Psychological Contract Dr. David McGuire Napier University Business School

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

Why do people keep contracts? Acceptance Self-image and esteem Imagery formed by act of promising Reliance Losses Social Pressure & Concern for reputation Incentives

Dimensions of the Employment Relationship Parties Managers Employees Employee Reps. Substance Individual: Job, Reward, Career, Comm. Collective: Joint Agree. Operation Level Process Style Employment Relationship Structure Formal: Rules/Procedures Informal: Understandings Expectations, Assumptions

Changes to Psychological Contract & Employment Relationship Greater work demands End of Paternalism Insecure and less clearly defined roles End of promotion, focus on job enrichment & employability Contribution-based pay Rise in transactional contracts

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

Historical Roots of Psychological Contract Social Contract Contract recognising the origin of the state “Contract for government” or “Contract for submission” Barnard’s Theory of Equilibrium Exchange – basis of equilibrium in society Clinical/Psychoanalytical Perspective Exchange of intangibles in social contractual situations (exchange of companionship)

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

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

Unpacking the language of psychological contract definitions Promises Obligations Expectations Promises: Made by one party to another to engage in specific action Obligation: Commitments to be delivered by party in receipt of promise Expectation: Less binding language than promise and obligation

Psychological Contracts Characteristics Define the employment relationship Manage Mutual Expectations Voluntary Reciprocal Evolving/Dynamic Subjective Relational Transactional Relational and transactional contracts should be viewed as two ends of a continuum, as any form of psychological contract will contain differing elements from both. A psychological contract is implicit and dynamic. Aspects of the employment relationship covered by the psychological contract include

The Changing Psychological Contract Characteristic Old New Focus Security Employability Duration Structured Flexible Scope Broad Narrow Underlying prin. Tradition Market-focus Intended Output Loyalty & Commitment Value Added Employer’s key responsibility Fair Pay for good work High pay for high performance Employee’s key responsibility Good performance in present job Making a difference

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

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

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

Rousseau Psychological Contract Social Cues Predisposition Message Framing Encoding Decoding Psychological Contract Creating an Individual’s Psychological Contract Organisational Factors Individual Processes

Rousseau Psychological Contract: An Illustration Success Stories Career Focused Fast Track Growth Hard work = Fast Track Promotion for High PR ratings Reliance Self-Fulfilling Prophecy Internal promotions Personal Energy

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

Components of Rousseau Model: Social Cues Information acquired from coworkers or work group Play three roles in contracting process: Provide messages for contract creation Convey social pressure to conform to group’s understanding of terms Shape how an individual will interpret the organisation’s actions

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

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

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

Components of Guest & Conway Model: Policy Influences Organisational Culture Human Resource Policy and Practice Previous Employment Experience Expectations about employment Investments & sidebets Alternatives Continuance Commitment

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

Transactional & Relational Contracts Transactional Contracts: Focused on monetarised values, such as employees taking on longer hours of work and additional roles in exchange for high performance related pay and job related training Relational Contracts: Involve socioemotional elements, such as reciprocity, loyalty, support and job security and characterised by long-term career development and extensive training

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

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

Types of Contracting Principal to principal Agent to Principal Contract between employer & employee Gardening work for home Agent to Principal Organisation’s representative Recruiter or manager makes commitments to employee Principal to Agent Employer contracts with representatives of workers Employment Agency Agent to Agent Organisation’s representative and employee’s representative Management Union Deal

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

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

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

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

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

Pressure at Work & Psychological Contract Recognition of benefits of training and development in improving employability Evidence of declining level of T&D provision 52% - performance is constantly measured 27% - under constant observation Monitoring and control linked to job dissatisfaction and employee stress Low level of trust in senior management

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