Psychological contract

Off topic:

Here is one of my reports I did on employment relations.


A psychological contract is defined as the mutual expectations held by employees and their employers regarding the terms and conditions of the exchange relationship (Kotter 1973). A psychological contract between two parties in an employment setting creates an enduring mental model of the employment relationship, which provides a stable understanding of what to expect from each other and guides efficient actions by both parties. As such, the subjectivity of the contract means that an individual can have a unique experience regarding the exchange relationship with an employer (Rousseau 2004). Feldhiem (1999) describes that the psychological contract can be divided into two areas, which is transactional and relational. The transactional factor is based on economic or monetary terms with clear expectations that the organization will fairly compensate according to performance while the relational factor is a socio-emotional base that underlies expectations of shared ideals and values, and respect and support in interpersonal relationships.

Overview of employment
The popular view of the ‘traditional’ promise of job security in return of hard work or organizational career in return for loyalty and hard work has been eroded by organizational changes, such as downsizing or retrenchment (Guest, 1998). Since the 1980s, the increasingly competitive environment and rapid technological developments have caused many organizational restructuring, resulting in changes in employment relationships among employees at all levels (Shore 2004). One example would be Singapore’s largest port operator, PSA Corporation, where the organization held a retrenchment in February 2003. This signifies that no employees are indispensable to the organization. Bridges (1995) discussed about this point where organizations can no longer offer employees careers for life. As such, employees may not feel safe and stay loyal to the organization and this may result in job hopping every few years.

Employment relationship
By entering into an employment relationship, the employee is accepting an obligation to supply particular services to the organization as well as following the directives of management. The employee also perceives that the organization is obligated to provide certain items in exchange for the contributions supplied by the employee, such as wages, benefits, training, and career opportunities. Likewise, the employer accepts and expects certain obligations when entering into a relationship with a new employee (Barnard 1938). As such, employees may have the perception that proper training and resources will be provided. Sturges (2000) agrees on this point, stating that many employees continue to anticipate receiving some kind of career management help from their employers. These perceptions of mutual obligations are created by spoken and written communication, as well as by actions taken by each party. Both parties may believe that the obligations are mutually understood but the communication is often incomplete or inaccurate. This miscommunication is not intentional or malicious but caused by a natural tendency by both parties to present a favorable image during the attraction process. This leads to both parties believing that more promises are made than might be intended. Since each party will only provide what they believe they owe to the other, if one party believes the other is obligated to provide a particular contribution yet the obligated party is unaware of that obligation that party will invariably fall short of delivering it (Shore 2004). An example would be an IT executive where the employer should provide the employee with all the necessary training and resources to perform the duties. If inadequate training or resources are provided, the employee may struggle to keep up with the daily tasks. Apart from this, the behavior of the employer, supervisors and managers on a day to day basis is not determined by the written contract. According to Guest (1998), employees will need to negotiate on the roles and duties to perform in order to satisfy their side of the bargain and what to expect in return.

Breach of the psychological contract
A violation of the psychological contract occurs when an employee experiences a discrepancy between the actual fulfillment of obligations by the organization, and the promises previously made about these obligations. The degree of the violation depends on the type of violation, the degree of discrepancy, and whether the organization is held responsible for the violation (McFarlane Shore and Tetrick 1994). As psychological contracts are formed on the basis of trust, the violation may lead to strong emotional reactions and feelings of betrayal. This may lead to various results like higher turnover, lower trust and job satisfaction and lower commitment to the organization (Rousseau 2004). Robinson (1995) and Herriot (1996) agreed that psychological contracts become more transactional compared to relational after a violation. This will result in the employee focusing more to financial and economic aspects.

Moreover, Studies from Bunderson (2001), Coyle-Shapiro & Kessler (2000), Kickul (2001), Lester et al. (2002), Raja et al. (2004), and Robinson (1995) have provided convincing evidence that the perceived discrepancy that was promised by the employer was negatively related to an employee’s organizational commitment, in-role performance, and extra-role behavior or organization citizenship behavior. These results are consistent with both social exchange theory (Blau, 1964) and equity theory (Adams, 1965). According to these theories, employees are motivated to seek fair and balanced exchanges with their employer. Employees whose psychological contracts have been breached are likely to believe that their employer cannot be trusted to fulfill its obligations and does not care about the well being of its employees (Robinson, 1995). When this happens, the employee will be less loyal to the organization and a drop in performance may be expected.

Importance of the psychological contract
Research from Rousseau (2004) has consistently show that unmet obligations generate far more intense and negative reactions than unmet expectations. Expectations based upon the creation of the psychological contract differ from other expectations because they generate different consequences for the individual. This demonstrates the importance of psychological contracts in understanding employee responses and highlights the critical role that reliance losses play in reaction to organizational changes. It is important to identify how the psychological contract can affect employees in defining the relationship with their employer. If it is used correctly, it can reduce insecurity, shapes the behavior of the employee and gives the employee a feel of being influential in the organization (McFarlane Shore and Tetrick, 1994). Especially in the context of Singapore, it is important for employers to retain talents, as the main resource is human resource.

Luc et al. (2004) discussed on employees accepting the authority of hierarchy and adopting a traditional attitude and respecting orders. It was identified that job titles and job designations are extremely important in Singapore as it signifies employees’ career milestones and achievements. In other words, Singaporean employees are sensitive over their job titles and designations and they preferred job titles and designations that feel more important. An example is like an IT technician compared to an IT systems engineer. Employees would have the perception that the role of an IT systems engineer holds higher role and responsibilities as compared to an IT technician.

Neil (1998) discussed on the re-evaluation of the employee’s perspective, on what they owe to the organization as compared to what it owes to them. In Hofstede (1980) and Kluckhohn’s (1961) research, employees may not react to inducement breach in the same way if they hold different cultural values and these values may have impacts on their work behaviors. Schwartz (1992) described about the traditional cultural orientation as commitment to respect for and acceptance of the customs and norms of a society. In the research studies from Chen et al. (2007), it showed that more traditional employees were less sensitive to their employer’s psychological contract breach as compared to less traditional employees. This is consistent with the findings from Farh et al. (1997), which suggest the importance of the cultural value to organizational behavior in which tradition and modernity may co-exist.

Apart from the traditional variable, research studies conducted by Porter et al. (1998) have identified three important variables that employees perceived. The three variables are job satisfaction, job security and meaningful work. Results show that job satisfaction is an important control variable as employees who perceived that they are receiving less of the inducements than what the organization is offering are less satisfied with their jobs. In Turnley and Feldman’s (2000) study, a similar result was also obtained with regards to job satisfaction. When job satisfaction has been controlled, the negative relationship in job security and meaningful work relating between satisfaction with the organization and gaps in perceptions become insignificant (Porter et. al. 1998). Through Porter’s (1998) research, it shows that knowing the gap between what employees perceive to be the inducements offered to them and what the employers perceived to offer contributes in understanding employees’ satisfaction with the organization. The biggest negative gap in Porter’s (1998) research is the amount of recognition provided by the employers. This was the most significant result after controlling for job satisfaction. It is indicated in various studies that majority of the employees report that their organization provides less recognition than expected and it led to anger and betrayal (Herriot et. al. (1997), Robinson (1995), Robinson and Rousseau (1994)).

From the various research studies conducted, it can be seen that employees are very particular on job satisfaction and the different cultural backgrounds of employees affect their perception towards the organization. As identified in the research by Luc et al. (2004), Singapore employees generally adopts a traditional work attitude and in conjunction with Chen’s (2007) findings, it can be deduced that Singapore employees are less affected by psychological contract breaches.



References

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I will cover on the economy when I get more news. Yesterday's news was on Citi, where the CEO of Asia Pacific did some restructuring of the operations in AP.