored by considering and evaluating the needs and wants of the employees, satisfying their expectations and maintaining a mutual understanding & relationship between employers and employees. Psychological contract is an effort to build a pivotal relationship between employers and employees based on their mutual expectations (Guest, 2004). Psychological contract helps managers find the path to build and maintain relationships with their employees. Development of such distinct relationship between employees and employers is indispensable as they further eliminate wrong assumptions concerning job duties and responsibilities (DelCampo, 2007). Herriot and Pemberton (1995, cited in Anderson and Schalk, 1998) state that organizational development and success depend much on the employer-employee relations (psychological contract), which is subject to greater flexibility along with mobility and mutual reliance.

Flexible working practice is an important facet of psychological contract. Besides job commitment, employees have familial and social commitments as well, which can sometimes be confronting and provoking to deal with and they may have adverse impact on business. In such cases, use of flexible working practices in attracting and retaining human capital can play a vital role to overcome such situations and have a win-win solution. Upholding flexible working hours and meeting the commitments are likely to create a friendly, welcoming, cordial and responsive work organization that assist employees deal with and manage the practicalities and strain of work/ family conflicts”. Employees’ views on positive relationship with front line managers tend to have higher level of job satisfaction, work commitment and loyalty, which in turn result in yielding higher level of performance (Goshe, 2006).

The concept of the psychological contract was first used by Argyris, (1960, cited in Anderson and Schalk, 1998). It was further developed and described by the Levinson who has been called as the father of psychological contract (Gozzo, 1995 cited in Anderson and schalk, 1998). According to Sims (1994) stated that the concept of psychological contract is rapidly emerging and is playing a pivotal role in understanding the mutual expectations of both organizations and their members. Armstrong (1999) mentions that it is dynamic and implicit that continuously helps to increase the relationship between the employee and the employer. Psychological contract should be clear, attainable, measurable, realistic which makes the psychological contract stronger and give more control in the workplace.

Psychological Contract as the insight, observations, views, opinions, and expectations employers and employees that fashion their shared responsibilities and commitments towards each other. The obligation can possibly be the expectations, promises and commitments made by one party to another with the intention of forming a good relationship (Guest and Conway, 2002). Though it’s not a legal agreement, nevertheless such contract is more influential compared to the written agreement due to having a mutual understanding between the parties involved (Goshe, 2006). The noteworthy fact of ‘Psychological Contract’ is that parties involved are required to perform duties, which are not specified on their job agreement. For instance, bankers in Bangladesh do have to stay outside of their stated work period specified on the job agreement (Guest and Conway, 2002).

The key characteristic of psychological contract is having mutual advantages through shared perceptions, views and contributions by both parties (Blau (1964, cited in Dabos and Rousseau, 2004). Training and development program organized by employers for the development of employees expecting to have a higher performance from employees in future, which, for example, can be viewed as shared perceptions and mutual benefits. Shore and Tetrick, (1994, cited in Anderson and Schalk, 1998) address that psychological contract shapes employee behavior to a great extent. The behavioral approach and obligations of employees towards their employers vary depending on the situations, time and place that will likely to provide them the best outcome.

Job insecurity and employee retention are factor that brings Psychological contract into huge attention. Mutual understanding can benefit both parties through trust building. The importance of psychological contract in employee retention is substantial that receives employers’ considerable attention. The psychological contract and employee retention exist when employee loyalty and commitment entice with employers’ return (Vos and Meganck, 2007). Employers are likely to fail to retain its best people if there is lack of enticement for employees and commitments are not kept as perceived (Turnley and Feldman, 2000 cited in Vos and Megnack, 2007). Employees’ involvement and participation is subject to the matter that to what extent psychological contract is perceived and complied with by the employers. An excel in performance is highly likely if both the employee and the employer stick to the agreement made and comply with it at all time. DelCampo (2007) specifies that psychological contract eliminates employees’ false assumptions about duties and responsibilities in the work place and develops relationship with their employers (Rousseau, 1995).

Psychological Contract is a vital instrument in building and maintaining stable, well-adjusted and pivotal relationship between employees and organizations. Two issues concerning such balanced psychological contract are crucial. The first one is assessing unwritten agreement and adjusting employees’ expectations with organizations’ expectations (mutual understanding & expectations). The next one is exchangeable agreement between both parties, i.e. remuneration and other incentives. Employees’ job satisfaction, work efficiency, work place behavior, motivation, loyalty and the like very much depend on how effective the psychological contract is (Sims, 1994).

Violation of psychological contract is likely to prove disastrous for employment relations and thereby for organizational success (DelCampo, 2007). Morrison and Robinson (1997, cited in Guest and Conway, 2002) explain that lack of communication and ineffective dissemination of information between employees and employers may cause an imbalance in understanding obligations of both parties, which means breach of contract. Furthermore, the basis for psychological contract is trust and strong emotional reaction and the conditions of psychological contract are revealed if they are violated (Anderson and Schalk, 1998). Pines (2002) illustrates that breaching the agreement of psychological contract may result in stress and weariness among employees, which is likely to jeopardize organizational performance and can cause employment turnover, lack of trust, motivation & commitment towards organization, unhappiness & disoriented organizational behavior.

Effective psychological contract is the outcome of effective organizational communication. Morrison (2000, cited in Guest and Conway, 2002) specifies that recruitment and selection is the best phase to make psychological contract while Sims (1994) indicates that the training is the most effective way of communicating the psychological contract with the employees via asking a set of questions. Training and development is central to psychological contract as it helps excel employees’ skills and knowledge base, which assist employees to think proactively towards psychological contract. Moreover, having an informal relationship besides a formal one will help employers understand expectations of employees, which is crucial for an effective psychological contract that help retain talented employees to increase the competencies of the organization (Spindler 1994, cited in Armstrong, 1999).



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