1. Psychological Contract
Dr. David McGuire
Napier University Business School

2. 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

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

4. 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

5. 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

6. 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)

7. 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)

8. 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.”

9. 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”

10. 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

11. 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

12. 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

13. 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

14. 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?

15. 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?

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

17. 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

18. 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

19. 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

20. 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

21. 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?

22. 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

23. 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

24. 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

25. 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

26. 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

27. 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”

28. 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

29. 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)

30. 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

31. 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

32. 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

33. 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

34. 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

35. 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