Employment Relationship and Psychological Contract

Importance of Psychological Contract in Employment Relationship

Source: https://www.maphr.com/hr-exchange/the-importance-of-the-psychological-contract/

Armstrong (2010) explains Employee relation as a combination of managing employment relationship and developing a positive psychological contract. The Term employment relationship is deeply connected to the term psychological contract. Psychological contract answers two fundamental questions of employment relationship.  That is ‘what should I expect from the organization?’ and ‘what should I contribute in return to the organization?’

The employment relationship factors covered by psychological contract on the employees view are:

• The way employees are treated by the organization (impartiality, equality and consistency)
• Job security
• Opportunity to exhibit skill or ability
• Career expectations and growth and development of skills
• Participation and influence
• Organizational Trust and confidence on promises given

The employment relationship factors covered by psychological contract on the employers view are:

•         Skills of the employee
•          Efforts
•         Compliance
•          Commitment and responsibility
•          Loyalty

Source: https://slideplayer.com/slide/1563060/

The nature of employment relationship undergoes continuous changes due to the development in economic and social environment in which an organization operate. Psychological contract plays a crucial role in understanding the contemporary employment relationship. To maintain a employee relation, the employer needs to understand the expectations of the employee and vice versa in order to build a positive employment relationship (Patrick, 2008).  Psychological contract creates a mental model of employment relationship. Psychological contract and employment contract are strongly connected. A breach in psychological contract can cause damage to the employment relationship (Savarimuthu and Rachael, 2017).

It is very much important to focus on the employer- employee relationship for the growth of the organization. At the end, employee should be loyal to the organization and the organization should satisfy employees’ needs and provide job security. As new trends rise each day, loyalty on one organization is going out of date. Therefore, psychological contract becomes the interest areas to build an employment relationship. Further, psychological contract represent the employee’s and employer’s belief and expectations on employment relationship. When the expectations are not fulfilled it created a doubt on the employment relationship and resulting in employee intending to leave the organization or a reduction in performance (Kataria, 2015)

References

Armstrong, M. (2010) Armstrong’s essential Human resource management practice: A guide to people management. 1^st ed. United States, Kogan Page.

Kataria,H. (2015) Impact of psychological contract on employee-employer relationship and organizational performance. The International Journal of Business & Management, 3(8), pp. 234-240.

Patrick,H (2008) psychological contract and employment relationship. The ICFAI University Journal of Organizational Behavior, 7(1), pp. 1-11.

Savarimuthu, A and Rachael,A, J. (2017) Psychological contract - a conceptual framework. International Journal of Management, 8(5), pp.101-108

Employment Contract vs Psychological Contract

Difference Between Employment Contract and Psychological Contract

Psychological contract is defined as the set of unwritten agreement regarding the expectations between the employer and employee. There are no formal or written agreements and it is all based on expectations, assumptions and promises. Psychological contract is implicit and dynamic. It changes over time as the expectations develops. As mentioned above psychological contract is implicit and it is not defined in the employment contract. It is the psychological contract that creates emotions and feeling which has an influence to control organizational behaviors (Armstrong, 2010). Further, psychological contract increases engagement, commitment and motivation. Encourages employees to understand themselves and makes the employees willingly contribute to the organizational growth (Armstrong, 2008).

On the other hand, employment contracts are formal aspect of the agreement and has legal influence at all stages. Employment contracts are explicit and formal agreement which has written agreements and laws related to violation of such contract.To be precise, Employment contracts are legal contracts and psychological contracts builds a stable mental model regarding the employment connection. Psychological contract differs from legal employment contract or written agreements since it is informal and exists in the mind of the employer and employees. Employment contract can be defined explicitly. In addition, employment contracts are explained as ineffective enforcement mechanism, due to the complexity and uncertainty and they are created to benefit both parties based on their perceptions. But psychological contract, on the other hand, is considered to be subjective and has no legal binding with other parties and they are based on employee and employer beliefs and expectation.  

In simple term, expectation on employment contract are conveyed and specified, explicit and defined but expectations on psychological contract are unspoken, implicit and imprecise. A legal contract will never be enough and it requires the support of unwritten promises for the success of the organization (Savarimuthu and Rachael, 2017).

References

Armstrong, M (2008) strategic human resource management: a guide to action. 4^th ed. London, Kegan Paage.

Armstrong, M. (2010) Armstrong’s essential Human resource management practice: A guide to people management. 1^st ed. United States, Kogan Page.

Savarimuthu, A and Rachael,A, J. (2017) Psychological contract - a conceptual framework. International Journal of Management, 8(5), pp.101-108

Developing a Positive Psychological Contract

Developing a positive psychological contract is considered as a talent management strategy (Armstrong, 2008). Employee commitment, employee satisfaction and employment relationships are strongly connected to the psychological contract. Therefore, it is very much important and should be given priority. HRM practices such as providing training, job security measures, career development, communication and fair reward system will contribute to positive psychological contract.

As Armstrong (2010) there are few steps which can be used to develop a positive psychological contract. Such as:

•   Explaining what is expected at the recruitment and induction stage.
• Continuous communication with employees which helps to understand expectations.
•   Maintaining transparency regarding organizational policy and management decisions.
• Rather than controlling, treating employees as stakeholders and involving them in decision making. 

 Figure 1.0 – Development of Individual Psychological Contract (Source: Rousseau, 1989, p.125)

A belief that exchange of met expectations will act as an indicator to the development of a psychological contract (Rousseau, 1989). 

       References

Armstrong, M (2008) strategic human resource management: a guide to action. 4^th ed. London, Kogan Page.

Armstrong, M. (2010) Armstrong’s essential Human resource management practice: A guide to people management. 1^st ed. United States, Kogan Page.

Rousseau, D, M (1989) Psychological and implied contracts in organizations. Employee Responsibilities and Rights Journal, 2(2), pp. 121-138.

HRM and Psychological Contract

Role of HRM in Psychological Contract 

“Human resource management is defined as a strategic and coherent approach to the management of an organization’s most valued assets – the people working there, who individually and collectively contribute to the achievement of its objectives.” (Armstrong, 2008, p. 5)

Employee relation is the main force to achieve organizational goal. Managing employees is one of the main function of HRM. One organization cannot have positive employee relation without building a positive psychological contract. In other words employee relation is highly connected to the psychological contract (Armstrong, 2010  ). 

To retain employees, the organization should be their ‘employer of choice’.  An organization can only retain its employees if it builds a positive psychological contract with its employees. Further, Developing a Positive psychological contract is considered as a component of talent management strategy (Armstrong, 2008).  Building a positive relationship with the employees is one of the core feature of HRM and Such employment relationship can be built through the psychological contract which specifically focuses on employee satisfaction. A satisfied employee will be more committed to the organization and will live up to its company’s values. Which in turn will motivates the employees to achieve organizational goals (Anggraenil , Dwiatmnadja and Yuniawan, 2017) .

Psychological contract starts with the employee at the initial stage of recruitment itself. This is termed as pre-entry requirements (Tomprou and Nikolaou, 2011). This initially starts at the time of recruitment and at the induction stage. Psychological contract is an HR practice area which impacts the relationship between employee and employer in an organization. HR function has to maintain and improve the employment relationship by developing a positive psychological contract. managing a positive psychological contract is very much crucial to gain the best performance out of the employee (Armstrong, 2010). 

Armstrong (2010) says HRM practices such as, learning and training opportunities, Rewarding and promotions, ensuring job security and removing discrimination will contribute to positive psychological contract. Further, Guest and Conway (2002) states that the management of psychological contract is the core task of HR since a positive psychological contract will result in positive outcome and relationship.

References

Anggraenil,A ., Dwiatmnadja,C and Yuniawan,A.  (2017) the role of psychological contract on employee commitment and organisational citizenship behaviour: A study of Indonesian young entrepreneurs in management action. SA Journal of Industrial Psychology, 43(1), pp. 1-9 [online]. Available at < https://doi.org > (Accessed on 20^th April 2019)

Armstrong, M (2008) strategic human resource management: a guide to action. 4^th ed. London, Kegan Paage.

Armstrong, M. (2010) Armstrong’s essential Human resource management practice: A guide to people management. 1^st ed. United States, Kogan Page.

Guest, D and Conway, N (2002) Communicating the psychological contract: an employee perspective, Human Resource Management Journal, 12 (2), pp. 22–39.

Tomprou,M and Nikolaou,L. (2011) A model of psychological contract creation upon organizational entry. Career Development International, 16(4), pp. 343-357.

Psychological Contract Breach

Psychological Contract Breach

Psychological contract breach is when the employer fails to meet the promises that was made with the employee formally or informally (Morrison and Robinson, 1997).In other words, Psychological contract breach is when the employee has not received what has been promised by the employer and vice versa. It is said that an employee maintains a healthy connection with the employer as long as the psychological contract is sufficiently fulfilled by the employer (Ahmed et al., 2016).

In the psychological contract breach, the employee undergoes distrust and builds an undesirable connection with the employer. It will directly impact the performance of the employee as well as the behavior and attitudes regarding the organization. This may result in high absenteeism, employee’s intention to leave the job, job dissatisfaction, abandoning job duties and changes in employee commitment and behavior (Ahmed et al., 2016).

The organization creates a negative emotion when it fails to fulfill its obligation to its employee (Tomprou and Nikolaou, 2011). Further, it will impact the employee involvement in the organization through three main forms. Such as, the day to day performance, organizational citizenship behaviors and intentions to retain in the organization (Robinson, 1996). As per Ahmed et al., (2016) a violation in psychological contract will negatively impact the employees’ organizational citizenship behaviors towards the organization, will cause employees to quit the job and causes a negative attitude towards the organization and the employee may neglect the job performance as a result.

Most importantly, a breach in psychological contract will damage the employee’s future expectation from the organization. As a result employees will be urged to look for other job opportunities in order to gain valued benefits in the long run. In short, Employees will indent to quit the job ( Turnley and Feldman  2000; Robinson et al.,1994) when he psychological contract is violated. 

References

Ahmed,E., D’Netto,B., Chelliah,J and Fein,E. (2016) Psychological contract breach: consequences of unkept promises of permanent employment. Contemporary Management research, 12(2), pp. 183- 212.

Morrison, E, W and Robinson, S, L. (1997) when employees feel betrayed: a model of how psychological contract violation develops. The Academy of Management Review, 22(1), pp.226-256.

Robinson, S. (1996) Trust and breach of the psychological contract. Administrative Science Quarterly, 41(4), pp. 574-599.

Robinson, S.,  Kraatz, M and Rousseau, D. (1994) Changing obligations and the psychological contract: a longitudinal study. The Academy of Management Journal, 37(1), pp.137-152.

Tomprou,M and Nikolaou,L. (2011) A model of psychological contract creation upon organizational entry. Career Development International, 16(4), pp. 343-357.

Turnley, W and Feldman, D. (2000) Re-examining the effects of psychological contract violations: unmet expectations and job dissatisfaction as mediators. Journal of Organizational Behavior, 21(1), pp.25-42.

Importance of a Positive Psychological Contract

Importance of a Positive Psychological Contract

Knowledgeable and skilled workers seems to have a wide range of choice on what they are willing to do. Therefore, the organizations can only retain employees if they are committed to the organization and employers.  This type of involvement cannot be gained through traditional hierarchy which is based on employment contract. This is where the psychological contract plays a crucial role. The breach in psychological contract will result in adverse outcomes such as lack of trust on employer, lack of enthusiasm and intentions to quit job. (Flood et al., 2001)

Psychological contract motivates the employees to work with their heart and soul towards the organization (Savarimuthu and Rachael, 2017). Armstrong (2010) explains that developing a positive and balanced psychological contract provides an enduring and a friendly relationship between the employer and employees. Furthermore, Guest et al (1996) explains that a positive psychological contract is strongly connected to high obligation to the organization, greater employee satisfaction and high employee relation.

Developing a positive psychological contract will create a reciprocal trust between the organization and the employees (Armstrong and Taylor, 2014). Armstrong (2010) explains that a positive and balanced psychological contract will provide an ongoing and a pleasant connection between the organization and employees. Psychological contract focuses on satisfying the needs of the employees. This will result an increase in the employee commitment and attachment towards the organization resulting in an extra concern and willingness by the employees to achieve the organizational goals (Rhoades, Eisenberger and Armeli, 2001).  As per the given diagram positive psychological contract is crucial for an employee to retain in an organization and to be committed to the given organization. 

Figure 1.0 - Hypothesized relationships between organizational processes, psychological contract, commitment and intent to remain (Source: Flood et al., 2001, p.1154)

References

Armstrong, M. (2010) Armstrong’s essential Human resource management practice: A guide to people management. 1^st ed. United States, Kogan Page.

Armstrong,M and Taylor, S. (2014) Armstrong’s handbook of human resource management practice.13^th ed. United Kingdom, Ashford colour press.

Flood, P. C., Turner,T., Ramamoorthy,N and Pearson,J. (2001) Causes and consequences of psychological contracts among knowledge workers in the high technology and financial services industries. The International Journal of Human Resource Management, 12(7), pp.1152- 1165.

Guest, D., Conway, N and Briner, T. (1996) The State of the Psychological Contract in Employment, 1^st ed. IPD, London

Rhoades, L., Eisenberger, R and Armeli, S. (2001). Effective commitment to the organization: The contribution of perceived organizational support. Journal of Applied Psychology, 86(5), p.825.

Savarimuthu, A and Rachael,A, J. (2017) Psychological contract - a conceptual framework. International Journal of Management, 8(5), pp.101-108