Phsycological Contract

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The psychological contract in a changing work environment Annette Sharpe The Work Institute

Abstract This paper examines how organisation changes, driven by economic, social and technological changes at the macro level, have impacted on the psychological contract. Whilst criticised for being an ill-defined concept, it is usually taken to refer to 'the implicit relationship that exists between individuals and their employer concerning perceived mutual obligations and expectations'. Although its origins can be traced to 1960, the concept attracted minimal academic and practitioner interest until the last decade or so. Research evidence is discussed, which shows how the psychological contract is changing. It is generally agreed that, the ‘old’ contract offered steady financial rewards, security and career structure in return for loyalty, commitment and trust in the organisation. The ‘new’ or emerging contract emphasises ‘employability, which according to many researchers and practitioners compensates for the loss of traditional rewards. Evidence presented here suggests that employability is a redundant concept for all but the minority of the workforce. It also suggests that due to its complexity, diversity and fragility, the psychological contract cannot be managed in any simplistic, generic sense. It can be managed only at the individual level, an unrealistic expectation for the majority of organisations. Nevertheless, it is also suggested that the psychological contract is worth taking seriously if it is thought of in terms of the foundations upon which it is based. The paper discusses the concept in terms of the function it serves in providing a degree of predictability, security and control. It is also described as a reciprocal agreement through which parties to that agreement try to maintain balance between inputs and rewards. When conceptualised in these terms, its significance and the role that it plays in organisation life becomes clearer and it is no longer necessary to specify its content. The effects of organisation change on the factors underpinning the psychological contract are discussed. The immediate and longer term challenges facing management are identified. The paper then describes the relevance of organisation justice (fairness principles) in overcoming some of the difficulties associated with change management. It argues that perceptions of fairness, through involvement and effective communication provide an opportunity for employees to accept and adapt to changes in the psychological contract. The paper concludes with a suggestion that partnership might represent a means of developing and sustaining a more stronger and more robust psychological contract, thus enabling organisations to meet the future challenges they face.

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Introduction Argyris first referred to the psychological contract in 1960 in terms of the relationship between employer and employee. Following observations and interviews conducted in two factories, Argyris suggested that a psychological work contract or understanding would develop between the foremen and employees if the foremen respected the norms of employees' informal culture. He argued that employees would maintain high production and low grievances if they were left alone, received adequate pay and they were guaranteed secure jobs. In other words, he was proposing that a relationship existed that potentially, had a stronger influence on employees’ performance and attitudes than the formal contract of employment. However, Argyris referred to the psychological contract only in passing, and Levinson et al (1962) claim to have been the 'father' of the concept. They defined it as 'the unwritten contract, the sum of the mutual expectations between the organisation and employee'. Schein (1965) also made references to a psychological contract. Nevertheless, whilst these early writings highlighted the significance of the concept, and its theoretical underpinnings (for example...
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