Psychological Contract

Definition

Despite the amount of literature and research were done on the Psychological contract, this widely used concept still does not have a universal definition. Below given are some of the widely accepted definitions given on the basis of unwritten mutual expectations, implicit contract, understandings, and beliefs.

'A set of unwritten reciprocal expectations between an individual employee and the organization' (Schein, 1978). 'An implicit contract between an individual and his organization which specifies what each expects to give and receive from each other in their relationship' (Kotter, 1973). 'The perceptions of both parties to the employment relationship, organization, and individual, of the obligations implied in the relationship. Psychological contracting is the process whereby these perceptions are arrived at' (Herriot and Pemberton, 1995).

Psychological Contract is an agreement exchanged between individuals and their organization based on the individual's beliefs shaped by the organization (Rousseau et al, 1998). Since the presentation of proper research backed concept of the psychological contract (Rousseau, 1990), it has been subjected to continuous evolving, receiving the much factual, theoretical and experimental attention in organizational/industrial psychology and behavior (Zhao et al., 2007). Guest (1998) indicates that the way individuals move in a relationship by perceiving the promises and the fulfillment of them will result in the employees' actual behaviors (Figure 1.0).

Figure 1.0: Guest's model of the psychological contract  

Source: Guest, 1998

The Origins of the Psychological Contract Literature

There were early references on the psychological contract when describing the forms of employment relationships by Argyris (1960) and Levinson et al (1962). Argyris (1960) discussed the concept of the power of perception and the values held by the involving parties to the employment relationship using the term "psychological work contract".  Levinson et al. (1962) developed this further by describing the psychological contract as "a series of mutual expectations of which the parties to the relationship may not themselves be dimly aware but which nonetheless govern their relationship to each other". Even though these early considerations were highlighted mostly on needs and expectations as the primary concepts describing the psychological contract, Rousseau (1989) manage to bring back scholarly attention to the psychological contract by redefining the concept.

Modern-day Psychological Contract Concept

Rousseau (1989, 1990) pioneered a revival approach on psychological contract in search for new and more effective HRM practices facing rapid economic restructuring and employee turnover dynamics. She used the term 'transactional psychological contracts' ( where employees no longer expect to keep a long-lasting relationship with the organization based on loyalty and job security but tend to see their relationship with the organization is a transaction for the long hours of work they provided for the payment and the training they get) to describe the labour market flexibility and economic restructuring of the employment relationship (Dundon, 2006).

Maguire (2002) divides this relationship into three distinct levels (Figure 2.0), based on the values and expectations of each party will bring into the workplace.

Figure 2.0: Three-tier model of the psychological contract

Source: Maguire, 2002

Even though the transactional element of the contract will certainly be taken into consideration by all members who entering a contract and focus more on specific financial exchanges which are typically short-term (D'Annunzio-Green and Francis, 2006),  this alone will not constitute the total of the relationship, though it often considered as such. The Career and Relational Aspect levels, shown in the model are not often openly considered, they may implicitly be considered in most cases. Yet career and relational aspects of a psychological contract are the defining points of a well established and long-standing relationship.

Breach and Violation of Psychologcal Contract

According to Morrison and Robinson (1997), psychological contract breach is subjective to the employee based not only (or necessarily) on the employer's actions or inactions but on the point of view of individual's personal understanding of those actions or inactions within a circumstantial context. Consequently, the occurrence of psychological contract breach should depend on social and psychological factors particular to the employment relationship in which it occurs.

Figure 3.0: Causes & Costs of breach of contract

Source: Litzky et.al, 2006

The above figure indicates different types of Triggers that may result in a breach or violation if not met with the employee expectations, which may create various type of deviant behavior categorized under Production, Political, Property and Personal aggression as described by Rebinso and Bennett (1995). This will result in the organization to face various forms of mostly unwanted costs, which is listed under the last part of the figure.

Consequences of Breach

In figure 3, Cost to the organization indicates that in the case of psychological contract breach, an organization can suffer a significant amount of financial, resources and time loss resulting in a long-term impact on the organization productivity and employee welfare. This alone can result in the organization to face difficulties in upkeeping the psychological contract between its current employees. Furthermore, if the employee believes that the employer has violated the understanding and the terms of the psychological contract, the employee's reaction may vary from acceptance of the consequences to resignation from the post.  This is because employees tend to believe in their entitlements and being violated the contract they will feel cheated by the employer and have wasted their time by working for them (Middlemiss, 2011).

Example of the Psychological Contract

One of the organizations which I worked, had several development teams formed to handle different projects. When I was initially promoted to the capacity of Operations Manager among them, I found that some of the team leads are bit uncomfortable to work with me as earlier we were working in the same roles. To resolve this issue, for each development sprint I selected one team and asked the lead to assign me a small task of development and worked under that team lead's direction. This action helped me to communicate them the message that unless if the situation requires me to exercise the authority, I am still one of them. This understanding gave me two major advantages.  The team leaders were easily got on with my management style and since I worked with the other team members directly I always had a good knowledge of organizations current situation. This could never have been done with rules and regulations if initiated in a formal manner.

Conclusion

Since the introduction by Argyris (1960), the psychological contract has been used to understand the relationship outside of the legal contract, which affects the productivity of an organization. With the contribution of latest researches done by Rousseau (1989, 1990, 1995), the concept got developed into a tool, and now this is used throughout the industry to identify and address the implications and consequences of unmet and undefined responsibilities and expectations. However, with the complexity of human relationships, the concept of the psychological contract has to further develop in order to use it to understand the industrial and social interactions between both employer and employee.

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References

Argyris, C.,(1960). Understanding organizational behavior. Dorsey Press, Homewood, Illinois.

Cullinane, N. and Dundon, T. (2006). The psychological contract: A critical review. International Journal of Management Reviews, 8(2), pp.113-129.

D'Annunzio-Green, N. and Francis, H. (2005). Human resource development and the psychological contract: Great expectations or false hopes?. Human Resource Development International, 8(3), pp.327-344.

Guest, D. (1998). Is the psychological contract worth taking seriously?. Journal of Organizational Behavior, 19(S1), pp.649-664.

Levinson, H., Price, C., Munden, K., Mandl, H., Solley, C., (1962). Men, management, and mental health. Harvard University Press, Cambridge, MA.

Litzky, B., Eddleston, K. and Kidder, D. (2006). The Good, the Bad, and the Misguided: How Managers Inadvertently Encourage Deviant Behaviors. Academy of Management Perspectives, 20(1), pp.91-103.

Maguire, H. (2002). Psychological contracts: are they still relevant?. Career Development International, 7(3), pp.167-180.

Middlemiss, S. (2011). The psychological contract and implied contractual terms. International Journal of Law and Management, 53(1), pp.32-50.

Morrison, E. and Robinson, S. (1997). When Employees Feel Betrayed: A Model of HowPsychological Contract Violation Develops. The Academy of Management Review, 22(1), pp.226-256.

Pearce, J. and Rousseau, D. (1998). Psychological Contracts in Organizations: Understanding Written and Unwritten Agreements. Administrative Science Quarterly, 43(1), p.184.

Robinson, S., and Bennett, R. (1995). A typology of deviant workplace behaviors: A multidimensional scaling study. Academy of Management Journal, 42 (1), pp.100-108 

Rousseau, D. M., (1989). Psychological and implied contracts in organizations. Employee Responsibilities and Rights Journal. 2, pp.121-139.

Rousseau, D. M., (1990). New hire perceptions of their own and their employer’s obligations: A study of psychological contracts. Journal of Organizational Behavior. 11, pp.389-400.

Wong, P. and Weiner, B. (1981). When people ask "why" questions, and the heuristics of attributional search. Journal of Personality and Social Psychology, 40(4), pp.650-663.

Zhao, H., Wayne, S., Glibkowski, B. and Bravo, J. (2007). The impact of psychological contract breach on work-related outcomes: A meta-analysis. Personnel Psychology, 60(3), pp.647-680.