Explain Analytically What Is Meant by ‘Psychological Contract’. Critically Assess Which Process Theories of Motivation Could Help Employers Establish a ‘Psychological Contract’ with Their Employees?

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2. Explain analytically what is meant by ‘psychological contract’. Critically assess which process theories of motivation could help employers establish a ‘psychological contract’ with their employees?

According to Anderson & Schalk (1998) within an organization there are obligations and expectations between employer and employee, some of which are written down as a formal employment contract and some of which are just implied, not discussed, which constitutes the psychological contract. Employees may have expectations like a safe working environment, progression opportunities, recognition of both innovation and new ideas, performance feedback, interesting and challenging work, respectful treatment from co-workers, customers and employers alike, whereas employers might expect willingness to work extra hours, being loyal towards the organization, bringing innovative ideas and practices and being courteous to clients and co-workers (Jafri, 2011). Originally both the employee and employer were considered the parties involved in the contract however more recent studies have shown that focus has shifted more onto the employees' perceptions (Rousseau, 1997; Coyle-Shapiro & Kessler, 2000). “The employee oriented approach to psychological contract is of view that the belief does not need to be agreed formally by the employee and employer and thus exists based on the employee's perception. This type of beliefs and expectations are subjective and perceptual in nature” (Jafri, 2011). Lambert (2011) splits the psychological contract in four belief components: promised inducements, delivered inducements, promised contributions and delivered contributions. Studies on inducements show breach and fulfilment are closely tied to important outcomes for employers and staff alike (Chen et al, 2008; Coyle-Shapiro, 2002; Robinson & Morrison, 2000). Contributions on the other hand are a result of promised and fulfilled inducements (Robinson & Morrison 1995). Lambert (2011) goes on to state that the psychological contract is basically a framework for understanding the employment relationship, based on the exchange of inducements for contributions and that “neglecting this exchange diminishes the fidelity of the psychological contract as a representation of employment relationship”.

A classical example of a psychological contract is management assuming that the employee is willing to go the extra mile when the company needs them to, driven by loyalty or responsibility and in turn the employees expect to be rewarded for their efforts sooner or later. Psychological contracts are basically about rights, responsibility, fairness and contribution, however people of different power and status, as in an employee-employer relationship, often have extremely misaligned beliefs and expectations, but nowadays people tend to speak out more against such disjunctions (Management Today, 2011). This could expose flaws in the organization's culture and also show the quality of its members' relationships, whether or not such injustices are openly discussed and resolved.

Rousseau (1990), Anderson et al (1998), Millward & Hopkins (1998) and Millward et al (1999) have described two types of psychological contracts – transactional and relational. The relational contract is focused on beliefs about exchanges based on socio-emotional factors and long-term business relationships as well as employee emotional attachment to the organization, whereas the transactional contract is centres on short-term monetary agreements in which case both parties are more concerned with compensation and personal benefit (Jafri, 2011).

Because of the perceptual and subjective nature of psychological contracts, their breach and consequences thereof may be difficult to assess. A psychological contract breach is an employer's systematic failure to fulfil one or more obligations towards their staff (Robinson & Rousseau, 1994). It is necessary to point out that this type of contract...
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