The Psychological Contract
Employee Resourcing – The Psychological Contract
How can we define the psychological contract?
Is it the set of mutual obligations/expectations and more often than not aspirations between employer and employee that extend beyond the formal, written contract of employment?
This is the general consensus with modern scholars and workers alike, but just how far is this assertion true? The problem is trying to evaluate what the psychological contract actually is and what it stands for in our modern workplace and organisations. It can be somewhat of an enigma, since it is largely a grey area of study.
From its birth in the 1960’s, the term psychological contract, which was first coined by Argyris, has grown in substance, and, more significantly, importance within organisations. It can be seen as providing a backdrop or firm grounding of any employment relationship. To understand the relationship, we must study the changing role of the psychological contract, how this links in with employer/employee relations, and to what extent this contract exists in the workplace. There is no particular definition of the psychological contract nor can there be for any contract that is unwritten. It is also fundamental to remember that this framework will be different for every employment relationship depending on employer and employee expectations, needs, and organisational values. It is not possible to study all areas of the psychological contract and its effects, but it is important to understand the reasons behind it, what essentially it stands for and its underpinning values. To understand this, must inevitable lead to a greater understanding of how organisations function with regards to its people and practices and of course what this means for Human Resource practice.
Current respected models defining the psychological contract are sound methods with which to begin our interpretation of this often changing role of the psychological contract. For example, leading scholars on this subject such as David Guest (Guest and Conway, 1998) present a model of the psychological contract in terms of the relationship between employer and employee as the heart of the organisation. Delivered expectations from both sides lead to high levels of trust and commitment, therefore leading to what is labelled high-commitment HRM. In essence, there has to be give and take on both sides of the ‘deal’, or, like any agreement, it cannot be fulfilled. To a certain extent Rousseau’s model (cited by Purcell et al, 2003) of the psychological contract is largely grounded in this suggestion, but takes hers a step further by highlighting how the contract can be viewed by employees but also the problems that may arise from assuming too much of a contract that technically exists only in the minds of those that have formed it. This is an interesting point, as it highlights the fact that employees may assume too much from the contract and ultimately be met with disappointment because of this. The so called ‘breach’ or violation of the psychological contract which can have far reaching consequences. However, Jone L. Pearce (1998) Professor of Organisational Behaviour criticises Rousseau for assuming that if the employee does not get what they want then it is immediately the fault of the organisation. Of course, this is a viable argument. An employer cannot always give an employee what they need, and in the case of the psychological contract these wants can sometimes be ideas of what an employee feels they deserve. If this idea clashes with an employer then it is this that leads to breakdowns in the employment relationship. Indeed, what relationship can be one-sided and last? Interestingly though, is the fact that much of the emphasis has been placed on the employee and their wants. But what about the employer and their needs? This has often been overlooked as most literature on the psychological contract focuses on employee requirements.
In studying the employment relationship with regards to the psychological contract, it is important to bear in mind just how the contract is weighted. Any imbalance between both parties would eventually lead to a breakdown of relations, loss of motivation and faith for the employee and a sense of frustration and being let down for the employers. Employment relationships are essentially dependent on mutual understandings, although to a certain extent both parties are not always going to be in agreement. This is where the concept of compromise must come into play for both employer and employee. Development of the psychological contract will mean greater development of relationships within the organisation and in turn this would lead to higher levels of loyalty and commitment to the company.
Undeniably, lack of communication for both parties could lead to loss of employee commitments and have a major impact on the organisation. The psychological contract is essentially and most importantly a contract of communication between employers and employees. Good communication is at the core of every successful organisation and for the psychological contract to work this must be in evidence. Lack of any form of communication or compromise will lead to ‘crossed-wires’, and a break-down of relationships. It can be argued that this can be viewed as a ‘vicious circle’ of events. The familiar catch-22 situation, in which if there is no change in the familiar circle of events, then the organisation cannot fully function. This is detailed below.
1.1 Breakdown of employment relationships
How could this, then, be avoided? It is here that that the Line manager plays an essential role in making sure these events do not occur, or, stops them being out of control. To put it best, ‘prevention is better than the cure!’ A poor line manager can have a very detrimental effect on employee motivation and commitment. Purcell et al (2003) argue that the respect an employee gets from his/her immediate boss is linked to attitudes in terms of commitment, motivation and job satisfaction. Interestingly, surveys confirm that employers feel more confidence in their line manager, whom they see on a regular basis, than in anonymous members of senior management. (C.I.P.D, 2004). This to a certain extent is true, but if the line manager them-self has not built or maintained an effective relationship with employees then there would still be similar implications taking place.
It may be very easy to analyse the employment relationship when we regard the evidence laid out by the psychological contract. Maybe more difficult to study is what ‘state’ the contract is currently in. Is there more evidence of the old or new contract? Reports from the CIPD argue that the traditional contract is still very much ‘alive and surprisingly well’ (CIPD, 2005). This is because many of the surveys undertaken seem to show employee satisfaction within their organisation, although the issue of trust within organisations is a concern.
However, there is no denying that the contract has altered over the years, but this is due to a changing workforce and shifting expectations. Occurrences like this do not remain static but are ever varying to meet the needs and shifts in a changing environment. But what is the extent of this change and more importantly, how can we follow its pattern?
Below is Hilltrop’s table of characteristics of the ‘old’ and ‘new’ psychological contract.
Characteristic Old New
Focus of the employment Security and long-term career in Employability to cope with changes relationship the company in this and future employment
Format Structures and Predictable Flexible and unpredictable
Duration Permanent Variable
Underlying Principle Influenced by tradition Driven by market forces
Intended Output Loyalty and commitment Value added
Employer’s Key responsibilities Fair pay for a fair day’s work High pay for high job performance
Employee’s Key responsibilities Good performance in present job Making a difference to the organisation
Employer’s Key input Stable income and career Opportunities for self-development
Employee’s Key input Time and effort Knowledge and skills
1.2 Adapted from Hilltrop (1995:290)
The old consisted of ‘a job for life, traditional values, and fair pay for a fair days work’. Although the contract has moved on from these simplistic ideals of the employment relationship, there are many areas which still adopt this method; for example, the civil service. From previous experience, the Prison Service in particular adopted compulsory rulings that permanent staff, if laid off, would have to be found another job within the same sector, thus maintaining the employees potential ‘job for life’. However, the idea of ‘fair pay for a fair days work’ does not often ring true, with many people in lower administration grades, particularly in the public sector, having to work hard under poorer pay conditions.
In support of change in the ‘new’ psychological contract, we could study companies such as AstraZeneca, who, in the journal Science, were named a top employer, after a survey conducted by 1566 Science readers. (Science, 2005). This is an important example of the new psychological contract in force, and, apparently working very well. Through this, we can evidence the psychological contract in operation. Research into AstraZeneca and its policies, seems to highlight this survey as being sound, where developing talent, rewarding performance and being as flexible as is practicable and beneficial are key elements to its success (AstraZeneca Annual Report, 2004). This is a good example of a company that has got it ‘right’, and by maintaining this balance between employee and employer has effectively made them a leader in today’s competitive market with yearly productivity and sales growth.
There have been a considerable amount of surveys carried out with regards to the state of the psychological contract, many with varying results. But how far can we treat these surveys as substantial evidence? One could argue that we cannot, without interviewing every organisation in the country. The state of the contact is largely dependent on the values of the particular organisation, and that would no doubt vary widely from place to place. Therefore, if the survey conducted covered companies with similar values and relationships, this may very well lead to a positive outcome. We must also think about who has been surveyed; just managers, or managers and employees? Research from Guest and Conway suggests that the contract is very healthy and there has been no change in attitudes (Guest and Conway, 1998). This was also followed up by further research in 2002 (cited in Lewis et al, 2003) where 1300 managers were interviewed on the way they felt the psychological contract was managed. Interestingly they discovered from this that communication played a central role in maintaining a good psychological contract, and that the ‘top-down approach’ did not work. This is hardly surprising considering that employee involvement in organisations seems a key element in maintaining the status quo.
However, in direct opposition to Guest and Conway’s earlier survey is Coyle-Shapiro and Kessler’s studies in 2002 from both a managerial and employee perspective. They found that a major chunk of employees had experienced a ‘breach’ of contract. Even more importantly than this however is the evidence highlighting that the psychological contract is indeed in evidence. Those who had experienced the breach were getting even by reducing commitment and willingness to the organisation (cited in Lewis et al, 2003). It seems, therefore, that whether there is a conscious or unconscious recognition of the psychological contract, unfair treatment will still not be tolerated. This is a very substantial piece of evidence to prove that the employment relationship can indeed be measured by the psychological contract and, more importantly, be significantly affected by it.
There is an obviously powerful link with regards to employee/organisational attitudes. When a full range of HR practices have been used, productivity of staff improved by 25% (CIPD: 1997). It is also significant, however, that these practices were only the objective of half of U.K organisations (Work Foundation, 2003). This would hint at the idea of employee as resource, which could have serious effects on motivation or even retention of staff.
In a survey undertaken by IRS (2004), 81 organisations were studied with regards to the state of the employment relationship. Notably, those with improved communications or good communication structures in place were found to have an ‘exceptionally good relationship with staff’. But what about employee voice? It is clear from this study that if employees have an outlet where they can view their opinions then organisational relationships are enhanced. For those, who do not believe their ‘voice’ is being heard often find themselves unmotivated and left with a feeling of not being valued. This is often evidenced in companies with the ‘top-down’ approach. Again, previous personal experience of this would certainly indicate this is the case, where senior managers made all the decisions with little or no consultation from subordinates. As a consequence, employees felt that their opinion mattered little to the company and motivation and trust would be affected. It is also significant that there was no trade union involvement. Trade Union participation, however, could very well influence the nature and level of employee’s responses to organisational treatment (Shore and Coyle-Shapiro, 2003). A survey by CIPD (CIPD, 2005) shows that only 32% of employees feel they have enough opportunity to express their views, and 25% say this is never the case. Interestingly, though, trade union membership has no effect on this.
Those who adopt a more unitary or sophisticated HR approach often do not welcome inclusions of trade unions, but rather prefer direct involvement with employees. There is also a greater emphasis on soft HR, where employers seek to give employees a ‘good deal’ in their contract, building commitment, relations, and trust from the fore, and therefore reducing the need for trade union involvement and possibly employee dissatisfaction.
Would the psychological contract benefit everyone though? It would seem this could vary widely. What about age versus skills? For example, what if an employee had put 25 years of service into an organisation? Would this person’s knowledge of, and service in the organisation stand up in a modern society where the rapid advancements in technology mean younger people are more technologically skilled? It could also be viewed that an organisation could gain more from a younger person with regards to development, but may not view a much older employee in the same way. This is an important point to highlight, as we must consider how this may be viewed in light of the traditional or modern contract. If a more traditional one existed, the older employee may view his/her position in terms of security and a ‘job for life’. However, with the onset of a new psychological contract, there is no guarantee of this security and therefore, employee commitment may suffer and dissatisfaction could occur as a result. Older employees may not feel that they could ‘compete’ with younger workers and to keep their job they must ‘change with the times’. Maybe then, the new psychological contract is more of a benefit for young, skilled workers, who can, arguably, contribute more to an organisation in a modern, fast moving world. It is also important to remember that there are very few people in modern society who now want a job for life. It is more geared to an employee getting what they can from an organisation with regards to development and future employability.
This could also be the case for those on flexible, part-time or fixed-term contracts where many feel they are viewed as 2nd class citizens in the workplace (Legge, 1998). Although a great many do hold these contracts out of choice, there is a feeling that they must not expect more of the psychological contract than they should, or indeed, if it even applies to them.
One final thought in studying the state of the contract is how it must also be looked at in terms of it’s transactional and relational values, that is, are employees expecting a more relational contract where they are ‘looked after’ or a more transactional contract where commitment equals reward. That is, the organisations cannot ensure a ‘job for life’, but can ensure that the employee is made as employable as possible, both within and outside the organisation. Rousseau and Wade-Benzoni (1995), suggest this is the case. This would also fall in line with the idea of a more modern psychological contract taking the place of a traditional contract. However, if this is true, does the emergence of the new contract mean that relational or ‘emotional’ values are lost?
It seems that the psychological contract is varied from organisation to organisation. It is also clear that employers and employees alike wish for different things. Only when there are crossovers in the needs of both parties and mutual benefits for both can the psychological contract come into play. Otherwise, we experience a violation and breakdown of relations.
How will this affect current or future HR practitioners? From evidence studies it is clear that the psychological contract has a massive impact on employment relationships and the organisation. Human Resource managers must take into account that employee needs vary from person to person, and that raising expectations too high can effectively (but maybe quite innocently) violate a contract that for the employee holds obligations that they expect to receive. Whether traditional or new, good or bad, it is essential that HR managers are aware of the state of the contract and what this will mean for the future of their organisation. To get this wrong could lead to long-term problems with the employment relationship.
It is also fundamental for employers to get the balance right to ensure retention of highly trained workers in a negative environment, and indeed a competitive market. Reference to flexible, part-time workers could be referenced here where HR practioners need to look at a policy of equal fairness for all parties. It could be argued that no organisation can afford to ignore the psychological contract, as employees are essentially the core of an organisation. To treat them well is to ensure increased profitability, which in a modern competitive environment, is key. However, it must be argued that the most important area for any HR professional is the value of communication. To get this right is to ensure an effective psychological contract and therefore a productive organisation.
However, organisational dynamics mean that for both parties, expectations will change; the key to this is to recognise where these may occur, and if an unwitting breach takes place, to readdress a framework for both employer and employee needs. It is also significant that much of the research on the employment relationship is done from an employee perspective. The psychological contract is the involvement of two parties, neither more important that the other. It is therefore essential, that employer views are not lost in the melee of employee analysis.
Considering the vast amount of evidence, it could also be argued that it is neither the traditional or more modern contract that takes precedence but rather a mixture of both, largely dependent on certain organisational values. As we have seen, modern companies such as AstraZeneca have adopted what appears to be the new psychological contract, but many other companies who are maybe more grounded in their own traditional company values that have kept a more traditional contract alive. The fundamental point of the old contract is ‘job security’. Studying the past may give an idea of why this idea has foundered. For example, previous and continuing impacts such as globalisation and the recession in the 90 's has gone some way to have a large effect on the way current organisations are managed. But even with this idea, is it inevitable that in the long run, and with the modernisation of more and more organisations, that the new contract will come to the fore, this and the increasing importance in the way current HR departments are managed. There has also been a move from a more pluralist personnel department to the current, more unitarist Human Resources department. It seems however, that the old contract is certainly still alive. Employees still want security, and to a certain extent will still offer loyalty (CIPD, 2004). Nolan’s assertion that job tenure rates have largely remained the same over the past 20 years seems to reinforce this idea. (Nolan, 2003)
It is all very well for employer to have a psychological contract in theory, but in practice if they do not uphold it, then this forms the basis of a potentially serious breach in relations for either party. However, the same can be said for an employee who places far too much emphasis on what they wish to gain from the organisation, or how they interpret promises made, and ultimately, are left disappointed when expectations are not met. It is therefore fundamental that employers make obligation unequivocally clear from the outset.
The psychological contract defines in essence how people are deal and are dealt with in organisations. Changing the culture will have an enormous impact on the psychological contract and therefore organisational effectiveness (Makin et al, 1996).
All in all, it is essential that to study what the future holds for the psychological contract, then employees and employers alike must also look to the mistakes of the past.
References
Guest, D and Conway, N (1998) “Fairness at Work and the Psychological Contract” The state of the employment relationship IPD Survey, p3, London
Rousseau, D, (1995), in Purcell et al, (2003) “Strategy and Human Resource Management” Palgrave Macmillan, p152
Pearce, J, L (1998) “Administrative Science Quarterly”, Find Articles, Oct 2005, http://www. findarticles.com/p/articles/mi_m4035/is_n1_v43/ai_20780738
Purcell et al (2003) “Understanding the People and Performance Link: Unlocking the Black Box” Work and Employment Research Centre, School of Management, University of Bath, CIPD 2003. P 75
CIPD (2004) “Managing the Psychological Contract” CIPD Website, Oct 2005 http://www.cipd.co.uk/subjects/empreltns/psycntrct/psycontr.htm Woodruffe, C (2005) “Commitment and Satisfaction: the true state of the Psychological Contract”. Reflections on Employee Well-being and the Psychological Contract CIPD, June 2005, P 7
Hilltrop, J (1995) “The changing psychological Contract: the human resource challenge of the 1990’s” in Lewis et al (2003) “Employee Relations, Understanding the Employment Relationship” 1st ed. Essex, Pearson Education Ltd
Science (2005) “Science 's top employer ranking 2005”, Oct 2005 http://www.astrazeneca.com/Article/511657.aspx AstraZeneca (2004) “AstraZeneca Annual Report and Form 20-F Information 2004” Oct 2005 p 62 http://www.astrazeneca.com/article/511562.aspx
Guest, D and Conway, N (1998) “Fairness at Work and the Psychological Contract” Summary of key Results IPD Survey, p vi, London
Guest, D and Conway, N (2002),”Communicating the psychological contract: an employer perspective” in Lewis at al (2003) “Employee Relations, Understanding the Employment Relationship” 1st ed. Essex, Pearson Education Ltd
Coyle-Shapiro, J. and Kessler, I. (2000) “Consequences of the psychological contract for the employment relationship: a large scale survey”, in Lewis et al (2003) “Employee Relations, Understanding the Employment Relationship” 1st ed. Essex, Pearson Education Ltd
CIPD (1997) “The Impact of People Management Practices on Business Performance” cited by Eames, R (2003) “Employee Morale” Nelson Consulting p2 http://www.nelsonconsulting.co.uk/Newsletters/edition003pdf
The Work Foundations (2003) cited by Eames, R (2003) “Employee Morale” Nelson Consulting, p2. http://www.nelsonconsulting.co.uk/Newsletters/edition003pdf
IRS (2004) “It pays to talk: gauging the employment relationship” IRS Employment Review 811, Employment Trends 12 Nov pp12-16
Shore, M, L. and Coyle-Shapiro, A.M, J. (2003) “New Developments in the employee-organization relationship” Journal of Organizational Behaviour Vol 24, Issue 5 Aug 2003 p447 Published online at http://www3.interscience.wiley.com/cgi-bin/fulltext/104552259/PDFSTART CIPD (2005) “Public sector reform: workers ' responses” CIPD Website, Oct 2005 http://www.cipd.co.uk/subjects/empreltns/psycntrct/pubsectreform-wrkrsrspns.htm?IsSrchRes=1 Legge, K, 1998 “Flexibility: the gift wrapping of employment degradation?” in Sparrow, P, R. and Marchington, P. (Eds) Human Resource Management: the new agenda, London: FT/Pitman p290
Rousseau, D.M and Wade-Benzoni,K.A. (1995),”Changing Individual
Organisational Attachments: A two-way street” cited by Smithson, J and Lewis, S, The psychological Contract and Work-Family. Organization and Management Journal Vol 1, NO 1. 2004, Manchester Metropolitan University P 5 http://assets.wnec.edu/55/bib-psycholcontractfin.pdf CIPD (2004) “Managing the Psychological Contract” The changing employment relationship: is there a new contract? CIPD Website, Oct 2005 http://www.cipd.co.uk/subjects/empreltns/psycntrct/psycontr.htm Nolan, P (2003) “Reconnecting with history: the ESRC future of work programme, Work, employment and Society BSA Publications Ltd Vol 17 (3) September 2003, p477 http://wes.sagepub.com/cgi/reprint/17/3/473
Makin, p et al (1996) “Organization and the Psychological Contract: Managing People at Work” BPS Books p13
1.1 Breakdown of employment relationships
How could this, then, be avoided? It is here that that the Line manager plays an essential role in making sure these events do not occur, or, stops them being out of control. To put it best, ‘prevention is better than the cure!’ A poor line manager can have a very detrimental effect on employee motivation and commitment. Purcell et al (2003) argue that the respect an employee gets from his/her immediate boss is linked to attitudes in terms of commitment, motivation and job satisfaction. Interestingly, surveys confirm that employers feel more confidence in their line manager, whom they see on a regular basis, than in anonymous members of senior management. (C.I.P.D, 2004). This to a certain extent is true, but if the line manager them-self has not built or maintained an effective relationship with employees then there would still be similar implications taking place.
It may be very easy to analyse the employment relationship when we regard the evidence laid out by the psychological contract. Maybe more difficult to study is what ‘state’ the contract is currently in. Is there more evidence of the old or new contract? Reports from the CIPD argue that the traditional contract is still very much ‘alive and surprisingly well’ (CIPD, 2005). This is because many of the surveys undertaken seem to show employee satisfaction within their organisation, although the issue of trust within organisations is a concern.
However, there is no denying that the contract has altered over the years, but this is due to a changing workforce and shifting expectations. Occurrences like this do not remain static but are ever varying to meet the needs and shifts in a changing environment. But what is the extent of this change and more importantly, how can we follow its pattern?
Below is Hilltrop’s table of characteristics of the ‘old’ and ‘new’ psychological contract.
Characteristic Old New
Focus of the employment Security and long-term career in Employability to cope with changes relationship the company in this and future employment
Format Structures and Predictable Flexible and unpredictable
Duration Permanent Variable
Underlying Principle Influenced by tradition Driven by market forces
Intended Output Loyalty and commitment Value added
Employer’s Key responsibilities Fair pay for a fair day’s work High pay for high job performance
Employee’s Key responsibilities Good performance in present job Making a difference to the organisation
Employer’s Key input Stable income and career Opportunities for self-development
Employee’s Key input Time and effort Knowledge and skills
1.2 Adapted from Hilltrop (1995:290)
The old consisted of ‘a job for life, traditional values, and fair pay for a fair days work’. Although the contract has moved on from these simplistic ideals of the employment relationship, there are many areas which still adopt this method; for example, the civil service. From previous experience, the Prison Service in particular adopted compulsory rulings that permanent staff, if laid off, would have to be found another job within the same sector, thus maintaining the employees potential ‘job for life’. However, the idea of ‘fair pay for a fair days work’ does not often ring true, with many people in lower administration grades, particularly in the public sector, having to work hard under poorer pay conditions.
In support of change in the ‘new’ psychological contract, we could study companies such as AstraZeneca, who, in the journal Science, were named a top employer, after a survey conducted by 1566 Science readers. (Science, 2005). This is an important example of the new psychological contract in force, and, apparently working very well. Through this, we can evidence the psychological contract in operation. Research into AstraZeneca and its policies, seems to highlight this survey as being sound, where developing talent, rewarding performance and being as flexible as is practicable and beneficial are key elements to its success (AstraZeneca Annual Report, 2004). This is a good example of a company that has got it ‘right’, and by maintaining this balance between employee and employer has effectively made them a leader in today’s competitive market with yearly productivity and sales growth.
There have been a considerable amount of surveys carried out with regards to the state of the psychological contract, many with varying results. But how far can we treat these surveys as substantial evidence? One could argue that we cannot, without interviewing every organisation in the country. The state of the contact is largely dependent on the values of the particular organisation, and that would no doubt vary widely from place to place. Therefore, if the survey conducted covered companies with similar values and relationships, this may very well lead to a positive outcome. We must also think about who has been surveyed; just managers, or managers and employees? Research from Guest and Conway suggests that the contract is very healthy and there has been no change in attitudes (Guest and Conway, 1998). This was also followed up by further research in 2002 (cited in Lewis et al, 2003) where 1300 managers were interviewed on the way they felt the psychological contract was managed. Interestingly they discovered from this that communication played a central role in maintaining a good psychological contract, and that the ‘top-down approach’ did not work. This is hardly surprising considering that employee involvement in organisations seems a key element in maintaining the status quo.
However, in direct opposition to Guest and Conway’s earlier survey is Coyle-Shapiro and Kessler’s studies in 2002 from both a managerial and employee perspective. They found that a major chunk of employees had experienced a ‘breach’ of contract. Even more importantly than this however is the evidence highlighting that the psychological contract is indeed in evidence. Those who had experienced the breach were getting even by reducing commitment and willingness to the organisation (cited in Lewis et al, 2003). It seems, therefore, that whether there is a conscious or unconscious recognition of the psychological contract, unfair treatment will still not be tolerated. This is a very substantial piece of evidence to prove that the employment relationship can indeed be measured by the psychological contract and, more importantly, be significantly affected by it.
There is an obviously powerful link with regards to employee/organisational attitudes. When a full range of HR practices have been used, productivity of staff improved by 25% (CIPD: 1997). It is also significant, however, that these practices were only the objective of half of U.K organisations (Work Foundation, 2003). This would hint at the idea of employee as resource, which could have serious effects on motivation or even retention of staff.
In a survey undertaken by IRS (2004), 81 organisations were studied with regards to the state of the employment relationship. Notably, those with improved communications or good communication structures in place were found to have an ‘exceptionally good relationship with staff’. But what about employee voice? It is clear from this study that if employees have an outlet where they can view their opinions then organisational relationships are enhanced. For those, who do not believe their ‘voice’ is being heard often find themselves unmotivated and left with a feeling of not being valued. This is often evidenced in companies with the ‘top-down’ approach. Again, previous personal experience of this would certainly indicate this is the case, where senior managers made all the decisions with little or no consultation from subordinates. As a consequence, employees felt that their opinion mattered little to the company and motivation and trust would be affected. It is also significant that there was no trade union involvement. Trade Union participation, however, could very well influence the nature and level of employee’s responses to organisational treatment (Shore and Coyle-Shapiro, 2003). A survey by CIPD (CIPD, 2005) shows that only 32% of employees feel they have enough opportunity to express their views, and 25% say this is never the case. Interestingly, though, trade union membership has no effect on this.
Those who adopt a more unitary or sophisticated HR approach often do not welcome inclusions of trade unions, but rather prefer direct involvement with employees. There is also a greater emphasis on soft HR, where employers seek to give employees a ‘good deal’ in their contract, building commitment, relations, and trust from the fore, and therefore reducing the need for trade union involvement and possibly employee dissatisfaction.
Would the psychological contract benefit everyone though? It would seem this could vary widely. What about age versus skills? For example, what if an employee had put 25 years of service into an organisation? Would this person’s knowledge of, and service in the organisation stand up in a modern society where the rapid advancements in technology mean younger people are more technologically skilled? It could also be viewed that an organisation could gain more from a younger person with regards to development, but may not view a much older employee in the same way. This is an important point to highlight, as we must consider how this may be viewed in light of the traditional or modern contract. If a more traditional one existed, the older employee may view his/her position in terms of security and a ‘job for life’. However, with the onset of a new psychological contract, there is no guarantee of this security and therefore, employee commitment may suffer and dissatisfaction could occur as a result. Older employees may not feel that they could ‘compete’ with younger workers and to keep their job they must ‘change with the times’. Maybe then, the new psychological contract is more of a benefit for young, skilled workers, who can, arguably, contribute more to an organisation in a modern, fast moving world. It is also important to remember that there are very few people in modern society who now want a job for life. It is more geared to an employee getting what they can from an organisation with regards to development and future employability.
This could also be the case for those on flexible, part-time or fixed-term contracts where many feel they are viewed as 2nd class citizens in the workplace (Legge, 1998). Although a great many do hold these contracts out of choice, there is a feeling that they must not expect more of the psychological contract than they should, or indeed, if it even applies to them.
One final thought in studying the state of the contract is how it must also be looked at in terms of it’s transactional and relational values, that is, are employees expecting a more relational contract where they are ‘looked after’ or a more transactional contract where commitment equals reward. That is, the organisations cannot ensure a ‘job for life’, but can ensure that the employee is made as employable as possible, both within and outside the organisation. Rousseau and Wade-Benzoni (1995), suggest this is the case. This would also fall in line with the idea of a more modern psychological contract taking the place of a traditional contract. However, if this is true, does the emergence of the new contract mean that relational or ‘emotional’ values are lost?
It seems that the psychological contract is varied from organisation to organisation. It is also clear that employers and employees alike wish for different things. Only when there are crossovers in the needs of both parties and mutual benefits for both can the psychological contract come into play. Otherwise, we experience a violation and breakdown of relations.
How will this affect current or future HR practitioners? From evidence studies it is clear that the psychological contract has a massive impact on employment relationships and the organisation. Human Resource managers must take into account that employee needs vary from person to person, and that raising expectations too high can effectively (but maybe quite innocently) violate a contract that for the employee holds obligations that they expect to receive. Whether traditional or new, good or bad, it is essential that HR managers are aware of the state of the contract and what this will mean for the future of their organisation. To get this wrong could lead to long-term problems with the employment relationship.
It is also fundamental for employers to get the balance right to ensure retention of highly trained workers in a negative environment, and indeed a competitive market. Reference to flexible, part-time workers could be referenced here where HR practioners need to look at a policy of equal fairness for all parties. It could be argued that no organisation can afford to ignore the psychological contract, as employees are essentially the core of an organisation. To treat them well is to ensure increased profitability, which in a modern competitive environment, is key. However, it must be argued that the most important area for any HR professional is the value of communication. To get this right is to ensure an effective psychological contract and therefore a productive organisation.
However, organisational dynamics mean that for both parties, expectations will change; the key to this is to recognise where these may occur, and if an unwitting breach takes place, to readdress a framework for both employer and employee needs. It is also significant that much of the research on the employment relationship is done from an employee perspective. The psychological contract is the involvement of two parties, neither more important that the other. It is therefore essential, that employer views are not lost in the melee of employee analysis.
Considering the vast amount of evidence, it could also be argued that it is neither the traditional or more modern contract that takes precedence but rather a mixture of both, largely dependent on certain organisational values. As we have seen, modern companies such as AstraZeneca have adopted what appears to be the new psychological contract, but many other companies who are maybe more grounded in their own traditional company values that have kept a more traditional contract alive. The fundamental point of the old contract is ‘job security’. Studying the past may give an idea of why this idea has foundered. For example, previous and continuing impacts such as globalisation and the recession in the 90 's has gone some way to have a large effect on the way current organisations are managed. But even with this idea, is it inevitable that in the long run, and with the modernisation of more and more organisations, that the new contract will come to the fore, this and the increasing importance in the way current HR departments are managed. There has also been a move from a more pluralist personnel department to the current, more unitarist Human Resources department. It seems however, that the old contract is certainly still alive. Employees still want security, and to a certain extent will still offer loyalty (CIPD, 2004). Nolan’s assertion that job tenure rates have largely remained the same over the past 20 years seems to reinforce this idea. (Nolan, 2003)
It is all very well for employer to have a psychological contract in theory, but in practice if they do not uphold it, then this forms the basis of a potentially serious breach in relations for either party. However, the same can be said for an employee who places far too much emphasis on what they wish to gain from the organisation, or how they interpret promises made, and ultimately, are left disappointed when expectations are not met. It is therefore fundamental that employers make obligation unequivocally clear from the outset.
The psychological contract defines in essence how people are deal and are dealt with in organisations. Changing the culture will have an enormous impact on the psychological contract and therefore organisational effectiveness (Makin et al, 1996).
All in all, it is essential that to study what the future holds for the psychological contract, then employees and employers alike must also look to the mistakes of the past.
References
Guest, D and Conway, N (1998) “Fairness at Work and the Psychological Contract” The state of the employment relationship IPD Survey, p3, London
Rousseau, D, (1995), in Purcell et al, (2003) “Strategy and Human Resource Management” Palgrave Macmillan, p152
Pearce, J, L (1998) “Administrative Science Quarterly”, Find Articles, Oct 2005, http://www. findarticles.com/p/articles/mi_m4035/is_n1_v43/ai_20780738
Purcell et al (2003) “Understanding the People and Performance Link: Unlocking the Black Box” Work and Employment Research Centre, School of Management, University of Bath, CIPD 2003. P 75
CIPD (2004) “Managing the Psychological Contract” CIPD Website, Oct 2005 http://www.cipd.co.uk/subjects/empreltns/psycntrct/psycontr.htm Woodruffe, C (2005) “Commitment and Satisfaction: the true state of the Psychological Contract”. Reflections on Employee Well-being and the Psychological Contract CIPD, June 2005, P 7
Hilltrop, J (1995) “The changing psychological Contract: the human resource challenge of the 1990’s” in Lewis et al (2003) “Employee Relations, Understanding the Employment Relationship” 1st ed. Essex, Pearson Education Ltd
Science (2005) “Science 's top employer ranking 2005”, Oct 2005 http://www.astrazeneca.com/Article/511657.aspx AstraZeneca (2004) “AstraZeneca Annual Report and Form 20-F Information 2004” Oct 2005 p 62 http://www.astrazeneca.com/article/511562.aspx
Guest, D and Conway, N (1998) “Fairness at Work and the Psychological Contract” Summary of key Results IPD Survey, p vi, London
Guest, D and Conway, N (2002),”Communicating the psychological contract: an employer perspective” in Lewis at al (2003) “Employee Relations, Understanding the Employment Relationship” 1st ed. Essex, Pearson Education Ltd
Coyle-Shapiro, J. and Kessler, I. (2000) “Consequences of the psychological contract for the employment relationship: a large scale survey”, in Lewis et al (2003) “Employee Relations, Understanding the Employment Relationship” 1st ed. Essex, Pearson Education Ltd
CIPD (1997) “The Impact of People Management Practices on Business Performance” cited by Eames, R (2003) “Employee Morale” Nelson Consulting p2 http://www.nelsonconsulting.co.uk/Newsletters/edition003pdf
The Work Foundations (2003) cited by Eames, R (2003) “Employee Morale” Nelson Consulting, p2. http://www.nelsonconsulting.co.uk/Newsletters/edition003pdf
IRS (2004) “It pays to talk: gauging the employment relationship” IRS Employment Review 811, Employment Trends 12 Nov pp12-16
Shore, M, L. and Coyle-Shapiro, A.M, J. (2003) “New Developments in the employee-organization relationship” Journal of Organizational Behaviour Vol 24, Issue 5 Aug 2003 p447 Published online at http://www3.interscience.wiley.com/cgi-bin/fulltext/104552259/PDFSTART CIPD (2005) “Public sector reform: workers ' responses” CIPD Website, Oct 2005 http://www.cipd.co.uk/subjects/empreltns/psycntrct/pubsectreform-wrkrsrspns.htm?IsSrchRes=1 Legge, K, 1998 “Flexibility: the gift wrapping of employment degradation?” in Sparrow, P, R. and Marchington, P. (Eds) Human Resource Management: the new agenda, London: FT/Pitman p290
Rousseau, D.M and Wade-Benzoni,K.A. (1995),”Changing Individual
Organisational Attachments: A two-way street” cited by Smithson, J and Lewis, S, The psychological Contract and Work-Family. Organization and Management Journal Vol 1, NO 1. 2004, Manchester Metropolitan University P 5 http://assets.wnec.edu/55/bib-psycholcontractfin.pdf CIPD (2004) “Managing the Psychological Contract” The changing employment relationship: is there a new contract? CIPD Website, Oct 2005 http://www.cipd.co.uk/subjects/empreltns/psycntrct/psycontr.htm Nolan, P (2003) “Reconnecting with history: the ESRC future of work programme, Work, employment and Society BSA Publications Ltd Vol 17 (3) September 2003, p477 http://wes.sagepub.com/cgi/reprint/17/3/473
Makin, p et al (1996) “Organization and the Psychological Contract: Managing People at Work” BPS Books p13
References: Guest, D and Conway, N (1998) “Fairness at Work and the Psychological Contract” The state of the employment relationship IPD Survey, p3, London Rousseau, D, (1995), in Purcell et al, (2003) “Strategy and Human Resource Management” Palgrave Macmillan, p152 CIPD (2004) “Managing the Psychological Contract” CIPD Website, Oct 2005 http://www.cipd.co.uk/subjects/empreltns/psycntrct/psycontr.htm Science (2005) “Science 's top employer ranking 2005”, Oct 2005 http://www.astrazeneca.com/Article/511657.aspx Guest, D and Conway, N (2002),”Communicating the psychological contract: an employer perspective” in Lewis at al (2003) “Employee Relations, Understanding the Employment Relationship” 1st ed. Essex, Pearson Education Ltd Coyle-Shapiro, J IRS (2004) “It pays to talk: gauging the employment relationship” IRS Employment Review 811, Employment Trends 12 Nov pp12-16 Shore, M, L http://www3.interscience.wiley.com/cgi-bin/fulltext/104552259/PDFSTART CIPD (2005) “Public sector reform: workers ' responses” CIPD Website, Oct 2005 http://www.cipd.co.uk/subjects/empreltns/psycntrct/pubsectreform-wrkrsrspns.htm?IsSrchRes=1 Legge, K, 1998 “Flexibility: the gift wrapping of employment degradation?” in Sparrow, P, R Rousseau, D.M and Wade-Benzoni,K.A. (1995),”Changing Individual Organisational Attachments: A two-way street” cited by Smithson, J and Lewis, S, The psychological Contract and Work-Family http://assets.wnec.edu/55/bib-psycholcontractfin.pdf CIPD (2004) “Managing the Psychological Contract” The changing employment relationship: is there a new contract? CIPD Website, Oct 2005 Makin, p et al (1996) “Organization and the Psychological Contract: Managing People at Work” BPS Books p13
How can we define the psychological contract?
Is it the set of mutual obligations/expectations and more often than not aspirations between employer and employee that extend beyond the formal, written contract of employment?
This is the general consensus with modern scholars and workers alike, but just how far is this assertion true? The problem is trying to evaluate what the psychological contract actually is and what it stands for in our modern workplace and organisations. It can be somewhat of an enigma, since it is largely a grey area of study.
From its birth in the 1960’s, the term psychological contract, which was first coined by Argyris, has grown in substance, and, more significantly, importance within organisations. It can be seen as providing a backdrop or firm grounding of any employment relationship. To understand the relationship, we must study the changing role of the psychological contract, how this links in with employer/employee relations, and to what extent this contract exists in the workplace. There is no particular definition of the psychological contract nor can there be for any contract that is unwritten. It is also fundamental to remember that this framework will be different for every employment relationship depending on employer and employee expectations, needs, and organisational values. It is not possible to study all areas of the psychological contract and its effects, but it is important to understand the reasons behind it, what essentially it stands for and its underpinning values. To understand this, must inevitable lead to a greater understanding of how organisations function with regards to its people and practices and of course what this means for Human Resource practice.
Current respected models defining the psychological contract are sound methods with which to begin our interpretation of this often changing role of the psychological contract. For example, leading scholars on this subject such as David Guest (Guest and Conway, 1998) present a model of the psychological contract in terms of the relationship between employer and employee as the heart of the organisation. Delivered expectations from both sides lead to high levels of trust and commitment, therefore leading to what is labelled high-commitment HRM. In essence, there has to be give and take on both sides of the ‘deal’, or, like any agreement, it cannot be fulfilled. To a certain extent Rousseau’s model (cited by Purcell et al, 2003) of the psychological contract is largely grounded in this suggestion, but takes hers a step further by highlighting how the contract can be viewed by employees but also the problems that may arise from assuming too much of a contract that technically exists only in the minds of those that have formed it. This is an interesting point, as it highlights the fact that employees may assume too much from the contract and ultimately be met with disappointment because of this. The so called ‘breach’ or violation of the psychological contract which can have far reaching consequences. However, Jone L. Pearce (1998) Professor of Organisational Behaviour criticises Rousseau for assuming that if the employee does not get what they want then it is immediately the fault of the organisation. Of course, this is a viable argument. An employer cannot always give an employee what they need, and in the case of the psychological contract these wants can sometimes be ideas of what an employee feels they deserve. If this idea clashes with an employer then it is this that leads to breakdowns in the employment relationship. Indeed, what relationship can be one-sided and last? Interestingly though, is the fact that much of the emphasis has been placed on the employee and their wants. But what about the employer and their needs? This has often been overlooked as most literature on the psychological contract focuses on employee requirements.
In studying the employment relationship with regards to the psychological contract, it is important to bear in mind just how the contract is weighted. Any imbalance between both parties would eventually lead to a breakdown of relations, loss of motivation and faith for the employee and a sense of frustration and being let down for the employers. Employment relationships are essentially dependent on mutual understandings, although to a certain extent both parties are not always going to be in agreement. This is where the concept of compromise must come into play for both employer and employee. Development of the psychological contract will mean greater development of relationships within the organisation and in turn this would lead to higher levels of loyalty and commitment to the company.
Undeniably, lack of communication for both parties could lead to loss of employee commitments and have a major impact on the organisation. The psychological contract is essentially and most importantly a contract of communication between employers and employees. Good communication is at the core of every successful organisation and for the psychological contract to work this must be in evidence. Lack of any form of communication or compromise will lead to ‘crossed-wires’, and a break-down of relationships. It can be argued that this can be viewed as a ‘vicious circle’ of events. The familiar catch-22 situation, in which if there is no change in the familiar circle of events, then the organisation cannot fully function. This is detailed below.
1.1 Breakdown of employment relationships
How could this, then, be avoided? It is here that that the Line manager plays an essential role in making sure these events do not occur, or, stops them being out of control. To put it best, ‘prevention is better than the cure!’ A poor line manager can have a very detrimental effect on employee motivation and commitment. Purcell et al (2003) argue that the respect an employee gets from his/her immediate boss is linked to attitudes in terms of commitment, motivation and job satisfaction. Interestingly, surveys confirm that employers feel more confidence in their line manager, whom they see on a regular basis, than in anonymous members of senior management. (C.I.P.D, 2004). This to a certain extent is true, but if the line manager them-self has not built or maintained an effective relationship with employees then there would still be similar implications taking place.
It may be very easy to analyse the employment relationship when we regard the evidence laid out by the psychological contract. Maybe more difficult to study is what ‘state’ the contract is currently in. Is there more evidence of the old or new contract? Reports from the CIPD argue that the traditional contract is still very much ‘alive and surprisingly well’ (CIPD, 2005). This is because many of the surveys undertaken seem to show employee satisfaction within their organisation, although the issue of trust within organisations is a concern.
However, there is no denying that the contract has altered over the years, but this is due to a changing workforce and shifting expectations. Occurrences like this do not remain static but are ever varying to meet the needs and shifts in a changing environment. But what is the extent of this change and more importantly, how can we follow its pattern?
Below is Hilltrop’s table of characteristics of the ‘old’ and ‘new’ psychological contract.
Characteristic Old New
Focus of the employment Security and long-term career in Employability to cope with changes relationship the company in this and future employment
Format Structures and Predictable Flexible and unpredictable
Duration Permanent Variable
Underlying Principle Influenced by tradition Driven by market forces
Intended Output Loyalty and commitment Value added
Employer’s Key responsibilities Fair pay for a fair day’s work High pay for high job performance
Employee’s Key responsibilities Good performance in present job Making a difference to the organisation
Employer’s Key input Stable income and career Opportunities for self-development
Employee’s Key input Time and effort Knowledge and skills
1.2 Adapted from Hilltrop (1995:290)
The old consisted of ‘a job for life, traditional values, and fair pay for a fair days work’. Although the contract has moved on from these simplistic ideals of the employment relationship, there are many areas which still adopt this method; for example, the civil service. From previous experience, the Prison Service in particular adopted compulsory rulings that permanent staff, if laid off, would have to be found another job within the same sector, thus maintaining the employees potential ‘job for life’. However, the idea of ‘fair pay for a fair days work’ does not often ring true, with many people in lower administration grades, particularly in the public sector, having to work hard under poorer pay conditions.
In support of change in the ‘new’ psychological contract, we could study companies such as AstraZeneca, who, in the journal Science, were named a top employer, after a survey conducted by 1566 Science readers. (Science, 2005). This is an important example of the new psychological contract in force, and, apparently working very well. Through this, we can evidence the psychological contract in operation. Research into AstraZeneca and its policies, seems to highlight this survey as being sound, where developing talent, rewarding performance and being as flexible as is practicable and beneficial are key elements to its success (AstraZeneca Annual Report, 2004). This is a good example of a company that has got it ‘right’, and by maintaining this balance between employee and employer has effectively made them a leader in today’s competitive market with yearly productivity and sales growth.
There have been a considerable amount of surveys carried out with regards to the state of the psychological contract, many with varying results. But how far can we treat these surveys as substantial evidence? One could argue that we cannot, without interviewing every organisation in the country. The state of the contact is largely dependent on the values of the particular organisation, and that would no doubt vary widely from place to place. Therefore, if the survey conducted covered companies with similar values and relationships, this may very well lead to a positive outcome. We must also think about who has been surveyed; just managers, or managers and employees? Research from Guest and Conway suggests that the contract is very healthy and there has been no change in attitudes (Guest and Conway, 1998). This was also followed up by further research in 2002 (cited in Lewis et al, 2003) where 1300 managers were interviewed on the way they felt the psychological contract was managed. Interestingly they discovered from this that communication played a central role in maintaining a good psychological contract, and that the ‘top-down approach’ did not work. This is hardly surprising considering that employee involvement in organisations seems a key element in maintaining the status quo.
However, in direct opposition to Guest and Conway’s earlier survey is Coyle-Shapiro and Kessler’s studies in 2002 from both a managerial and employee perspective. They found that a major chunk of employees had experienced a ‘breach’ of contract. Even more importantly than this however is the evidence highlighting that the psychological contract is indeed in evidence. Those who had experienced the breach were getting even by reducing commitment and willingness to the organisation (cited in Lewis et al, 2003). It seems, therefore, that whether there is a conscious or unconscious recognition of the psychological contract, unfair treatment will still not be tolerated. This is a very substantial piece of evidence to prove that the employment relationship can indeed be measured by the psychological contract and, more importantly, be significantly affected by it.
There is an obviously powerful link with regards to employee/organisational attitudes. When a full range of HR practices have been used, productivity of staff improved by 25% (CIPD: 1997). It is also significant, however, that these practices were only the objective of half of U.K organisations (Work Foundation, 2003). This would hint at the idea of employee as resource, which could have serious effects on motivation or even retention of staff.
In a survey undertaken by IRS (2004), 81 organisations were studied with regards to the state of the employment relationship. Notably, those with improved communications or good communication structures in place were found to have an ‘exceptionally good relationship with staff’. But what about employee voice? It is clear from this study that if employees have an outlet where they can view their opinions then organisational relationships are enhanced. For those, who do not believe their ‘voice’ is being heard often find themselves unmotivated and left with a feeling of not being valued. This is often evidenced in companies with the ‘top-down’ approach. Again, previous personal experience of this would certainly indicate this is the case, where senior managers made all the decisions with little or no consultation from subordinates. As a consequence, employees felt that their opinion mattered little to the company and motivation and trust would be affected. It is also significant that there was no trade union involvement. Trade Union participation, however, could very well influence the nature and level of employee’s responses to organisational treatment (Shore and Coyle-Shapiro, 2003). A survey by CIPD (CIPD, 2005) shows that only 32% of employees feel they have enough opportunity to express their views, and 25% say this is never the case. Interestingly, though, trade union membership has no effect on this.
Those who adopt a more unitary or sophisticated HR approach often do not welcome inclusions of trade unions, but rather prefer direct involvement with employees. There is also a greater emphasis on soft HR, where employers seek to give employees a ‘good deal’ in their contract, building commitment, relations, and trust from the fore, and therefore reducing the need for trade union involvement and possibly employee dissatisfaction.
Would the psychological contract benefit everyone though? It would seem this could vary widely. What about age versus skills? For example, what if an employee had put 25 years of service into an organisation? Would this person’s knowledge of, and service in the organisation stand up in a modern society where the rapid advancements in technology mean younger people are more technologically skilled? It could also be viewed that an organisation could gain more from a younger person with regards to development, but may not view a much older employee in the same way. This is an important point to highlight, as we must consider how this may be viewed in light of the traditional or modern contract. If a more traditional one existed, the older employee may view his/her position in terms of security and a ‘job for life’. However, with the onset of a new psychological contract, there is no guarantee of this security and therefore, employee commitment may suffer and dissatisfaction could occur as a result. Older employees may not feel that they could ‘compete’ with younger workers and to keep their job they must ‘change with the times’. Maybe then, the new psychological contract is more of a benefit for young, skilled workers, who can, arguably, contribute more to an organisation in a modern, fast moving world. It is also important to remember that there are very few people in modern society who now want a job for life. It is more geared to an employee getting what they can from an organisation with regards to development and future employability.
This could also be the case for those on flexible, part-time or fixed-term contracts where many feel they are viewed as 2nd class citizens in the workplace (Legge, 1998). Although a great many do hold these contracts out of choice, there is a feeling that they must not expect more of the psychological contract than they should, or indeed, if it even applies to them.
One final thought in studying the state of the contract is how it must also be looked at in terms of it’s transactional and relational values, that is, are employees expecting a more relational contract where they are ‘looked after’ or a more transactional contract where commitment equals reward. That is, the organisations cannot ensure a ‘job for life’, but can ensure that the employee is made as employable as possible, both within and outside the organisation. Rousseau and Wade-Benzoni (1995), suggest this is the case. This would also fall in line with the idea of a more modern psychological contract taking the place of a traditional contract. However, if this is true, does the emergence of the new contract mean that relational or ‘emotional’ values are lost?
It seems that the psychological contract is varied from organisation to organisation. It is also clear that employers and employees alike wish for different things. Only when there are crossovers in the needs of both parties and mutual benefits for both can the psychological contract come into play. Otherwise, we experience a violation and breakdown of relations.
How will this affect current or future HR practitioners? From evidence studies it is clear that the psychological contract has a massive impact on employment relationships and the organisation. Human Resource managers must take into account that employee needs vary from person to person, and that raising expectations too high can effectively (but maybe quite innocently) violate a contract that for the employee holds obligations that they expect to receive. Whether traditional or new, good or bad, it is essential that HR managers are aware of the state of the contract and what this will mean for the future of their organisation. To get this wrong could lead to long-term problems with the employment relationship.
It is also fundamental for employers to get the balance right to ensure retention of highly trained workers in a negative environment, and indeed a competitive market. Reference to flexible, part-time workers could be referenced here where HR practioners need to look at a policy of equal fairness for all parties. It could be argued that no organisation can afford to ignore the psychological contract, as employees are essentially the core of an organisation. To treat them well is to ensure increased profitability, which in a modern competitive environment, is key. However, it must be argued that the most important area for any HR professional is the value of communication. To get this right is to ensure an effective psychological contract and therefore a productive organisation.
However, organisational dynamics mean that for both parties, expectations will change; the key to this is to recognise where these may occur, and if an unwitting breach takes place, to readdress a framework for both employer and employee needs. It is also significant that much of the research on the employment relationship is done from an employee perspective. The psychological contract is the involvement of two parties, neither more important that the other. It is therefore essential, that employer views are not lost in the melee of employee analysis.
Considering the vast amount of evidence, it could also be argued that it is neither the traditional or more modern contract that takes precedence but rather a mixture of both, largely dependent on certain organisational values. As we have seen, modern companies such as AstraZeneca have adopted what appears to be the new psychological contract, but many other companies who are maybe more grounded in their own traditional company values that have kept a more traditional contract alive. The fundamental point of the old contract is ‘job security’. Studying the past may give an idea of why this idea has foundered. For example, previous and continuing impacts such as globalisation and the recession in the 90 's has gone some way to have a large effect on the way current organisations are managed. But even with this idea, is it inevitable that in the long run, and with the modernisation of more and more organisations, that the new contract will come to the fore, this and the increasing importance in the way current HR departments are managed. There has also been a move from a more pluralist personnel department to the current, more unitarist Human Resources department. It seems however, that the old contract is certainly still alive. Employees still want security, and to a certain extent will still offer loyalty (CIPD, 2004). Nolan’s assertion that job tenure rates have largely remained the same over the past 20 years seems to reinforce this idea. (Nolan, 2003)
It is all very well for employer to have a psychological contract in theory, but in practice if they do not uphold it, then this forms the basis of a potentially serious breach in relations for either party. However, the same can be said for an employee who places far too much emphasis on what they wish to gain from the organisation, or how they interpret promises made, and ultimately, are left disappointed when expectations are not met. It is therefore fundamental that employers make obligation unequivocally clear from the outset.
The psychological contract defines in essence how people are deal and are dealt with in organisations. Changing the culture will have an enormous impact on the psychological contract and therefore organisational effectiveness (Makin et al, 1996).
All in all, it is essential that to study what the future holds for the psychological contract, then employees and employers alike must also look to the mistakes of the past.
References
Guest, D and Conway, N (1998) “Fairness at Work and the Psychological Contract” The state of the employment relationship IPD Survey, p3, London
Rousseau, D, (1995), in Purcell et al, (2003) “Strategy and Human Resource Management” Palgrave Macmillan, p152
Pearce, J, L (1998) “Administrative Science Quarterly”, Find Articles, Oct 2005, http://www. findarticles.com/p/articles/mi_m4035/is_n1_v43/ai_20780738
Purcell et al (2003) “Understanding the People and Performance Link: Unlocking the Black Box” Work and Employment Research Centre, School of Management, University of Bath, CIPD 2003. P 75
CIPD (2004) “Managing the Psychological Contract” CIPD Website, Oct 2005 http://www.cipd.co.uk/subjects/empreltns/psycntrct/psycontr.htm Woodruffe, C (2005) “Commitment and Satisfaction: the true state of the Psychological Contract”. Reflections on Employee Well-being and the Psychological Contract CIPD, June 2005, P 7
Hilltrop, J (1995) “The changing psychological Contract: the human resource challenge of the 1990’s” in Lewis et al (2003) “Employee Relations, Understanding the Employment Relationship” 1st ed. Essex, Pearson Education Ltd
Science (2005) “Science 's top employer ranking 2005”, Oct 2005 http://www.astrazeneca.com/Article/511657.aspx AstraZeneca (2004) “AstraZeneca Annual Report and Form 20-F Information 2004” Oct 2005 p 62 http://www.astrazeneca.com/article/511562.aspx
Guest, D and Conway, N (1998) “Fairness at Work and the Psychological Contract” Summary of key Results IPD Survey, p vi, London
Guest, D and Conway, N (2002),”Communicating the psychological contract: an employer perspective” in Lewis at al (2003) “Employee Relations, Understanding the Employment Relationship” 1st ed. Essex, Pearson Education Ltd
Coyle-Shapiro, J. and Kessler, I. (2000) “Consequences of the psychological contract for the employment relationship: a large scale survey”, in Lewis et al (2003) “Employee Relations, Understanding the Employment Relationship” 1st ed. Essex, Pearson Education Ltd
CIPD (1997) “The Impact of People Management Practices on Business Performance” cited by Eames, R (2003) “Employee Morale” Nelson Consulting p2 http://www.nelsonconsulting.co.uk/Newsletters/edition003pdf
The Work Foundations (2003) cited by Eames, R (2003) “Employee Morale” Nelson Consulting, p2. http://www.nelsonconsulting.co.uk/Newsletters/edition003pdf
IRS (2004) “It pays to talk: gauging the employment relationship” IRS Employment Review 811, Employment Trends 12 Nov pp12-16
Shore, M, L. and Coyle-Shapiro, A.M, J. (2003) “New Developments in the employee-organization relationship” Journal of Organizational Behaviour Vol 24, Issue 5 Aug 2003 p447 Published online at http://www3.interscience.wiley.com/cgi-bin/fulltext/104552259/PDFSTART CIPD (2005) “Public sector reform: workers ' responses” CIPD Website, Oct 2005 http://www.cipd.co.uk/subjects/empreltns/psycntrct/pubsectreform-wrkrsrspns.htm?IsSrchRes=1 Legge, K, 1998 “Flexibility: the gift wrapping of employment degradation?” in Sparrow, P, R. and Marchington, P. (Eds) Human Resource Management: the new agenda, London: FT/Pitman p290
Rousseau, D.M and Wade-Benzoni,K.A. (1995),”Changing Individual
Organisational Attachments: A two-way street” cited by Smithson, J and Lewis, S, The psychological Contract and Work-Family. Organization and Management Journal Vol 1, NO 1. 2004, Manchester Metropolitan University P 5 http://assets.wnec.edu/55/bib-psycholcontractfin.pdf CIPD (2004) “Managing the Psychological Contract” The changing employment relationship: is there a new contract? CIPD Website, Oct 2005 http://www.cipd.co.uk/subjects/empreltns/psycntrct/psycontr.htm Nolan, P (2003) “Reconnecting with history: the ESRC future of work programme, Work, employment and Society BSA Publications Ltd Vol 17 (3) September 2003, p477 http://wes.sagepub.com/cgi/reprint/17/3/473
Makin, p et al (1996) “Organization and the Psychological Contract: Managing People at Work” BPS Books p13
1.1 Breakdown of employment relationships
How could this, then, be avoided? It is here that that the Line manager plays an essential role in making sure these events do not occur, or, stops them being out of control. To put it best, ‘prevention is better than the cure!’ A poor line manager can have a very detrimental effect on employee motivation and commitment. Purcell et al (2003) argue that the respect an employee gets from his/her immediate boss is linked to attitudes in terms of commitment, motivation and job satisfaction. Interestingly, surveys confirm that employers feel more confidence in their line manager, whom they see on a regular basis, than in anonymous members of senior management. (C.I.P.D, 2004). This to a certain extent is true, but if the line manager them-self has not built or maintained an effective relationship with employees then there would still be similar implications taking place.
It may be very easy to analyse the employment relationship when we regard the evidence laid out by the psychological contract. Maybe more difficult to study is what ‘state’ the contract is currently in. Is there more evidence of the old or new contract? Reports from the CIPD argue that the traditional contract is still very much ‘alive and surprisingly well’ (CIPD, 2005). This is because many of the surveys undertaken seem to show employee satisfaction within their organisation, although the issue of trust within organisations is a concern.
However, there is no denying that the contract has altered over the years, but this is due to a changing workforce and shifting expectations. Occurrences like this do not remain static but are ever varying to meet the needs and shifts in a changing environment. But what is the extent of this change and more importantly, how can we follow its pattern?
Below is Hilltrop’s table of characteristics of the ‘old’ and ‘new’ psychological contract.
Characteristic Old New
Focus of the employment Security and long-term career in Employability to cope with changes relationship the company in this and future employment
Format Structures and Predictable Flexible and unpredictable
Duration Permanent Variable
Underlying Principle Influenced by tradition Driven by market forces
Intended Output Loyalty and commitment Value added
Employer’s Key responsibilities Fair pay for a fair day’s work High pay for high job performance
Employee’s Key responsibilities Good performance in present job Making a difference to the organisation
Employer’s Key input Stable income and career Opportunities for self-development
Employee’s Key input Time and effort Knowledge and skills
1.2 Adapted from Hilltrop (1995:290)
The old consisted of ‘a job for life, traditional values, and fair pay for a fair days work’. Although the contract has moved on from these simplistic ideals of the employment relationship, there are many areas which still adopt this method; for example, the civil service. From previous experience, the Prison Service in particular adopted compulsory rulings that permanent staff, if laid off, would have to be found another job within the same sector, thus maintaining the employees potential ‘job for life’. However, the idea of ‘fair pay for a fair days work’ does not often ring true, with many people in lower administration grades, particularly in the public sector, having to work hard under poorer pay conditions.
In support of change in the ‘new’ psychological contract, we could study companies such as AstraZeneca, who, in the journal Science, were named a top employer, after a survey conducted by 1566 Science readers. (Science, 2005). This is an important example of the new psychological contract in force, and, apparently working very well. Through this, we can evidence the psychological contract in operation. Research into AstraZeneca and its policies, seems to highlight this survey as being sound, where developing talent, rewarding performance and being as flexible as is practicable and beneficial are key elements to its success (AstraZeneca Annual Report, 2004). This is a good example of a company that has got it ‘right’, and by maintaining this balance between employee and employer has effectively made them a leader in today’s competitive market with yearly productivity and sales growth.
There have been a considerable amount of surveys carried out with regards to the state of the psychological contract, many with varying results. But how far can we treat these surveys as substantial evidence? One could argue that we cannot, without interviewing every organisation in the country. The state of the contact is largely dependent on the values of the particular organisation, and that would no doubt vary widely from place to place. Therefore, if the survey conducted covered companies with similar values and relationships, this may very well lead to a positive outcome. We must also think about who has been surveyed; just managers, or managers and employees? Research from Guest and Conway suggests that the contract is very healthy and there has been no change in attitudes (Guest and Conway, 1998). This was also followed up by further research in 2002 (cited in Lewis et al, 2003) where 1300 managers were interviewed on the way they felt the psychological contract was managed. Interestingly they discovered from this that communication played a central role in maintaining a good psychological contract, and that the ‘top-down approach’ did not work. This is hardly surprising considering that employee involvement in organisations seems a key element in maintaining the status quo.
However, in direct opposition to Guest and Conway’s earlier survey is Coyle-Shapiro and Kessler’s studies in 2002 from both a managerial and employee perspective. They found that a major chunk of employees had experienced a ‘breach’ of contract. Even more importantly than this however is the evidence highlighting that the psychological contract is indeed in evidence. Those who had experienced the breach were getting even by reducing commitment and willingness to the organisation (cited in Lewis et al, 2003). It seems, therefore, that whether there is a conscious or unconscious recognition of the psychological contract, unfair treatment will still not be tolerated. This is a very substantial piece of evidence to prove that the employment relationship can indeed be measured by the psychological contract and, more importantly, be significantly affected by it.
There is an obviously powerful link with regards to employee/organisational attitudes. When a full range of HR practices have been used, productivity of staff improved by 25% (CIPD: 1997). It is also significant, however, that these practices were only the objective of half of U.K organisations (Work Foundation, 2003). This would hint at the idea of employee as resource, which could have serious effects on motivation or even retention of staff.
In a survey undertaken by IRS (2004), 81 organisations were studied with regards to the state of the employment relationship. Notably, those with improved communications or good communication structures in place were found to have an ‘exceptionally good relationship with staff’. But what about employee voice? It is clear from this study that if employees have an outlet where they can view their opinions then organisational relationships are enhanced. For those, who do not believe their ‘voice’ is being heard often find themselves unmotivated and left with a feeling of not being valued. This is often evidenced in companies with the ‘top-down’ approach. Again, previous personal experience of this would certainly indicate this is the case, where senior managers made all the decisions with little or no consultation from subordinates. As a consequence, employees felt that their opinion mattered little to the company and motivation and trust would be affected. It is also significant that there was no trade union involvement. Trade Union participation, however, could very well influence the nature and level of employee’s responses to organisational treatment (Shore and Coyle-Shapiro, 2003). A survey by CIPD (CIPD, 2005) shows that only 32% of employees feel they have enough opportunity to express their views, and 25% say this is never the case. Interestingly, though, trade union membership has no effect on this.
Those who adopt a more unitary or sophisticated HR approach often do not welcome inclusions of trade unions, but rather prefer direct involvement with employees. There is also a greater emphasis on soft HR, where employers seek to give employees a ‘good deal’ in their contract, building commitment, relations, and trust from the fore, and therefore reducing the need for trade union involvement and possibly employee dissatisfaction.
Would the psychological contract benefit everyone though? It would seem this could vary widely. What about age versus skills? For example, what if an employee had put 25 years of service into an organisation? Would this person’s knowledge of, and service in the organisation stand up in a modern society where the rapid advancements in technology mean younger people are more technologically skilled? It could also be viewed that an organisation could gain more from a younger person with regards to development, but may not view a much older employee in the same way. This is an important point to highlight, as we must consider how this may be viewed in light of the traditional or modern contract. If a more traditional one existed, the older employee may view his/her position in terms of security and a ‘job for life’. However, with the onset of a new psychological contract, there is no guarantee of this security and therefore, employee commitment may suffer and dissatisfaction could occur as a result. Older employees may not feel that they could ‘compete’ with younger workers and to keep their job they must ‘change with the times’. Maybe then, the new psychological contract is more of a benefit for young, skilled workers, who can, arguably, contribute more to an organisation in a modern, fast moving world. It is also important to remember that there are very few people in modern society who now want a job for life. It is more geared to an employee getting what they can from an organisation with regards to development and future employability.
This could also be the case for those on flexible, part-time or fixed-term contracts where many feel they are viewed as 2nd class citizens in the workplace (Legge, 1998). Although a great many do hold these contracts out of choice, there is a feeling that they must not expect more of the psychological contract than they should, or indeed, if it even applies to them.
One final thought in studying the state of the contract is how it must also be looked at in terms of it’s transactional and relational values, that is, are employees expecting a more relational contract where they are ‘looked after’ or a more transactional contract where commitment equals reward. That is, the organisations cannot ensure a ‘job for life’, but can ensure that the employee is made as employable as possible, both within and outside the organisation. Rousseau and Wade-Benzoni (1995), suggest this is the case. This would also fall in line with the idea of a more modern psychological contract taking the place of a traditional contract. However, if this is true, does the emergence of the new contract mean that relational or ‘emotional’ values are lost?
It seems that the psychological contract is varied from organisation to organisation. It is also clear that employers and employees alike wish for different things. Only when there are crossovers in the needs of both parties and mutual benefits for both can the psychological contract come into play. Otherwise, we experience a violation and breakdown of relations.
How will this affect current or future HR practitioners? From evidence studies it is clear that the psychological contract has a massive impact on employment relationships and the organisation. Human Resource managers must take into account that employee needs vary from person to person, and that raising expectations too high can effectively (but maybe quite innocently) violate a contract that for the employee holds obligations that they expect to receive. Whether traditional or new, good or bad, it is essential that HR managers are aware of the state of the contract and what this will mean for the future of their organisation. To get this wrong could lead to long-term problems with the employment relationship.
It is also fundamental for employers to get the balance right to ensure retention of highly trained workers in a negative environment, and indeed a competitive market. Reference to flexible, part-time workers could be referenced here where HR practioners need to look at a policy of equal fairness for all parties. It could be argued that no organisation can afford to ignore the psychological contract, as employees are essentially the core of an organisation. To treat them well is to ensure increased profitability, which in a modern competitive environment, is key. However, it must be argued that the most important area for any HR professional is the value of communication. To get this right is to ensure an effective psychological contract and therefore a productive organisation.
However, organisational dynamics mean that for both parties, expectations will change; the key to this is to recognise where these may occur, and if an unwitting breach takes place, to readdress a framework for both employer and employee needs. It is also significant that much of the research on the employment relationship is done from an employee perspective. The psychological contract is the involvement of two parties, neither more important that the other. It is therefore essential, that employer views are not lost in the melee of employee analysis.
Considering the vast amount of evidence, it could also be argued that it is neither the traditional or more modern contract that takes precedence but rather a mixture of both, largely dependent on certain organisational values. As we have seen, modern companies such as AstraZeneca have adopted what appears to be the new psychological contract, but many other companies who are maybe more grounded in their own traditional company values that have kept a more traditional contract alive. The fundamental point of the old contract is ‘job security’. Studying the past may give an idea of why this idea has foundered. For example, previous and continuing impacts such as globalisation and the recession in the 90 's has gone some way to have a large effect on the way current organisations are managed. But even with this idea, is it inevitable that in the long run, and with the modernisation of more and more organisations, that the new contract will come to the fore, this and the increasing importance in the way current HR departments are managed. There has also been a move from a more pluralist personnel department to the current, more unitarist Human Resources department. It seems however, that the old contract is certainly still alive. Employees still want security, and to a certain extent will still offer loyalty (CIPD, 2004). Nolan’s assertion that job tenure rates have largely remained the same over the past 20 years seems to reinforce this idea. (Nolan, 2003)
It is all very well for employer to have a psychological contract in theory, but in practice if they do not uphold it, then this forms the basis of a potentially serious breach in relations for either party. However, the same can be said for an employee who places far too much emphasis on what they wish to gain from the organisation, or how they interpret promises made, and ultimately, are left disappointed when expectations are not met. It is therefore fundamental that employers make obligation unequivocally clear from the outset.
The psychological contract defines in essence how people are deal and are dealt with in organisations. Changing the culture will have an enormous impact on the psychological contract and therefore organisational effectiveness (Makin et al, 1996).
All in all, it is essential that to study what the future holds for the psychological contract, then employees and employers alike must also look to the mistakes of the past.
References
Guest, D and Conway, N (1998) “Fairness at Work and the Psychological Contract” The state of the employment relationship IPD Survey, p3, London
Rousseau, D, (1995), in Purcell et al, (2003) “Strategy and Human Resource Management” Palgrave Macmillan, p152
Pearce, J, L (1998) “Administrative Science Quarterly”, Find Articles, Oct 2005, http://www. findarticles.com/p/articles/mi_m4035/is_n1_v43/ai_20780738
Purcell et al (2003) “Understanding the People and Performance Link: Unlocking the Black Box” Work and Employment Research Centre, School of Management, University of Bath, CIPD 2003. P 75
CIPD (2004) “Managing the Psychological Contract” CIPD Website, Oct 2005 http://www.cipd.co.uk/subjects/empreltns/psycntrct/psycontr.htm Woodruffe, C (2005) “Commitment and Satisfaction: the true state of the Psychological Contract”. Reflections on Employee Well-being and the Psychological Contract CIPD, June 2005, P 7
Hilltrop, J (1995) “The changing psychological Contract: the human resource challenge of the 1990’s” in Lewis et al (2003) “Employee Relations, Understanding the Employment Relationship” 1st ed. Essex, Pearson Education Ltd
Science (2005) “Science 's top employer ranking 2005”, Oct 2005 http://www.astrazeneca.com/Article/511657.aspx AstraZeneca (2004) “AstraZeneca Annual Report and Form 20-F Information 2004” Oct 2005 p 62 http://www.astrazeneca.com/article/511562.aspx
Guest, D and Conway, N (1998) “Fairness at Work and the Psychological Contract” Summary of key Results IPD Survey, p vi, London
Guest, D and Conway, N (2002),”Communicating the psychological contract: an employer perspective” in Lewis at al (2003) “Employee Relations, Understanding the Employment Relationship” 1st ed. Essex, Pearson Education Ltd
Coyle-Shapiro, J. and Kessler, I. (2000) “Consequences of the psychological contract for the employment relationship: a large scale survey”, in Lewis et al (2003) “Employee Relations, Understanding the Employment Relationship” 1st ed. Essex, Pearson Education Ltd
CIPD (1997) “The Impact of People Management Practices on Business Performance” cited by Eames, R (2003) “Employee Morale” Nelson Consulting p2 http://www.nelsonconsulting.co.uk/Newsletters/edition003pdf
The Work Foundations (2003) cited by Eames, R (2003) “Employee Morale” Nelson Consulting, p2. http://www.nelsonconsulting.co.uk/Newsletters/edition003pdf
IRS (2004) “It pays to talk: gauging the employment relationship” IRS Employment Review 811, Employment Trends 12 Nov pp12-16
Shore, M, L. and Coyle-Shapiro, A.M, J. (2003) “New Developments in the employee-organization relationship” Journal of Organizational Behaviour Vol 24, Issue 5 Aug 2003 p447 Published online at http://www3.interscience.wiley.com/cgi-bin/fulltext/104552259/PDFSTART CIPD (2005) “Public sector reform: workers ' responses” CIPD Website, Oct 2005 http://www.cipd.co.uk/subjects/empreltns/psycntrct/pubsectreform-wrkrsrspns.htm?IsSrchRes=1 Legge, K, 1998 “Flexibility: the gift wrapping of employment degradation?” in Sparrow, P, R. and Marchington, P. (Eds) Human Resource Management: the new agenda, London: FT/Pitman p290
Rousseau, D.M and Wade-Benzoni,K.A. (1995),”Changing Individual
Organisational Attachments: A two-way street” cited by Smithson, J and Lewis, S, The psychological Contract and Work-Family. Organization and Management Journal Vol 1, NO 1. 2004, Manchester Metropolitan University P 5 http://assets.wnec.edu/55/bib-psycholcontractfin.pdf CIPD (2004) “Managing the Psychological Contract” The changing employment relationship: is there a new contract? CIPD Website, Oct 2005 http://www.cipd.co.uk/subjects/empreltns/psycntrct/psycontr.htm Nolan, P (2003) “Reconnecting with history: the ESRC future of work programme, Work, employment and Society BSA Publications Ltd Vol 17 (3) September 2003, p477 http://wes.sagepub.com/cgi/reprint/17/3/473
Makin, p et al (1996) “Organization and the Psychological Contract: Managing People at Work” BPS Books p13
References: Guest, D and Conway, N (1998) “Fairness at Work and the Psychological Contract” The state of the employment relationship IPD Survey, p3, London Rousseau, D, (1995), in Purcell et al, (2003) “Strategy and Human Resource Management” Palgrave Macmillan, p152 CIPD (2004) “Managing the Psychological Contract” CIPD Website, Oct 2005 http://www.cipd.co.uk/subjects/empreltns/psycntrct/psycontr.htm Science (2005) “Science 's top employer ranking 2005”, Oct 2005 http://www.astrazeneca.com/Article/511657.aspx Guest, D and Conway, N (2002),”Communicating the psychological contract: an employer perspective” in Lewis at al (2003) “Employee Relations, Understanding the Employment Relationship” 1st ed. Essex, Pearson Education Ltd Coyle-Shapiro, J IRS (2004) “It pays to talk: gauging the employment relationship” IRS Employment Review 811, Employment Trends 12 Nov pp12-16 Shore, M, L http://www3.interscience.wiley.com/cgi-bin/fulltext/104552259/PDFSTART CIPD (2005) “Public sector reform: workers ' responses” CIPD Website, Oct 2005 http://www.cipd.co.uk/subjects/empreltns/psycntrct/pubsectreform-wrkrsrspns.htm?IsSrchRes=1 Legge, K, 1998 “Flexibility: the gift wrapping of employment degradation?” in Sparrow, P, R Rousseau, D.M and Wade-Benzoni,K.A. (1995),”Changing Individual Organisational Attachments: A two-way street” cited by Smithson, J and Lewis, S, The psychological Contract and Work-Family http://assets.wnec.edu/55/bib-psycholcontractfin.pdf CIPD (2004) “Managing the Psychological Contract” The changing employment relationship: is there a new contract? CIPD Website, Oct 2005 Makin, p et al (1996) “Organization and the Psychological Contract: Managing People at Work” BPS Books p13
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