Psychological Contract

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1 Moritz Maier, 29. April 2012 Psychological Contract Definition / Literature Todays definition of the Psychological contract is the perception of the two parties, employees and employer, and what their mutual obligations are to each other (Herriot, 2001). The concept is playing a central role in leadership and motivation theory. However it can be tracked back to Kotter (1973) who defined the psychological contract as an implicit contract between an individual and his organization which specifies what each expects to give and receive from each other in their relationship. The term psychological contract refers to an individual's belief regarding the terms and conditions of a reciprocal exchange agreement between that focal person and another party. Key issues here include the belief that a promise has been made and a consideration offered in exchange for it, binding the parties to some set of reciprocal obligations. The contract is based on a highly subjective basis, and parties do not necessarily need to agree (Rousseau, 1989). Schmidt and Bell (2005) related the concept of a psychological contract to an attachment style of human relationship development which is leading to a higher job satisfaction and therefore better organisational commitment. According to Bartholomew and Horowitz (1991), attached people generally feel more comfortable in relationships and percieve others as more trustworthy. The relationships of securely attached also tend to be more happy, friendly and open as Hazan & Shaver (1987) found out. According to Sparrow & Cooper (2003), psychological Contracts are subjective, unique and idiosyncratic. This means they refer to individual expectations, perceptions and beliefs. Each party or individual selects, perceives and interprets these elements in their own way. An assesment can be made through questioning one party in the employment relationship. Organizational commitment The study of the psycholocical contract is linked with the study of organisational commitment. Organisational commitment is defining the employee s relationship within the organisation. According to Meyer & Allen (1997) there is the organizational perspective, which interprets for example higher turnover, lower hours of absence and higher productivity Page 1 of 5

2 as a good employee commitment. From a member or an individual perspective however, lower turnover expectiations are indicators of an organisational commitment. In commitment research, there are two common perspectives: the behavioral perspective and the attitudinal perspective. The behavioral approach has focused mainly on identifying conditions under which a behavior, once exhibited tends to be repeated, as well as on the effects of such behavior on attitude change (Meyer & Allen, 1991). The attitudinal approach, on the other hand, has focused largely on identification of the antecedent conditions that contribute to the development of commitment and at the behavioral outcomes of commitment (Meyer & Allen, 1991). Formation of psychological contracts In order to understand how to manage, maintain and revise psychological contracts we need to investigate how they are fromed in the first place. Looking at the definition of Rousseau set of beliefs and promises held by an individual employee about the terms of the exchange between the employee and his or her organization we see that it is more about a psychological rather than a legal construct. It s describing the belief about a deal and not the formal, written part. The formal part however is contributing the legal terms and is influencing the psychological part in the way of its perception. Looking at the circumstances we can interpret obligations as implied promises. Rousseau points out a clear distinction between psychological and legal contracts, the expectations held by the individual that may or may not be shared by others on one side and commonly understood and shared expectations on the other side. As individuals build their employment relationship mainly based on the perception of promises which have been made in the past it is important to understand that a promise only results in apart of a psychological contract if the receiver beliefs, accepts and relies on it. A common interpretation and the trust both parties are acting in good faith is also a prerequisite. I agree with Rousseau on the formation of psychological contracts but i think it is important to add factors to avoid missundestandings in the formation process and on how to manage psychological contracts from a Changing Responsibilities management perspective. Existing Employee Psychological contract New employee Higher Salary / Promotion Beginning of adaptation process (first day) To find out when a contract has to be made or hast o be adjusted, it is important to distinguish between new employees and veterans in the company. End of adaptation process Forming or adaptation of Psychological contracts (Own picture) Page 2 of 5

3 For new entrants it is important to communicate the following elements: - Perception according to the new work (Organisation side and employee side) - Features of working in the new team - Organisation should inform about existing relationships in this team - New entrant should be informed about existing problems / difficulties with clients - Information about expected work outcome, culture and collaboration within the company Existing employees howerver have to be evaluated on a regular basis for changing responsibilities, promotions etc. Managing change in psychological contracts As organisations change constantly and psychological contracts rely on an individual perception it is very likely that assumptions in the contract go unchallenged. If predicted outcomes no longer occur, the cognitive consistency of the individual is challenged. As individuals try to avoid the distress of the tension between expectation and experience, they are very likely to change behaviour or cognition. This is leading to an adjustment process in the psychological contract. Rousseau refers to three different processes: 1. Drift: occurs when beliefs about whether the terms of the psychological contract still being performed start to diverge, or when terms of the contract take on a new meaning, or new terms are acquired without the other party understanding this. 2. Accommodation: occurs when there are acknowledged changes in the terms of work, but the same schema remain. The terms of the contract are modified, clarified, substituted or expanded. 3. Transformation: occurs more occasionally but also reflects a more fundamental change in the relationship between parties creating a shift in meaning or interpretation of contract items. At this point the old psychological contract ends perhaps by breach or violation or simply because the employee or employer feels that the terms of the deal have been completed and a new psychological contract is created. To make people change their psychological contract they have to be encouraged to percieve new information as if they were newcomers instead of veterans. As example for an extreme way of changing psychological contracts, i like to refer to an recent change in the company of my father. The introduction of a new time model, which was not accepted by the employees in the first place, had to be introduced by firing everyone and rehiring them on the next day. The employees, some of them working for the company more than 15 years, were forced not only to adjust to the new model, they also needed to create a new psychological contract which led to a completely new (and better) organisation-employee relationship. The concequence however, for employees not willing to adapt, was searching for a new job. Page 3 of 5

4 Violation of psychological contracts As the concept of psychological contracts is very emotive in ist nature, there are arguments that the contents of the contract only become clear when it s violated. Rousseau pointed out that workers respond in different ways to either breaks (Occasions in which organisations breake the promises or dont fulfill the contract) or violations (strong affective response to extreme breaches leading to anger or betrayal). Turnley and Feldman identified four responses in relation to violation of contract. They differ across two dimensions of being active or passive and constructive and destructive: 1. Exit: Voluntary termination of the relationship, e.g. attempts to remedy the psychological contract have failed, or other potential jobs are available. 2. Voice: Actions taken to remedy violation, such as reducing losses or restoring trust through talking, threats and changes to behaviour. Exit may follow soon after a voice channel is deemed to have failed. Responses to violation (Sparrow & Cooper (2003) 3. Loyalty/silence: Non-response, serving to perpetuate the existing relationship. Willingness to endure or accept unfavourable circumstances because no voice channels are open or there is no alternative employment. Might reflect pessimism (no alternative) or loyalty/hope (waiting for conditions to improve). Neglect: Complex response. Might reflect passive negligence or active destruction. Likely when there is a history of conflict, mistrust and violation, no voice channels, or the majority of other employees demonstrate neglect and destruction. Page 4 of 5

5 References Bartholomew, K. & Horowitz, L.M. (1991). Attachment styles among young adults: A test of a four-category model. Journal of Personality and Social Psychology Hazan, C. & Shaver, P. (1987). Romantic love conceptualized as an attachment process. Journal of Personality and Social Psychology. Herriot, P. (2001). The Employment Relationship: A psychological perspective. Hove. Routledge. Kotter, J.P. (1973). The Psychological Contract. California Management Review, 15, Meyer, John P. & Allen, Nancy J. (1997). Commitment in the Workplace, Thousand Oaks, CA: Sage Publications. Robinson, S.L. (1996). Trust and breach of the psychological contract. Administrative Science Quarterly, 41, ; Morrison, E.W. & Robinson, S.L (1997). When employees feel betrayed: a model of how contract violation develops. Rousseau, D. M. (1989). Psychological and implied contracts in organizations. Employee Responsibilities and Rights Journal, 2, Rousseau, D.M. (1990). New hire perceptions of their own and their employer s obligations: a study of psychological contracts. Rousseau, D.M. (1995). Psychological contracts in organizations. Understanding written and unwritten agreements. London: Sage. Schmidt, G. & Bell, B.S. (2005). Attachment style as a predictor of individual-organizational attachment. Paper presented at the Society for Industrial and Organizational Psychology Conference, Los Angeles, CA.. Sparrow, P.R. (2000). The new employment contract. In R. Burke and C.L. Cooper (Eds.), The organization in crisis. London: Basil Blackwell. Sparrow, P.R. & Cooper, C. (2003). The Employment Relationship: Key challenges for HR. Oxford: Butterworth Heinemann. Sparrow, P.R. (1996). Careers and the Psychological Contract: Understanding the European Context. Turnley, W.H. and Feldman, D.C. (1998). Psychological contract violations during corporate restructuring. Page 5 of 5

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