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Introduction

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740184MGMT (talk) 12:52, 24 September 2015 (UTC)

At the beginning of psychological theory development, Levinson et al. (1962) explained that a range of employee’s unconscious and conscious expectations established a relationship between employer and employee.[1] Unconscious expectations comprised psychological issues (e.g. nurturance) [1]. On the other hand, unconscious expectation deals with job performance, social relation, and the use of specific skills, and job security [1]. What employer expects from employee is also taken into account to define psychological contract in mutual relationship way.[2] Psychological contract is defined by John Kotter (1973) as an unspoken contract between employee and his employer stressing on what each party expects to receive and give to other party in the relationship.[3] Kotter explained that the expectations were the fundamental basis that created psychological contract between employee and employer. [3]

Similarly, Portwood, & Miller (1976) explained psychological contract as a tacit agreement between employee and his organization to recognize mutual obligation each party needed to be fulfilled in the course of their association.[4] They argued that individual needs, relevant experience and job knowledge, and attitude toward work were the factors influencing expectations and relationship between both parties.

Following up the importance of mutual relationship, Rousseau (1989) introduced psychological contract as set of individual beliefs toward reciprocal exchange agreement with an organization.[5] These beliefs comprise terms and conditions in which one party perceives that promises have been made and both parties have agreed upon the contract terms.[5] Robinson & Rosseau (1994) further defined that psychological contract was raised when promise of future benefit (e.g raise of remuneration) was assumed to be earned by one party, and thus stimulated the party to give efforts and contribution in order to achieve the return.[2] In organizational behavior sense, Psychological contract, therefore, creates an enduring relationship between employee and employer and guides efficient and productive action by both parties.[6]

History

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740184MGMT (talk) 12:52, 24 September 2015 (UTC)

Roehling (1997) revealed that psychological contract was an extension of social contracts.[7] Gough (1938) differentiated social contract into two types of contract.[8] The first one was “natural right” that covered a contract between individuals with other individual to form organized society [8]. This contract explained origin of state in which individuals who were living nearby each other will establish society. The second social contract was “contract for government” or contract of submission, which emphasized on agreement between individual and the nation regarding the reciprocal duties and rights of individual [8].

In management sense, historical roots of psychological contract lied on the development of equilibrium theory from Barnard (1983) [9] in which an organization can utilize its member participation as long as it provides required condition, such as good culture, working environment, and leadership. To illustrate, an employee would continue to participate in company’s operation when each employee received organization inducement, like payment, bonus, et cetera. This notion was followed by the introduction of psychological work contract by Argyris to define managers' relationship with a group of employees that emerged as a result of leadership style carried by the managers [7]. Argyris (1960) in Roehling (1997) argued that in order to nurture desired manner of employee, the key was to preserve informal culture and not to violate the culture’s norm. The underlying assumption here the employee should share certain norms and supervisors are aware of the employees’ norms.

Over period of time, The term "psychological contract" emerged as a theory that focused on promises and reciprocal obligations [10]. Rosseau (1994) believed that psychological contract has been built based on set of beliefs that individual hold to the extent which promises have been made, accepted and relied upon between individual and organization. The individual believed that both parties has been agreed to reciprocal exchange agreement and the promises have been binding the parties to fulfill reciprocal obligation.[5]

Antecedents of Psychological Contract

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739954MGMT (talk) 12:45, 24 September 2015 (UTC) 739959MGMT (talk) 02:40, 25 October 2015 (UTC)

There are two types of psychological contract: transactional and relational contract. Transactional contracts emphasized specific and monetizable exchange between employees and organizations (Robinson, Kraatz, & Rousseau, 1994).[11] Some characteristics of transactional contracts were competitive wage rate and short-term focus.[11] On the other hand, relational contracts involved more general agreements with characteristics on training and development.[11] While transactional contract has dimensions of narrowness and short-term focus, relational contract is comprised of long-term focus and security (Rousseau, 1989 in Rousseau & Tijoriwala, 1998).[12] Two main factors which cause those psychological contracts are individual and organizational factors.

Individual Factors

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The Big Five Personality Trait

Raja, Johns & Ntalianis (2004) examined the relationship between three types of Big Five personality traits (e.g. neuroticism, extraversion, and conscientiousness) on transactional and relational psychological contract.[13]

  • Neuroticism referred to an insufficiency of positive psychological adjustment and emotional stability.[14] It resulted in two related tendencies: anxiety (instability and stress) and well-being (personal insecurity and depression).[14] Neuroticism had negative correlation with job satisfaction, career success, job complexity, and performance.[13] Employees with neuroticism engaged in transactional psychological contract with exchange for specific assets.[13]
  • Extraversion was the tendency to feel positive emotions and to be socially oriented.[14] Extravert people tended to be dominant, ambitious, adventuresome, and assertive.[14] Assertive employees had more desire for higher salary and status (Cattell, 1981 in Raja et al, 2004)[13] and relational psychological contract offered opportunities for more status, power, or recognition (Krackhardt, 1990 in Raja et al, 2004).[13] Extroverts would tend to build a relational psychological contract.[13]
  • Conscientiousness took form in three related conditions: achievement orientation (hardworking and persistent), dependability (responsible and careful), and orderliness (had plan and organized).[14] Conscious employees presumably would establish relational psychological contract with strong monitoring in the fulfilment of their contracts.[13] In addition, there was empirical evidence that high conscientiousness employees would tend to form relational psychological establishment.[13]


Organizational Factors

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Rousseau (1995) in Suazo, Martinez, & Sandoval (2009)[15] defined two organizational factors contributed to psychological contract creation: organizational messages and social cues.[15]

Organizational messages

Organizations conveyed their commitment intentionally and unintentionally through some events.[16]

  • Overt statements were considered the most powerful form of messages, because they explicitly convey the intention of organizations.[16] 
  • Observation sent messages in two ways: proactive and passive.[16] Proactive observation required employees to respond organization action (e.g. promotion and layoff).[16] Passive observation, on the other hand, needed further information regarding the relationship between employees and organizations.[16]
  • Expression of policy took forms of documents, compensation systems, titles, and promotion.[16] For example, compensation based on seniority sent messages that organizations expected employees to stay in the organizations in long-term basis.[16]
  • Social construction referred to the reputation or past practices conducted by the organization.[16] 

Social cues

Social cues were information gathered by work group or co-worker.[16] Social cues had three roles in the process of making contract: message provision, social pressure conveyance to conform the group’s understanding of terms, and individual shaping regarding organization’s action interpretation.[16] Topics of informal messages received by co-worker were ranged from quality (e.g. supportive, safe, and rigid) and promises (e.g. past and current) of organization to expected performance (e.g. minimum or higher) by the organization.[16]

Shift in the Contract

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739954MGMT (talk) 12:45, 24 September 2015 (UTC)

Psychological contracts provided predictions about output that employers would receive from employees and rewards employees would get from investing time and effort to stay with the organization.[17] Economic changes (e.g. international competition, deregulation, and globalization) in the 1990s imposed organizations to have greater flexibility and productivity.[18] Downsizing, outsourcing, and embarking on efficiency eroded the importance of the old contract, hence the emerging new contract gained a stronger position in an employer-employee exchange relationship.[19] There was a consensus that the changing psychological contract should include particular beliefs in regard to responsibility for career development, commitment to types of work, and expectation of job insecurity.[20] In addition, changes in contracts were assumed to affect employee behaviour as organizations trying to manage career, reward, and commitment.[21] Table 1 compared the characteristics of the old and new contract.

Characteristic Old Contract New Contract
Change environment Stable, short-term focus Continuous change
Culture Paternalism, time-served, exchange security for commitment Those who perform get rewarded and have contract developed
Rewards Paid on level, position and status Paid on contribution
Motivational currency Promotion Job enrichment, competency development
Promotion basis Expected, time-served, technical competence Less opportunity, new criteria, for those who deserve it
Mobility expectations Infrequent and on employee's term Horizontal, used to rejuvenate organization, managed process
Redundancy/tenure guarantee Job for life if perform Lucky to have a job, no guarantee
Responsibility Instrumental employee, exchange promotion for more responsibility To be encouraged, balanced with more accountability, linked to innovation
Status Very important To be earned by competence and credibility
Personal development The organization's responsibility Individual's responsibility to improve employability
Trust High trust possible Desirable, but expect employees to be more committed to project or profession

Table 1. Contrast Between the Old and New Psychological Contract

Source: Sparrow (1996)[21]

The major drop in job security offered to full-time workers considered as the most important change.[18] [17] From 1950 to 1980 it was common for many employees in organizations in the United States to spend their entire career lives to work for one organization as those organizations enjoyed prosperity.[22] In 1940 nearly 26% of the male workers was self-employed and in 1970 the number fell down to 10% with 70 million people worked for organizations.[23] De Meuse & Tornow (1990) in Hiltrop (1996) showed that in 1950-1960s most people were afforded a sense of stability and permanency. The promotion was time-served and expected in conjunction with clear organizational structure.[17] Furthermore, career path and job security were appealing incentives[18]. Old contract suited Silent Generation who had a high concern regarding security and avoided risks as they endured Great Depression and World War II. Silent Generation stressed on loyalty, duty, conformity, and security met many characteristics of the old contract.[24]

Generally the new contract was seen as a degradation of the employment relationship and trust.[21] Lifetime employment in one organization was replaced by employee employ-ability enhancement in many places. Then, characteristics in new contract particularly fit with the banking industry.[25][21] The new contract demanded flexible and highly-skilled employees with little job security and externally marketable.[26] Job tenure and long-term employment in the United States private sector in the 1970s and 2008 declined sharply.[27] Particularly, Longworth & Stein (1995) in Hiltrop (1996) pointed out that 12.2 million white collar workers lost their job between 1989-1991.[17] One problem faced by organizations was to motivate employees, especially talents as their sense of security and level of trust diminished.[22] Martin, Staines, & Pate (1998) in Atkinson (2002) noted that job security remained the most important employee desires.[26] Kanter (1994) in Hiltrop (1995) proposed that personal reputation, teamwork, and challenging assignments created ''employability security'' as a source of loyalty, in which employee's skill would be enhanced and other tasks and assignments would be facilitated.[18] Furthermore, the most importance attachments of employment respectively were the social atmosphere, career development, and job content.[28]

The formation of the contract

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729462MGMT (talk) 12:47, 24 September 2015 (UTC)

Vos, Buyens, & Schalk (2003)[29] concluded that psychological contract's formation was actually a sensemaking process. Sensemaking defines as a cognitive process that people use it to deal with new and surprising situation. Louis (1980) [30]further explained that the sensemaking was treated as a cycle and it starts before the future employees’ cognitive thinking or sense about their future employment relationship take shape. After the entry into organization, the outside factors would influence their anticipations so that their expectations about the relationship would change.[29] During this formation, schema, which is a planned thinking structure about events or people, influence individual’s concepts. Furthermore, the psychological contract formation is based on the employees’ experience in the organization and that means it is closely related to their sensemaking.[29] Rousseau (2001) stated that new comers would be motivated to use their initial experiences to anticipate their future and adjust their expectations to complete their psychological contract schema because they do not have complete information and source.[31] As Rousseau’s explanation, this sense making process indicated that new comers would modify their perceived promises and expectations based on their perceived experiences in the working situation. Socialization is treated as a significant stage in the formation of psychological contract.[29] According to Vos et al., (2003), sensemaking influenced significantly to adjustment of new comers to the organization.

The Employment Relationship

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739959MGMT (talk) 12:54, 24 September 2015 (UTC)

Proposed Relationship

The employment relationship comes from organization and employee which being influenced by three aspects, social, individual and organization.[32] External messages and social cues are formed by the organization or social while internal interpretation is predisposed by individual's construct. [16] The employees’ point of view on assessing the expectation and violation anchors to those aspects which means could be different for each person.[32][33]

The Role of Social

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Societal values establish the meaning of promises and shape the entitlement and responsibilities of its members. [16] Societal factors broadly examined by the role of government, law, and the civil society which is represented by social value, norms and the role of family and community. [33] The local influences formed human resource practices on how the firms adopting legal requirement, the degree of government support on free market practices and institutional forces such as educational system. [33]

Law, government and education system become salient aspects in forming the agreement between the organization and the employees. For instance, on legal practices, labor right take a part on deciding the holiday system. [33] On the government practice, Indian and China government as the largest employers on the society plays a major role on deciding income distribution.[33] Meanwhile, German government shares power with market and become moderate influencer over the employment and giving negotiable agreement compared to India and China. [33]

Educational system take a prominent part in shaping expectation in Japan.[33] Children and family could sacrifice and invests weightily on time to study in order to achieve academic success.[33] Once their children get accepted by prestigious university, such as Tokyo University, the career pipeline can be guaranteed, the children could work for the government or nation’s largest firms.[33]  

The Role of the Organization

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739959MGMT (talk) 12:54, 24 September 2015 (UTC)

Employment rights and duties represented in both explicit and implicit promises namely payment, promotion, and job security in terms of organizational incentives derived from written contract and socialization within training period. Psychological contract application is about the perceptions, expectation, beliefs, promises and obligation between organization and employees.[34]

The better the psychological contract implementation is, the lower turnover intention could be.[35] Employee’s involvement and communication between the supervisor and employees could prevent it, hence psychological contract becomes the key variable on deciding the success of organization implementation process of change.[35] On General Electric's (GE) 1992 annual report mentioned leader participation on communicating the culture change was prominent. [16] Culture change as major part of GE business strategy will influence significantly on psychological contract on goal acceptance, self-esteem, imagery, and social pressure.[16] The leader's communication was used to earn support and good faith from its employees. [16]

The Role of the Individual

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739959MGMT (talk) 12:54, 24 September 2015 (UTC)

Psychological contract’s characteristic is subjective perception which varies among individuals.[34] It is individual believes on what they agreed to, not a personal intention.[33] The psychological contract suggests that legal formal employment contract is less necessary than the nature of employment relationship.[36] The definition of ‘nature’ could be different across culture caused by the different value. There are several intermediate variables which influence the emergence of psychological contract. One of the variables is the communication behavior in which takes place in Eastern and Western country. Culture affects the development of an individual’s psychological makeup, which, in turn affects communicate on behavior.[37] Culture represented as cultural collectivism (understanding) and self-construal (self-expression).[38] Culture influence cognition (variation in perceiving and interpreting from organization’s treatment) and motivation (the way self-concept influencing the way of behaving of the employee).[32]

Collectivist Perception Individualist Perception
Employment Relationship Relational Transactional
Self Concept Interdependent Independent
Trainee Program Strengthen the Organization-Employee Relationship Personal Gain
Communication High Context Culture Low Context Culture
Orientation Group Motives Personal Motives
Organizational Pratices Reward Policy for Group Reward Policy for Individual Contribution
Job Alternatives Prefer to Maintain the Existing Relationship Locate the Best Inducement Ratio

Table 2. The Difference between Collectivist and Individual Characteristics.

Source: (Thomas, Au, & Ravlin, 2003)[32]

Collectivist vs Individualist

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Collectivists are paying more attention to form indepth relationship and showing loyalty towards the organization.[32][33] They perceive employment relationship as a part of group contribution, attempt to value group harmony and adhere to the organization rules.[37][32] For instance, the Philippines valued the interpersonal relation even in the organization context and see the relationship as relational, hence they tend to sacrifice their personal interest.[37] Filipinos emphasizes on reciprocity as 'utang na loob' (debt of prime obligation).[37] Loyalty becomes valued highly in collectivists behavior and resist to seek another job alternatives.[37] Interestingly, study in Hongkong which is known with its collectivism behavior showed unexpected high rate of staff turnover (39.5 percent) in managerial level.[36] Meanwhile, the rest of the participant manager were stayed because feeling obligated to stay with the organization.[36] The employees are exhausted caused by organization expectation to not only work reliably, but also enhance their performance while giving added value and perform above the average collaboratively.[36] Collectivist motives based on improving interpersonal relationship which drive stressful internal conflict when experiencing breach rather than individualist.[32] The employees are obligated more than the organization obligated to them.[32] The managers strongly resist the notion not to look alternatives job even they feel have to stay.[36]

Individualism defined as the tendency to achieving personal goals independently.[32] The self-image refers to self-construal which performs the role while linking culture to behaviors.[37] Individualist tends to seek personal enhancement.[37] The organizational commitments and promises focus on four considerations; challenging and satisfying environment; job safety and reward; equity; and supportive leadership.[36] Western standards perceive employment relationship as one sided agreement which weighted on the employees to do certain things for the employers.[36] However, the job alternatives become more influential for individualists since they do not emphasize on interpersonal relation and loyalty as collectivists do. Therefore, individualists could indicate the interaction impact of cultural and situational characteristic to response contract violation.[32]

Breach

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729462MGMT (talk) 12:41, 24 September 2015 (UTC)

The psychological contract theory conceptualizes employee’s reciprocal relation and obligation toward its employers referring to what employee should give and receive.[39] As promised obligations and reciprocal of beliefs between employee and employers, Psychological contract can, when violated, bring negative impacts, such as distrust, dissatisfaction, demotivation, anger, and feeling of betrayal, to employee that thus led to dissolution of relationship between both parties.[10] Robinson & Rousseau (1994) investigated about the impact of the psychological contract breach by combination of qualitative and quantitative analysis.[10] They found violations of the psychological contract breach did have a negative effect on employees'satisfaction, trust and employees’ willingness to stay with their employer while it was positively correlated with the employee turnover.[10]

Causes of Psychological Contract Breach

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729462MGMT (talk) 12:43, 24 September 2015 (UTC)

The breach of psychological contract incurs when one side in an exchange relationship thinks the other side fails to realize promised obligations.[40] When employees feel they are treated unfavorably or hurt by the organization, they would breach the psychological contract.[41] If employees perceive the mutual promises between organizations or managers that are failed to be implemented, the psychological contract would be violated.[42]

Bal, Chiaburu, & Jansen (2010) found supporting evidence that social exchanges can play a role of moderating role in the relation between breach of psychological contract and the performance of work and the violations of psychological contract would be negatively correlated to work performance including the organizational citizenship behaviors to those employees with high social exchange.[43] Bal et al., (2010) proposed that the violations of psychological contract could exert a dramatic damage on the employment relationship.

Reneging

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740184MGMT (talk) 12:52, 24 September 2015 (UTC)

Morrison & Robinson (1997) revealed that reneging is one of causes that create psychological contract breach. Reneging is a condition when the assigned agents, manager or supervisor, recognize that the organization holds obligation toward employees but consciously fail to fulfill the promise.[44] As circumstances change, an unexpected event always arises to hinder organization in fulfilling promises that have been made, even when both parties may have created promises in good faith. Furthermore, organizational agent could also take advantage of the situation leading to reneging. The employment relationship is constructed by reciprocal obligation in which the organization promises to provide benefit to the employee in exchange for predetermined performance set by organization.[45] However, if employee’s performance is below expectation, organizational agents will perceive reneging as justified, and thus behave opportunistically. In this sense, as performance of the employee decrease, reneging will emerge frequently and lead to perception of psychological contract breach.

Incongruence

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740184MGMT (talk) 12:52, 24 September 2015 (UTC)

Incongruence occurs when an organization has fulfilled its promises to an employee, but the employee feels otherwise.[45] Incongruence emerges when an obligation is developed overtime to match evolving condition within the organization. According to Morrison & Robinson (1997) there are three factors that contribute to incongruence.[44] First, it is the degree to which the agent of organization and employee stand on distinct cognitive model about the each party obligation. In this regard, organizational socialization is the key to reduce incongruence due to its capability to indoctrinate and form set of beliefs on new employee so that they can possess same behavior and model as the agents of the organization. Secondly, the ambiguity level of perceived obligations between both parties in which employees have missing information regarding obligations both parties held also take a part in creating psychological contract breach. Due to missing information, employee tends to make assumption that ends up with perception of psychological contract breach. Lastly, insufficient communication about the obligations can misguide both parties to psychological contract breach.

Vigilance

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740184MGMT (talk) 12:52, 24 September 2015 (UTC)

Vigilance is the extent to which the employee vigorously observes how an organization fulfills his psychological contract.[44] Employees who are more vigilant are inclined to seek the discrepancy between what the employee had expected compared with what he has experienced. They actively look for proof that organization has violated the psychological contract. Hence, they may view that a breach has already happened, despite the factual evidences to support this are lacking and unclear.[45] Furthermore, the level of trust between employee and organization is also tightly related to vigilance.[45] This may come from past experience of psychological contract breach, the severe the previous accident, the less trusting the employee toward organization, and therefore more vigilant.

Consequences of Psychological Contract Breach

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729462MGMT (talk) 12:44, 24 September 2015 (UTC)

Jobs Stress

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The breach of psychological contract can lead to the job stress of employees.[42] The employment relationship indicated that social exchange was based on the obligations related to the psychological contract.[42] The findings of their research as following:

  • it provided cogent evidence that the completion of organizational obligations greatly anticipated emotion of exhaustion and job satisfaction.[42]
  • if the obligations are related to the psychological contract, this failure would induce the emotional exhaustion and job satisfaction.[42]
  • it indicated the violations of the psychological contract would reduce the employee perceptions of predictability, control and employees would suffer stress subsequently. [42]
  • such stress can bring lots of potential problem such as the loss of productivity due to the absence.[42]

Reduced work performance

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Moreover, Cropanzano, & Pre-har (2001)[46] put forward the following important conclusions:

  • since the psychological contract was associated with the individual assessments of procedural fairness, it gave the organization an implication that managers should pay attention to the employees’ perceptions about the procedural justice.[43]
  • the employees' perceptions about the procedural justice can greatly affect employees’ evaluations of the psychological contract breach, especially to those who have high level social exchange, because they would feel betrayed and reduce effort to the job.[43]
  • employees experiencing high social exchange would reduce their work performance under the breach of psychological contract.[43]

However, the limitation of their study was that it could not prove trust can moderate the relation between psychological contract breach and organizational citizen behaviors.[43]

Break trust relation

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Psychological contract breach could not decrease the organizational citizen behaviors for the employees with high trust based on the task competence.[47] However,when the trust sources from the achievement of personal goals, trust could be a significant factor of the relation between the employees and their organization.[47] Then, it implied that psychological contract breach could be harmful and detrimental to this trust relation which induces negative effects on the organizational citizen behaviors.[47]

Negative Commitment from Employees and Less Socio-emotional Payment from Employers

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Employer’s psychological breach would produce negative effects to employees and employee’s breach would cause employer’s negative responses.[40] Some important findings are as follows:

  • perceived inducement breach by the employers is closely related to the negative outcomes of employees’ organizational commitment, organizational citizen behaviors and work performance.[40]
  • On the other side, perceived contribution breach by employees would affect the quality of leader-member exchange negatively[40]
  • if the manager thinks the employee contributes less, he will lower his socio-emotional payment for the balance of the exchange relation.[40]
  • it is confirmed that employee traditionality and leader benevolence could produce a gradual decreasing effect on the relation between the violations psychological contract and reactions responded to breach.[40]
  • it elucidates that employees who are more traditional are less reactive to the employer’s breach of psychological contract.[40]
  • More tolerant managers are less reactive to the employee’s breach but this is only applied in the situation when the mentoring behavior is provided by the managers.[40]

The Commitment of Union

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The breach of psychological contract can affect the commitment of union.[41] Some implications are obtained from their research results:

  • the breach of psychological contract was positively associated with union commitment.[41]
  • when predicting the union commitment, the correlation between the breach of psychological contract and union instrumentality was important.[41]
  • if the employees treat their union instrumentality lower, the interaction between psychological contract violations and union commitment would be weak so the employees would not complain their unions’ ineffectiveness for breaching the psychological contract.[41]
  • in contrary, employees treating union instrumentality higher would prompt strongly positive relationship between the breach of psychological contract and union commitment.[41]
  • The strongly positive relationship means employees become more committed to their unions because they believe the unions would try their best to recover the benefits.[41]

So according to these implications, it is suggested that union instrumentality can play a moderating role in the correlation between psychological contract breach and union commitment.[41]

References

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Health, Harvard University Press, Cambridge, MA, 1962.
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Category:Employment Category:Contract law Category:Human behavior Category:Organizational theory

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