The Psychological Contract

Critically evaluate the utility of the psychological contract for understanding the contemporary employment relationship. (2500 Words) Introduction Up until the 1990’s the psychological contract didn’t get a lot of research literature, whereas more recently it has become increasingly popular, and vast in both volume and critique. It is suggested that this blossoming of research is because of fundamental changes in the workplace, commonly referred to as the ‘new deal’ (Sparrow 1999).

The traditional idea of having a “job for life” is no more, people now transfer across their careers to suit themselves, and it is not uncommon to see a graduate working in a field far from that of their study, ultimately leading to a growth in employee empowerment. These changes also include a demand for increased flexibility, not only in the amount of hours, but also in the ways of working. An area that was once controlled by formal contracts has seen the emergence of a continuing HR discourse, predominantly with the concept of the psychological contract.

In recent years it has become an influential tool used to help us understand the contemporary employment relationship, although it has it critiques. The aim of this essay is therefore to use the relevant academic literature to explore the many concepts involved in the employment relationship and the utility of the psychological contract. The second part of the essay will be used to critically evaluate these findings The evolution and types of psychological contract The written employment contract that has controlled work place politics for many years is fairly recent, emerging after the industrial revolution.

Historically, the master – servant relationship was not a formal contract, and not legally protected. There was a need for a formal employment contract to protect workers and specify the exchange relationship between the employer and employee, traditionally these contracts were shorted and easier to understand but have grown progressively longer to cover the vast legal obligations. (Frazier and Anita 1995) identified that a critical problem with the written contract is that it is restricted by the asymmetrical nature of the exchange relationship in employment.

Employees are limited in terms of what they can expect and what they can specify as what they desire in return. Employees face a similar limitation in respect to the issue that they can’t control the quality of the effort supplied by their employees as a whole; and although it is possible to take away any underperformers, if the workforce begins to lower their standards as a whole, there can become issues for the employer. This can be adapted to Marx theory of structural antagonism, there is rarely true harmony between the worker and employer, the employer will want more effort and the employee will want more money.

Most workers are fed up of their employers because of this constant inequality. Homo-economics states that all workers are bothered about is getting paid but more recently people have understood that people’s needs are further than just money, and other wants it is a way of life and contributes to their social identity. This has resulted in organisations becoming more interested in motivation of staff. Early research by Argyris (1960) observed organisations and saw that the relationship between manager and employees were not specified in their work contract and therefore identified ‘The Psychological Contract’.

He described it as an underwritten agreement that exists between an individual and the organisation when undertaking terms of employment (Argyris 1960). It is different from the formal written contract of employment which usually only identifies duties and responsibilities in a generalised form. It is a taken for granted stance even though the term is not that familiar. Argyris conception was based on the exchange theory, if you are involved in a positive exchange and are provided with something by someone else, you feel obliged to repay them, and this can also be applied to negative exchanges.

While it is clear that psychological contracts can take on a potentially infinite number of cognitive-perceptual forms (Rousseau 1995), certain terms are considered to be clustered together based on factors such as how long the employee has been employed and their performance. At the two furthest ends of the spectrum MacNeil (1985) identifies the two types of contract that underpin the employment relationship, transactional and relational.

A transactional contract is a means to an end view, it denotes an attitude of ‘money comes first’, working in order to get paid and receive other work benefits. They aren’t concerned with being a ‘good organisational citizen’ or going the extra mile to stand out. Their only concerns are being paid and receiving their holidays. It is a contract based on fairly specifiable obligations. A relational contract is a fairly traditional working partnership between the employee and employer.

It can often include a relationship that includes affective involvement or attachment that can commit the employer to providing more than ‘purely remunerative support to the individual with investments such as training, personal and career development, and provision of job security’ (Millward & Brewerton 2000) (Rousseau 1995) argues that transactional and relational aspects are present in most employment contracts and that it is the length of time that the employment is expected to last that usually identifies relational from transactional contracts, with short term contracts being mainly transactional and longer terms more relational.

Although this is not a black and white concept as the two aren’t mutually exclusive, as the short term relationship of student and teacher for example, can be highly relational. There is debate as to whether these two contract types are purely extreme ends of a whole spectrum, rather than a black and white approach, and that most people have both in their psychological contract. Recently the notion of the balanced psychological contract has gained ground within the literature. The New Deal.

The contractual norm is shifting increasingly towards the individual accepting long hours, more responsibility, a requirement for a broader range of skills and tolerance of change and role ambiguity, with the organisation providing returns of high pay, returns for performance and, in the simplest terms, a job (Arnold 1996) Hendry & Jenkins (1997) argue that the traditional working relationships whereby employers could offer stability in return for loyalty and its associated benefits from their employees have been undermined.

The concept of the new deal replaces the traditional ‘job for life’ idea whereby the only change would be upward progression. The new deal identifies that people no longer expect job security and promise keeping, instead we are now consciously aware, and accepting redundancies, and that low job securities are inevitable. The new deal has created a lot of debate in the psychological contract literature. The nature of the contemporary employment relationship is dynamic.

The new deal means that now staff are not immune to redundancies from the organisation and this lack of loyalty is now mutual. The employee, if offered another job with a higher wage and greater prospects will probably accept, despite the length of time spent within their current organisation, the employers lack of job security often means the employee may take a purely profit view. The new deal has near abolished the trust element of the work relationship and increased the cynicism and the need for a career managed by the individual.

As the employee expects less in terms of loyalty, if they are going ‘the extra mile’, the psychological contract may help us understand the rewards they believe they are owed for doing so. In looking at that across the board, it could be understood what is best to be offered by the employer in order to improve the employees overall performance. Contract Breach Psychological contract breach occurs when individuals feel let down and can result in outcomes such as lowered levels of commitment and increased turnover.

There are two types of breach, incongruence, whereby the two parties have different understanding about a single promise made, and reneging, where the organisation is unable or unwilling to meet its previous promises. Incongruence is identified as the more serious of the two as the employee is often left feeling violated and with an increasing feeling of a lack of trust, reneging however is viewed as less serious. For this reason organisations try to make sure that all breaches are viewed this way as they can shift some of the blame to the employee for believing the claim with considerations to the economy for the example.

Guest (1999) identifies that recent literature on the psychological contract suggests that contract violation is on the increase, however it is how the employee makes sense of these breaches that is important. If the employer can persuade the employee that the breach is reneging then the employee is likely to hold a higher view than if they believe it to be incongruence. It is however difficult to measure which of the two breaches has occurred, as even agreements in writing are open to different interpretations, which often only become evident when the contract is violated.

Nowadays the psychological contract is becoming more transactional and vague from the view of the employee, the employer therefore has an opportunity to take advantage, hence violating the contract. Theorists have argued that the new deal has made it increasingly difficult for employers to standardise terms for their employees, which is inevitably leading to dissatisfaction and unhappiness.

Work by Guest and Conway (1999) has found that managementerial practices are more important than union membership in determining whether the staff feels fairly treated, highlighting the need for good interwork relationships. A common problem within large organisations is that employees are likely to enter into a contract with a greater number of organisational agents (Setton et al. 1996); these are known as mutual exchanges. This can create a problem for the individual and the other organisational agents they are exchanging with, as they will have several sets of mutual obligations to various people and groups. This can mean that disagreements occur due to the lack of formal contract to outline expectations.

Obligations can also change, meaning that what was expected from the employee on commencing employment may not remain constant. Issues may arise when the employee remains unaware of this change in their contract and therefore breaches their contract without realising. Criticism of the psychological contract The psychological contract has attracted masses of attention over the past decade and with it a far amount of critique. Possibly its most documented criticism is the concept of the ‘contract’.

Guest (1998) points out that the traditional legal notation of a ‘contract’ implies a ‘two way reciprocal agreement’ that is not the case for the psychological contract. It is subjective, and as it is an ‘agreement in the eye of the beholder’ (Rousseau 1995) there is little chance of mutual agreement actually existing. Boxall & Purcell take this further and identify that if the psychological contract is entirely subjective and constructed only in the head of the individual employee, it cannot in any meaningful way be considered contractual.

Cullanane & Dundon (2006) identify the psychological contract as ideological, it promotes the idea of empowered individuals who can take advantage of the opportunities offered by ‘flexible organisations’ and due to its lack of legal standing it would be very difficult if not impossible to take action against any breaches Guest (1998) describes the interaction accurately ‘Where the implicit encounters the implicit, the result may be two strangers passing blindfolded in the dark, disappointed at their failure to meet.

Arguably the psychological contracts biggest failure is its implicit nature, it merely implies rather than directly expresses itself, creating room for misinterpretation and consequently contract breach. Dabos & Rousseau (2004) found that agreement between management and staff is achieved with a high quality of communication and mutual agreements as to what is owed.

However it would be naive to believe that good communication alone could solve the problem, as when asking employees what they expect from their psychological contract it is often found that it is difficult to pin point what exactly it is, until it is breached. The lack of mutuality in the contract by the employee and the employer means that the managers will have a different set of priorities to the employee. The individualistic approach to the psychogical contract from both sides means that the employee will always lose out.

It has also been identified that the view takes on a very reductionist approach, it assumes that human beings can be reduced into very simple parts that can be identified and measured, however this itself is part of a long standing debate as to whether psychological and personality traits can be accurately measured. Power plays a part in the negotiation of the psychological contract, Rousseau (2001) suggests that the exchange between the employee and employer is asymmetrical, and that an imbalance in the work power relationship creates a lack of trust between the two parties.

The employees find it hard to trust the managers due to the high level of monitoring, although this antagonism is often mutually enjoyed. On commencing employment the employee automatically becomes the subordinate, because it is the employers who control and direct the productive resources of the enterprise (Fox 1974). Ultimately the employee is purely a labourer for the company and will be used as such. Conclusion

Since its introduction by Argyris in 1960 the psychological contract has given an alternative to the longstanding formal contract in terms of understanding the work relationship Researchers such as Rousseau have taken the concept further and we now have a ‘considerable amount of knowledge about concerning the implications and consequences of unmet and unspecified expectations and obligations’ (Cullinane & Dundon 2006) However as Guest (2004) has identified there is still a lot to be desired in terms of research to understand the complex relationship between the two parties.

The psychological contract is a discourse that has been taken up due to changes in the nature of employment and the employment relationship. While this is useful for understanding what individuals believe they owe and are owed in the context of employment, there is a gap in the literature for the sociocultural influences on the development of such beliefs. It has also neglected the two way exchange that is explicit in the notion of a contract. The agreement of the contract becomes increasingly hard to regulate as either party can altar it, as it relies on the individuals unvoiced expectations.

Herriot & Pemberton (1997) agree that ‘the contract is an ongoing process’ which will inevitably cause problems with the mutuality of the employer and employee. The concept of the psychological contract is now of worldwide interest and significance (Schalk & Rousseau 1999) though it has as yet generated perhaps more questions than answers (Guest 1999). We now have a considerable amount of knowledge regarding the implications and consequences of unmet and unspecified expectations and obligations.

Guest (2004) has identified that there is much more to do in terms of research in order to ensure the psychological contract is to become a viable framework capable of understanding the complex and uneven social interactions between the employer and employee. Despite what Cullinane & Dundon (2006) describe to be ‘a number of serious conceptual and empirical limitations in the literature’, the idea of the psychological contract is still a popular concept. Bibliography Argyris, C. (1960) Understanding Organisational Behavior.

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