Psychological Contract

1
Psychological Contract

• Dr. David McGuire
• Napier University Business School

2
Characteristics of Contracts

• Voluntary Aspect
• Self-Organising
• Contracts as bargain
• Psychological Nature
• Increasingly Individual
• Economic underpinnings
• A unified reality
• Singular interpretations
• Little tolerance of ambiguity

3
Why do people keep contracts?

• Acceptance
• Self-image and esteem
• Imagery formed by act of promising
• Reliance Losses
• Social Pressure Concern for reputation
• Incentives

4
Dimensions of the Employment Relationship

• Parties
• Managers
• Employees
• Employee Reps.

• Substance
• Individual
• Job, Reward,
• Career, Comm.
• Collective
• Joint Agree.

• Operation
• Level
• Process
• Style

Employment Relationship

• Structure
• Formal Rules/Procedures
• Informal Understandings
• Expectations, Assumptions

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Changes to Psychological Contract Employment
Relationship

• Greater work demands
• End of Paternalism
• Insecure and less clearly defined roles
• End of promotion, focus on job enrichment
  employability
• Contribution-based pay
• Rise in transactional contracts

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There is no job security. The employee will be
employed as long as s/he adds value to the
organisation, and is personally responsible for
finding new ways to add value. In return, the
employee has the right to demand interesting and
important work, has the freedom and resources to
perform it well and receives pay that reflects
his or her contribution and gets the experience
and training needed to be employable here or
elsewhere Hiltrop (1995)
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Historical Roots of Psychological Contract

• Social Contract
• Contract recognising the origin of the state
• Contract for government or Contract for
  submission
• Barnards Theory of Equilibrium
• Exchange basis of equilibrium in society
• Clinical/Psychoanalytical Perspective
• Exchange of intangibles in social contractual
  situations (exchange of companionship)

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Defining the Psychological Contract

• Kotter (1973) An implicit exchange between an
  individual and his organisation which specifies
  what each expects to give and receive from each
  other in their relationship.
• Herriot Pemberton (1995) The perceptions of
  both parties to the employment relationship,
  organisation and individual of the obligations
  implied in the relationship.

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Defining the Psychological Contract

• Rousseau (1995) Individual beliefs, shaped by
  the organisation, regarding terms of an exchange
  agreement between individuals and their
  organisation
• Guest and Conway (2000) The perceptions of both
  parties to the employment relationship,
  organisation and individual of the reciprocal
  promises and obligations implied in the
  relationship

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Unpacking the language of psychological contract
definitions

• Promises
• Obligations
• Expectations
• Promises Made by one party to another to engage
  in specific action
• Obligation Commitments to be delivered by party
  in receipt of promise
• Expectation Less binding language than promise
  and obligation

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Psychological Contracts Characteristics

• Define the employment relationship
• Manage Mutual Expectations
• Voluntary
• Reciprocal
• Evolving/Dynamic
• Subjective
• Relational
• Transactional

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The Changing Psychological Contract
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Types of Contracts
LEVEL
Individual
Group
Within
Psychological Beliefs that people have about
promises made, accepted and relied upon between
themselves and another
Normative Shared psychological contract that
emerges when members of a social
group, organisation or work unit hold common
beliefs
PERSPECTIVE
Implied Interpretations that third parties make
regarding contractual terms
Social Broad beliefs in obligations associated
with a societys culture
Outside
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Activity

• Consider the following Questions
• What did your organisation promise you 5 years
  ago? What do they promise you today?
• What did you owe in return 5 years ago? What do
  you owe them today?

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Psychological Contract Dilemmas

• How can organisations attract and retain people
  who can live and thrive on uncertainty?
• How can they meet the career expectations of
  employees, when job security, promotion and
  career opportunities are declining?
• How can they meet the career expectations of
  employees who expect rapid promotions in an
  organisation that is becoming flatter, leaner and
  not expanding to create new jobs?

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Rousseau Psychological Contract
Social Cues
Predisposition
Message Framing
Encoding
Decoding
Psychological Contract
Creating an Individuals Psychological Contract
Organisational Factors
Individual Processes
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Rousseau Psychological Contract An Illustration
Success Stories
Career Focused
Fast Track Growth
Hard work Fast Track
Promotion for High PR ratings
Reliance
Self-Fulfilling Prophecy
Internal promotions
Personal Energy
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Components of Rousseau Model Messages

• Organisations express commitment through
  messages
• Overt Statements example
• Observation of treatment of others perceived as
  party to the same deal
• Expressions of organisational policy, manuals,
  handbooks, reward system
• Social Constructions reference to history or
  reputation

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Components of Rousseau Model Social Cues

• Information acquired from coworkers or work group
• Play three roles in contracting process
• Provide messages for contract creation
• Convey social pressure to conform to groups
  understanding of terms
• Shape how an individual will interpret the
  organisations actions

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Components of Rousseau Model Encoding

• For individuals to attribute a credible or
  intended promise requires that the contract maker
• Be perceived to have power authority
• Operate in a context where promise making is
  deemed appropriate
• Behave in ways consistent with the commitment made

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Activity

• How do you perceive your role within the
  organisation?
• How does your supervisor/boss perceive your role?
• Where do you want to be in 5 years time?
• What 3 things do you need to do to achieve this?

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Guest Conway Psychological Contract
Background Factors
Policy Influences
The Outcomes
Attitudinal Consequences Org. commit Work
Life sat. Job Security Motivation
Individual Age Gender Union Member Level in
Org. Type of work Hours worked Marital
Status Children Organisational Sector Org.
size Location
HR Policy Practice Direct Participation Job
Alternatives Organisational Support Work
Centrality Surveillance Org. Change Suitably
qualified Promises made
State of Psychological Contract
Fairness Trust Delivery of the Deal
Behavioural Consequences Intention to stay or
quit Knowledge Sharing
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Components of Guest Conway Model Policy
Influences

• Organisational Culture
• Human Resource Policy and Practice
• Previous Employment Experience
• Expectations about employment
• Investments sidebets
• Alternatives
• Continuance Commitment

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Components of Guest Conway Model Justice
Implications

• Procedural Justice
• Requires decision-makers to operate procedures
  fairly and consistently with reference to
  criteria and due process, without resorting to
  self-interest and prejudice
• Distributive Justice
• Concerns the handing out of benefits and burdens
  address wealth position inequalities
• Interactional Justice
• Refers to the quality of face-to-face treatment
  from a decision-maker and how far procedures are
  applied by those tasked to apply them

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Transactional Relational Contracts

• Transactional Contracts
• Focused on monetarised values, such as employees
  taking on longer hours of work and additional
  roles in exchange for high performance related
  pay and job related training

• Relational Contracts
• Involve socioemotional elements, such as
  reciprocity, loyalty, support and job security
  and characterised by long-term career development
  and extensive training

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Types of Psychological Contracts
Performance Terms
Specified
Unspecified
Transactional Transitional (e.g.
retail clerks hired at xmas) (Ee experiences
during merger - Low ambiguity change
or acquisition) - Easy exit/high turnover
- Ambiguity/uncertainty - Low member commitment
- High turnover/termination -
Little learning - Instability Balanced
Relational (e.g. High involvement
team) (e.g. family business members) - High
member commitment - High member
commitment - High Integration - High
affective commitment - Ongoing development
- High integration/identification - Mutual
support - Stability - Dynamic
Short-term
Duration
Long-term
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Psychological Contract and Career Theory

• Herriot (1992) An organisational career can be
  considered as a sequence of renegotiations of the
  psychological contract, which the individual and
  the organisation conduct during the period of
  his/her employment
• Shift from career dependence to career resilience
  (Protean career)
• Survivor Syndrome

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Types of Contracting

• Principal to principal
• Contract between employer employee
• Gardening work for home
• Agent to Principal
• Organisations representative
• Recruiter or manager makes commitments to employee

• Principal to Agent
• Employer contracts with representatives of
  workers
• Employment Agency
• Agent to Agent
• Organisations representative and employees
  representative
• Management Union Deal

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Employer Perceptions of Psychological Contract

• Based upon research by Guest Conway (2001)
• 84 of managers had heard of psychological
  contract
• 36 of managers used it to help them manage the
  employment relationship
• Promises to employees fell into three groups
  Information and development (most made), rewards
  and context for work (least made)

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Employer Perceptions of Psychological Contract

• Promises most likely to be kept are in relation
  to not making unreasonable demands on employees
  and opportunities for promotion
• Promises least likely to be kept are in respect
  to safe working environment and a range of
  rewards other than promotion, such as fair pay
  and job security
• Promises less likely to be kept in large
  organisations and in public sector

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Employer Perceptions of Psychological Contract

• Employee Involvement in decision-making is low
  52 not involved, 24 involved
• Managers report poorer outcomes where there is a
  recognised trade union in the organisation
• Organisational management of promises and
  commitments has positive effect on employee
  attitudes and behaviour

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Pressure at Work Psychological Contract

• Based upon research by Guest Conway (2002)
• 25 of workforce report their jobs are very
  stressful higher in health and local government
  sectors
• Pressure at work and long hours are seen as
  damaging to health by 50 of workforce
• Access to social support at work and positive
  control over work is associated with positive
  health and wellbeing

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Pressure at Work Psychological Contract

• Long-term declining level of job satisfaction,
  particularly among public-sector workers
• 25 of workforce believe that changes at work may
  force them to change jobs in the next couple of
  years
• Job security not a concern to workforce
• Increased adoption of family friendly policies

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Pressure at Work Psychological Contract

• Recognition of benefits of training and
  development in improving employability
• Evidence of declining level of TD provision
• 52 - performance is constantly measured
• 27 - under constant observation
• Monitoring and control linked to job
  dissatisfaction and employee stress
• Low level of trust in senior management

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Selected Bibliography

• Rousseau (1995) Psychological Contracts in
  Organizations Understanding written and
  unwritten agreements, Thousand Oaks, CA Sage
• Guest, D.E. Conway, N. (2001) Employer
  Perceptions of the Psychological Contract,
  London CIPD
• Guest, D.E. Conway, N. (2001) Pressure at work
  and the Psychological Contract, London CIPD