psychological contract chapter 5 Flashcards
important! question comes out every year
What is a psychological contract?
- It is a belief in obligations between two parties – an agreement that creates an obligation to do something or not do something
- Employment contracts, in economics, is often described as incomplete
- The longer the employment last, the more incompleteness the contract will be
- Employees face with uncertainty will fill in the gaps with interpretation, guesses and estimates – psychological contract fills
- Different employees can have different perceived obligation, even though doing to same job
definitions of psychological contract?
Schein,1980
‘A set of unwritten reciprocal expectations between an individual employee and the organisation’
Kotter,1973
‘An implicit contract between an individual and his organisation which specifies what each expect to give and receive from each other in their relationship’
Rousseau, 1989
‘An individual’s belief regarding the terms and conditions of a reciprocal exchange agreement between the focal person and another party. A psychological contract emerges when one party believes that a promise of future returns has been made, a contribution has been given and thus, an obligation has been created to provide future benefits’
what is the difference between expectations vs obligations?
- Obligations are based on perceived promises whereas expectations can occur for a variety of reasons such as past experiences
- Robinson (1996) believes that, expectations is part of psychological contract, resulting from implicit or explicit promises by employer
- Violation/unmet of obligation more detrimental effect
What is social exchange theory and economic exchange theory?
-Blau (1964) differentiates social exchange and economic exchange
-Social exchange refers to relationships that have unspecified future obligations
economic exchange, whereby nature of future returns is specified (formal contract)
Economic exchange short term
-Social exchange long term
It is base on individual trusting that the other party in the exchange will fairly discharge their unspecified future obligations in the long run
-Trust is necessary as, short term, there may be temporary asymmetries
-One party feel that they have contributed more to the relationship and trust that the other party will contribute more in the future
-Therefore, in the long term, there will be a balance
-Works on Gouldner’s (1960) ‘norm of reciprocity’
-Helping someone who have helped them
-Individual should not hurt someone who have hurt them
parties in a psychological contract?
Employees
-Psychological contract is not as clear as employment contracts in terms of who are the parties involved
-Psychological contract is held by employees and represents their beliefs and obligations about between them and organisation
-They do not see any individual in the organisation as being responsible
-Organisation is seen as a person and vice versa (Levinson, 1965)
Levinson (1965) employees tend to see actions of the agents as actions of the organisation
-The organisation has legal, moral and financial responsibility for the agents
-Organisations culture provide continuity of behaviours
-The organisation through its agents exerts power over its employees
Therefore, it is tough to determine ‘who’ is the employers
-Employee in a multinational company may have different person in mind
-Contractors (who is employed by recruitment agencies) may think host company as the employer
Employers
Employers dictates the terms of employment relationship
Managers, as employer representatives, plays an important role in the relationship between employee and employer, even though they are not responsible for the terms of employment relationship
-Manager responsibility monitor and manage
Manager’s self-interest may dictate how they manage employees which may not ultimately be the organisation’s interest
What is a Psychological Contract Breach?
Contract breach is subjective – perceptions matter
Breach to an individual, may not be breach to another
It is difficult to determine whether a promise was really broken or whether the obligation exist in the first place
Therefore, to determine whether there is a breach, both parties perspective has to be considered
what are the Types of employer-employee relationship?
Categorising employer relationships with employees
Tsui et al (1997) categorise employer-employee relationships into four types
Balanced relationship – economic and social exchanges
Unbalanced exchanges – types of exchanges are incongruent
Employee offer social exchange in return for economic exchange from employer and vice versa
Balanced exchanges
Economic exchange
Exchanges are exclusively economic
Employees not expected to help others nor concern with firm’s performance
Employer offers short-term economic inducements in exchange for specified contributions
Also known as quasi-spot contract
Mutual investment
Base on social exchange and involves long-term investment
Unbalanced exchanges
Underinvestment
Employee adopts social exchange view while employer adopts economic exchange view
Employees expected to take broad range of jobs in return for monetary rewards
Employers don’t provide long-term investment (training, development)
Employers want full commitment from employees but at the same time the flexibility to lay-off employees when necessary
Overinvestment
Employees adopts economic exchange view while employer adopts social exchange view
Employers provide long-term investment
Employees receive investments from employers without the expectation to go beyond job requirements
what are the types of contract?
Transactional Contracts
‘A fair day’s work for a fair day’s pay;
Characterised by Rousseau as, hard work from employee in exchange for high extrinsic returns – pay.
Relational contracts
Exchange employee loyalty in return for job security
Focuses on long-term investment
Open ended and govern by good faith and fair dealing
Involves elements of trust and a sense of mutual obligation
how do we distinguish the difference between a transactional and relational contract?
Focus: identify incentives of the employment relationship. Economical or emotional
Time frame: long or short termed
Formalisation: whether there is a detailed job scope
Inclusion: limited versus extensive personal involvement (assessing the extent to which the job overlaps with individual’s personal life)
Stability: static job position or subjected to future change
the measurements of pyschological contract?
Even though psychological contracts are hard to measure, researchers have still tried to find a proper way to measure
Content approaches
Qualitative measures
Herriot et al (1997) used critical incidents to measure employee and employer obligations
Employees were asked to recall incidents in the organisation
Organisation offered more/less than it was obligated to (vice versa)
Employees offered more/less than it was obligated to
Types of employee obligations
Hours, work, honesty, loyalty, property, self-presentation, flexibility
Types of employer obligations
Training, fairness, needs, consultation, discretion, humanity, recognition, environment, justice, pay, benefits, salary
Quantitative measures
Employees were asked what their employers were obligated to on a 1-5 point scale, ‘not at all’ to ‘highly obligated’. On things like
Advancement, pay, career development
Employees were also asked to indicate the extent to which they felt obligated to provide, using the same scale
Extra work hours, volunteer to do extra-role job
explain the creation and management of psychological contract.
Begin during the recruitment process
Word of mouth introduction to the job
Newspaper advertisement
However, the words (in the ads) are not required to create promises
What factors creates promise?
Actions within the organisations can be constructed as promises
Social learning through the observations of other organisational members is a powerful factor
‘A promise is most given when least is said”
Messages and social cues in which the individual interprets
Observations on how others are treated in a given situation
what are the 2 areas of influence for viewing PC?
Rosseau (1995) two areas of influence
Cognitive biases
How individuals process information
Individuals tend to over-estimate self-capabilities and have unrealistic optimism
These tendencies will lead to individuals believing that they have fulfilled their side of the exchange
Individual motives for taking the job will also influence the interpretation of the psychological contract
Motives
Individuals who see their current job as a stepping stone to another job will think that high salary is in exchange for hard work
Individuals who see their job as a long-term career, see the exchange as job security in return for loyalty
What changes occur in PC?
Rousseau (1995) presents several ways in which contracts can change
Internal change
Occurs without formal effort to change the contract
The longer the employee stay in the organisation
Change in the individual’s personal life
External change
Accommodation: making minor adjustments to existing contracts
Transformation: a shift in nature of the contract between parties
Successful change through accommodation has the following features
Positive relationship with both parties
Non-core elements of the contracts are adjusted
Conflict of interest
Job description
Few changes made
Successful change through transformation
Working hours
Pay decrease
Rousseau (1995) Process to effect change
Challenging the old contract
Creating credible signs of change
Contract negotiation
Development of contract breach and violation
Breach
Robinson and Morrison (2000) – breach or perceived breach is defined as the perception that one’s organisation, failed to fulfil one or more obligations comprising the psychological contract
Perceived breach is when individual has not received relative to what one was promised
Promised promotion in 3 years, but after 3 years, no promotion
Violation
Violation is a strong emotional experience
Anger, resentment
Violation may or may not be resulted from perceive breach
An individual may not feel outrage knowing that the there is a breach
Two conditions that give rise to violation
Reneging
Incongruence
Reneging
Occurs when organisation knowingly breaks a promise to employee
Two reasons why organisation
Organisation unable to fulfil promise (internal or external factors)
Financial crisis
Sales target not met
Organisation breaks the promise on purpose
Whether the organisation decides the renege depends on the cost and benefits associated (3factors)
If staff has critical skills, reneging is unlikely
If the staff underperform, organisation will be unwilling to keep promises (year end bonus)
Type of contract – transaction or relational, relational contract deems more valuable
Incongruence Occurs when employee’s perception of promise is different from organisation Three factors, Different schemata Complexity and ambiguity of obligations Communication
Different schemata
Schemata aids in data processing in individual
Employment schemata varies from person to person, hence individuals may have different idea of what employment means to them
How they interpret job security
These schemata are heavily influence by past experience and cultures
Complexity and ambiguity of obligations
The more complicated the obligation, the more likely that perceptions between parties will differ
Communication
The more accuracy and truthfulness of communication, the less likely for violations to occur
The results of reneging or incongruence (breach/violation)
Either reneging or incongruence will lead to discrepancy between parties
Does discrepancy matter? It depends on,
Whether the employee deems it as important
The larger the discrepancy, the more vivid the promise is in the mind of the employee
The vigilance of the employee
Employee monitor organisation on whether it fulfils promise
Propensity of vigilance depends largely on external factors – economic downturn
Contracts – if relationship is transactional, employees will tend to be more vigilant
Will unmet promise lead to perceived breach?
Employees will judge perceive breach by how well they have fulfilled their obligations against how well the organisation has fulfilled their obligations to employee
Some key factors affect the likelihood that a breach will occur
Employee perceives level of contract maintenance is greater than organisation
Employees with low self esteem will think that their contributions are inadequate
Less likely to think that unmet promise represents breach
Employees differ on equity sensitivity
High equity sensitive feel that they deserve more than others
For these people, slight discrepancy will be perceived as a breach
