Psychological Contract and Employee Retention: The mediating role of HR

in Private Hospitals

Dr. Jyotsana Sharma,

IILM Academy of Higher Learning, Kumbha Marg, Sector-10, Prataop Nagar,Jaipur,
Jyotsna.ssharma@gmail.com

Shivani Wadhwa, Faculty, Jagan Institute of Management Studies, Rohini Sector-5, Near
Rithala Metro Station, New Delhi,
shivani.wadhwa@jimsindia.org
ABSTRACT

When a person is enthusiastic about his or her job, he or she becomes a part of the
organization, puts in extra effort, and collaborates better with his or her coworkers. An
employee that is actively interested and highly engaged in their work is more likely to take on
more challenging duties be more driven to advance, and aggressively advocate the company's
interests. The intention to leave the organization is caused by a lack of commitment to the
organization. This indicates that if a person is actively involved in his work, he will be more
enthusiastic about his job, more actively connected with the business, and more likely to put
up additional effort in his current position. Every company has obstacles it must overcome in
today's dynamic and competitive economy in order to exist. How to retain staff members
content and productive over the long term is one of the most urgent challenges. Every
employee has the freedom to change jobs depending on their own preferences as well as other
considerations including pay, working conditions and terms of employment, payment and
benefits, and possibilities for professional growth. The study's main goal is to i. Evaluate the
psychological contract and how it affects employee retention ii. To determine the causes of
psychological contract. iii. To determine which psychological contract component has the
most influence on employee retention. iv. To recognize the many employee retention
incentives used by HR professionals. Data was analyzed using SPSS version 25. The findings
indicate that commitment and involvement, job security, training and development, trust and
feedback play an important role in employee’s retention with the organization.

Key Words: Psychological Contract, HR, Retention

INTRODUCTION

PSYCHOLOGICAL CONTRACT
Perceptions of expectations in the employer-employer relationship are examined in terms of
their impact on internal expectations regarding the degree to which obligations are met in the
workplace. The psychological contract describes how external consequences influence
internal expectations. When the Covid-19 pandemic broke out, many people were burned
badly by bleach-based disinfectants because their face masks didn't stay on their faces or they
were accidently touched by unclean hands. Many more people were traumatised by the
epidemic's mental and emotional stress. In spite of their exhaustion on a psychological level,
healthcare workers continued to do their jobs. Nurses and physicians have shown a strong
commitment to their profession, demonstrating their high morale and desire to fulfil the
societal duties that come with their jobs. In such a context, physicians' and nurses' evaluations
of how successfully hospitals performed their commitments to employees influenced their
loyalty to the hospitals during the COVID-19 crisis.
According to the psychological contract theory, the employee establishes a set of contractual
duties that control his behaviour during the early stages of the work relationship, and the
company compensates him in proportion to the performance it will capitalize (Rousseau,
2018). Healthcare professionals are particularly prone to burnout because they are frequently
exposed to stressful circumstances with high degrees of risk and emotional involvement,
especially when the patients they care for worsen these conditions. Simultaneously, medical
work is not only physically demanding, but also socio-emotionally demanding, necessitating
a greater knowledge of the socio-emotional components of the work relationship (for
example, psychological contract fulfilment). At the same time, the health system is
undergoing constant changes and reforms, creating moments of uncertainty in which the
psychological contract is less likely to be fulfilled.
Women suffer from severe sadness, anxiety, and discomfort Lai et al., (2020). Public health
efforts for combating the COVID-19 epidemic must include safeguarding health-care
personnel. In response to the emergence of COVID-19, healthcare personnel reported
increased rates of despair, anxiety, sleeplessness, and discomfort. Managers' knowledge of
and management of healthcare workers' expectations might help them form good
psychological contracts and increase their commitment levels. Expectations and pledges
promoting junior physicians' and nurses' accountability and autonomy, as well as promises of
a social environment with constructive partnerships and effective communication at work,
must be followed.
A psychological contract is formed when an employee identifies the organization's tendency
to reciprocate the efforts made by him in an unbiased manner. Psychological contract theory
is, in actual fact, interrelated with employee willingness to believe in employer assurances
and to feel obliged in return. A psychological contract encloses personal beliefs and
expectations considering the terms and conditions of the employer-employee exchange
relationship (Baruch & Rousseau, 2019).

EMPLOYEE RETENTION

Talent management emerged as a concept in the late 1990s as a result of the rise of several
worldwide organisations. It is more challenging to manage employees in a worldwide
company than in a domestic one. Retention is a term used to describe a company's ability or
capability to keep a worker on board. In today's dynamic and competitive environment, every
firm has challenges it must overcome in order to survive. One of the most pressing concerns
“

is how to keep employees happy and productive over time. Every Indian citizen has the right
to personal freedom, as guaranteed by the country's founding document. Accordingly, from a
business standpoint, every employee has the right to move from one company to another
based on their personal preferences and other factors such as compensation, working
conditions and conditions of employment, remuneration and benefits and opportunities for
professional development.
By addressing the characteristics that drive turnover, some firms have been able to retain
their best employees. Retaining an employee is important since the company has invested a
large amount of money in training each and every employee in order to ensure that they are
optimally suited to the company and that the training has been successful in increasing
productivity. To tackle the issue of employee turnover, organisations implement policies for
recruitment, selection, induction, training and development, pay and benefits, work design,
job appraisal, and wage standards. This, in turn, aids in the long-term retention of employees.

Literature Review
Yu et al., (2020): Understanding the elements that impact psychological contracts is crucial
for developing strategies for today's health sector. According to current study, physicians and
nurses' commitment is influenced by psychological contract factors as a result of changing
healthcare management policies and working environment, as well as management
intervention in work processes, even when they efficiently manage family and work-life.
Decreased job satisfaction and morale are generally accompanied by lower performance and
dedication at work due to variables such as anti-epidemic job nature, salaries relative to
workload and working climate, working circumstances, and HR regulations.
From an employer’s perspective, it is of extreme significance to appreciate the complexities
of various types of psychological contracts created by the employees as these contracts have
the propensity to affect employees’ turnover intentions, job satisfaction ,and eventually
the performance of the firm(Bal, De Cooman, & Mol, 2013; Karagonlar, Eisenberger, &
Aselage,2016; Rayton & Yalabik, 2014).

 Psychological contract and job satisfaction

Wayne, Shore, Bommer, & Tetrick, (2002): In the opinion of (Coyle-Shapiro & Kessler,
2000), employees who perceive their company is not delivering their obligations tend to
reduce their commitment to engage in corporate citizenship behaviour as an exchange
process, correcting the relationship's equilibrium.
The demographic variable most connected with healthcare workers' job satisfaction,
according to Kavanaugh et al., (2006), is age. Individuals' feelings about the hospital and
their feelings about their workplace safety, performance at work, and emotions were
unaffected by their years of clinical experience. Positive interpersonal communication and
constructive dispute resolution are other benefits of working alongside physicians, according
to Vilma and Egle (2007).
According to El-Jardal et al. (2009), Nurses who are at danger of abandoning their jobs
should be the focus of retention programmes. Retention techniques and procedures need to be
developed. Positive relationships between psychological contracts and employee well-being
and organisational commitment have been found..
Nurse supervisors, according to Chien et al. (2016), should treat all nursing staff equally,
listen to their problems, determine their working styles, and effectively orient them. This
might help you build solid working connections with your coworkers. Employees with strong
job resources are less likely to expose psychological contract violations, according to
Vantilborgh (2016), since they have high levels of positive affect. According to Bal et al.
(2017), employers should be aware that when workers think they lack access to job tools such
as enough autonomy and authority, as well as social support, they are more likely to perceive
contract violations.
  Employee Retention
It is a deliberate attempt to develop and promote an atmosphere that encourages people to
stay on the job by meeting their various demands. Bidisha and Mukulesh (2013) found that
retaining workers is a lengthy process that necessitates firms using all available resources.
According to Das and Baruah (2013), firms must follow a planned strategy for deploying
motivating measures in order to retain their personnel. Employee retention was viewed by
researchers as taking steps to keep skilled individuals from departing.
Mita (2014) proposed that firms utilise a strategy to make employees more productive in
order to satisfy operational objectives and increase employee retention. In his study,
Alshurideh (2019) found that keeping competent people helps firms retain consumers and
improves operational cost efficiency.

Causes of psychological contract

Recently, there has been a great deal of interest in how organizations manage the
psychological contract that employees enter into with their recruitment organisations. Various
definitions of the psychological contract have been proposed. Levison (Levison et al., 1962)
described it as the sum of mutual expectations between the organization and the employee.
Rousseau (1995), perhaps the foremost academic writer in the field, defined a psychological
contract as "an individual's belief in the terms and conditions of a reciprocal relationship
between the focal person and the other party" (see also Herriot and Pemberton, 1996). A
psychological contract arises when one party believes that future proceeds have been
promised and thus an obligation to provide future benefits has been created. These future
returns promised by the organization generate expectations among the employees.
Specifically, these expectations may include attributes such as salary, benefits, training, skill
development, interesting work, and so on. Thus, employees can perceive compliance with
contractual obligations by their employer when their expectations are met. Needless to say,
many studies (Wanous and Colella, 1989; Wanous et al., 1992; Morrison and Robinson,
1997) have emphasized the essential role of fulfilling expectations in influencing employee
behavior. When these expectations are met, they lead to greater commitment and greater
intention to stay in the organization (Wanous et al., 1992). Therefore, we suggest that met
expectations directly influence organizational commitment and intention to stay with the
employer. The changing nature of the external business environment has led to changes in the
traditional form of the psychological contract. Anderson and Schalk (1998) Hypothetical
relationships between organizational processes, psychological contract, commitment, and
survival intent. The traditional format of the International Journal of Human Resource
Management with an 'emerging' format. The traditional method is characterized by job
security and loyalty to the company in the context of relatively predictable recruitment
structures and promotion opportunities. We can suggest that the traditional method can be
distinguished by evoking conforming behavior on the part of the employees or the degree to
which the employees meet some minimally acceptable standard. We call these concrete
obligations compliance (obligation to comply). In our model, we propose that the greater the
degree to which employees' expectations are met, at least at a basic level, the more likely they
are to feel compelled to comply. Therefore, we propose a direct impact of fulfilled
expectations on the compliance obligation, which in turn will positively influence employees'
commitment to the organization and their intention to stay with the employer. The emerging
form proposed by Anderson and Chalk (1998) is characterized by equitable exchange with
respect to both inherent interests and diversity of work and explicit rewards and benefits. This
means that the psychological contract becomes more related to the transaction than it is
(Millward and Hopkins, 1998). Such a contract is likely to be more dynamic (Guzzo et al.,
1994) and renegotiation is a distinct possibility in light of changing market conditions and
employee contribution changing over time. Its primary basis is likely to be based on the
added value that the employee brings to the organisation. This is particularly important in the
case of knowledge workers, where knowledge is more private and tacit. The last point is
important, as this knowledge can only be extracted if the employee is willing to part with it
voluntarily. We might suggest that the emerging method extends beyond the traditional
method and includes behaviors such as being a team player, going extra distance as needed,
and generally putting the interest of the organization ahead of self-interest. We call this
feeling of obligation to contribute (commitment to contribute). When employees'
expectations are met, they are more likely to feel obligated to contribute to the organization,
which in turn will lead to a higher level of commitment to the organization and a greater
inclination to stay with it. Therefore, we assume that meeting expectations will affect
contribution obligations, which in turn will affect organizational commitment and the
intention to stay with the employer.
 Psychological contract and employee morale
According to McDonald et al. (2000), nurses who identify and report workplace
misbehaviors may face serious career repercussions. The biggest motivators for healthcare
professionals' morale are opportunities for promotion and job stability (Yang et al., 2005).
According to Yang et al. (2005), the higher the nurse's rank, the greater the workplace
morale, and the higher the desired wage expectations, the lower the workplace morale.
According to Sabitova et al. (2018), improving clinical practices can be accomplished by
increasing employee job productivity, interventions, and workforce policies, which should
aim to raise wages, improve working and living conditions, address healthcare personnel
shortages, and provide more resources for career and professional development.
to Yu, X. et al. (2020), if they achieve requirements such as increasing emergency response
and realistic service preparation for junior staff, as well as ensuring they get adequate sleep
and rest. The main reasons for job dissatisfaction among hospital nurses, according to Said et
al. (2021), In addition, they expressed discontent with their work schedules, family life, and
work-life balance as well as strong ties that followed them, showing their opinion that enough
financial and moral recompense was not provided for their difficult work.
Lai et al. 2020: During the COVID-19 pandemic, healthcare workers are under extraordinary
stress because to causes such as an excessive workload, viral exposure, insufficient personal
protective equipment (PPE), moral difficulties, employment incivility, hopelessness,
separation from family, and discrimination.
Woodhall-Melnik, 2018: according to the results of the findings above, researchers have
turned their attention to the negative consequences, as evidenced by previous studies in the
behavioural and organisational sectors.
Psychological contract, organisational commitment and employee retention

Employees’ willingness to obligate for an organisation has reported to meet two preliminary
conditions; one is the ‘goodness of fit’, i.e., the match between the employee’s expectations
with organisation’s expectations (Schein, 1980) and if there is agreement, then there
transpires the second condition where in mutual expectations relative to exchange of
relationships constructs the ‘PC’ with the system.

This kind of contract stands as an unwritten agreement between organisation and the
individual creating a mutual beneficial opportunity (Robinson, 1995; Sapienza et al., 1997)
reflecting the extent to which employee’s identify with him/herself to organisation’s vision
and get emotionally committed to realise its mission and goals. There are two kinds of
contract that happens in organisational dealings:
 1. transactional contract is oriented to fulfil short-term goals through temporarily hiring
of individuals for a specific purpose with a high competitive wage rates (Raja et al.,
2004) and is characterised with absence of OC (Rousseau, 1990)
2. relational contract builds long term relationship of employees with their employers
and is based on socio-emotional components as trust, commitment and loyalty.

Hypothesis:

H01: There is no significant impact of overall psychological contract fulfilment on employee

retention

H1: There is a significant impact of overall psychological contract fulfilment on employee

retention.

IMPACT OF PSYCHOLOGICAL CONTRACT ON EMPLOYEE RETENTION

Employer-employee relationships have long been understood and regulated via the use of the
psychological contract, according to Rousseau (2001). The psychological contract has an
impact on whether or not employees decide to remain with the company. According to Ans
De Vos et al. (2001), employee retention processes are effective if they are matched with
what individuals value and consider when deciding whether or not to remain in the company.
The psychological contract has a significant impact on the way people behave at work. The
dynamics of the employer-employee relationship are described in this article. It's a concept
that affects the way individuals behave and think at work. According to Guest and Conway
(2004), the psychological contract is based on workers' belief that the employer is keeping the
two parties' promises..
According to Guest and Conway (2004): The employee is counting on the employer to
uphold their end of the bargain and an input, content or process, and outputs are three types
of components that impact whether or not the psychological contract is present. Using people
management tactics might affect the psychological contract's status or nature. Financial
incentives have less of an impact on employee retention since companies are finding it
increasingly difficult to distinguish themselves via wages. Because of the psychological
contract, building relationships with workers is essential. (Capelli, 2001).
The psychological contract is defined by Guest and Conway (2002) as the views of the
employer and the employee regarding their mutual commitments to each other. The
psychological contract, according to Griffin (2002), specifies the expectations that employers
and workers hold about their interactions.
Armstrong (2001): According to both definitions, the employee and the company have
expectations about what they will get from one another in terms of benefits and services. It's
important to understand how an employee's mind works when it comes to deciding whether
or not to remain on. A focus is placed on the differing viewpoints of the individuals involved
in the employment relationship on what constitutes a valid psychological contract. To put it
another way, the psychological contract between an employer and employee hinges on a
variety of factors, including whether or not the employee feels safe in their position, has room
to grow professionally, has realistic expectations for the future of their career, and has
confidence that their boss will keep his or her promises.
The psychological contract is based on expectations established throughout the recruitment
and induction process. According to the employer, the state of the psychological contract is
determined by a worker's ability, compliance, commitment, and allegiance..
According to McInnis and Meyer (2002), Creating a new contract based on each party's
wants and requirements is how the psychological contract is formed between parties.
Psychological contracts are based on statements made by the parties involved in the
employment relationship (Mackay, 2007). We observed that when an interview is conducted,
the first comments, no matter how ambiguous, may serve as promises and constitute the
psychological contract when an agreement is struck between an employer and an employee,
according to Conway and Briner (2005)..
Conway and Briner, 2005: When circumstances outside one's control make it difficult to
meet responsibilities, the psychological contract might be shattered. When a company
intentionally breaches commitments to its employees, the psychological contract is broken.
There have been instances where people have been sacrificed as a result of organisational
restructuring. When employees believe their bosses have not kept their promises or kept their
obligations, the psychological contract is broken. It is shattered by individuals in positions of
authority or management failing to pay a fair wage, unjust performance evaluations, or a lack
of respect for employees. A good psychological contract, according to Guest and Conway
(2002), encourages employee commitment, contentment, and motivation to stay with the
organisation. When a psychological contract is broken, people's motivation to participate and
intents to stay in an organisation decrease. Employees' motivation to contribute to the
organisation and desire to stay suffer as a result of the psychological contract violation
(Coyle-Shapiro, 2002).
Employee retention incentives used by HR professionals

While the job market in some industries and regions favours employers, candidates with in-
demand skills may not have to wait long for a new opportunity. Many companies never
stopped recruiting during the pandemic, and many others have picked up the pace of hiring in
recent months.

We have identified 14 areas where intentional actions can help increase employee job
satisfaction and increase the ability to retain high-value workers:

1. On-boarding and orientation

2. Mentorship programs
3. Employee compensation
4. Perks
5. Wellness offerings
6. Communication
7. Continuous feedback on performance
8. Training and development
9. Recognition and rewards systems
10. Work-life balance
11. Flexible work arrangements
12. Effective change management
13. An emphasis on teamwork
14. Acknowledgement of milestones, big and small
The 14 employee retention strategies outlined above are just a few of the ways to help
increase team members' job satisfaction. Some team members will inevitably leave the
organization sooner than we would like. But at least we can make your decision more
difficult. And if these employees leave the organization knowing they are valued and
supported, they are likely to say good things about the business and perhaps one day come
back to work for us.

RESEARCH DESIGN

The researcher has intermingled exploratory and descriptive approaches to deal with the
inadequacies. As the knowledge data was collected with the help of questionnaire.

The sampling technique used is non-probability sampling, which further involved

conveniently selecting the sample.
RESEARCH INSTRUMENT

Data in the research has been collected through Questionnaire.

DATA ANALYSIS AND INTERPRETATION

This aim of the study is to analyse and examine psychological contract and its impact on
employee retention. In the current research statistical techniques such as exploratory factor
analysis, confirmatory factor analysis and structural equation models were used. In this report,
this model is performed with the help of the SPSS software version 26.

The study's sample system includes 20 private hospitals in Delhi (NCR) and 472 respondents.
The researchers used a questionnaire to gather data on to examine the psychological contract
and its impact on employee retention.

Influence of psychological contract on Intention to Stay:

The regression results show that the value of R2 is 0.030 and the significance level is 0.000
which is less than 0.05. Only 3 % variation in independent variable can be explained by this
model.

The value of independent variables overall Psychological Contract Fulfilment (p<0.001)

shows significant impact on Intention to stay.

Strong positive & significant correlation has been found between Overall Psychological Contract
Fulfilment & intention to stay (R=.129, p<0.005) & Overall Employee retention. (R=.1, p=0.004).

Model Summary

Adjusted R Std. Error of

Model R R Square Square the Estimate
1 .172a 0.030 0.019 0.571

ANOVAa

Model Sum of Squares Df Mean Square F Sig.

1 Regression 4.627 5 0.925 2.843 .015b

Residual 151.693 466 0.326

 Total 156.320 471
a. Dependent Variable: ITS
b. Predictors: (Constant), OPCF, RR, TF, WLB, TD

Coefficientsa

Standardized
Unstandardized Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) 2.025 0.156 12.942 0.000
WLB 0.043 0.055 0.058 0.769 0.443
TD -0.109 0.056 -0.146 -1.944 0.053
TF 0.079 0.060 0.088 1.314 0.189
RR -0.069 0.037 -0.085 -1.842 0.066
OPCF 0.083 0.034 0.112 2.426 0.016

REGRESSION ANALYSIS :
Impact of psychological contract on Employee Retention
The regression results show that the beta overall Psychological Contract Fulfilment value on
Job security is 0.588 and the significance level is 0.000 which is less than 0.05, so the model
is a good fit.
The value of independent variables work life balance (beta=0.118, p=0.016 ) & overall
Psychological Contract Fulfilment (beta=0.772, p<0.001) shows significant impact on
employee retention (job security).

Model Summary

Adjusted R Std. Error of

Model R R Square Square the Estimate
1 .770a 0.592 0.588 0.505

ANOVAa

Model Sum of Squares Df Mean Square F Sig.

1 Regression 172.751 5 34.550 135.441 .000b

Residual 118.874 466 0.255

Total 291.625 471
 Coefficientsa

Standardized
Unstandardized Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) 0.460 0.139 3.320 0.001
WLB 0.118 0.049 0.117 2.412 0.016
TD -0.056 0.050 -0.055 -1.135 0.257
TF -0.087 0.053 -0.070 -1.625 0.105
RR -0.003 0.033 -0.003 -0.095 0.924
OPCF 0.772 0.030 0.768 25.593 0.000

FINDINGS

In general psychological contract are the emotional binding between employer and employee.
Higher value of psychological contract bring positive attitude towards job responsibility of
the company.

Regression analysis was performed to predict the influence of psychological contract on

employee retention. In present study Regression analysis results showed a significant impact
of psychological contract on employee retention. The value of R2 is 0.592 which means 59.2
% total variation in employee retention can be explained by psychological contract. In one of
previous study done by Sonal Bist et al reported R2 value is 0.368 means only 36.8 % of total
variation in employee retention can be explained by psychological contract.

Increase in psychological contract increases the chances of intention to stay (R=.129, p<.05)
which ultimately increases the employee retention. (R=.1, p=0.004)

LIMITATIONS OF THE STUDY

Though the research added contribution, there are limitations. The study is collected at
selected hospitals. There are more hospitals in India, who are facing this issue. The study has
used primary data and data collected using standard questionnaires is another limitation of the
current study. Employee retention would be better understand with psychological contract, if
relationships tested in a time duration.

SUGGESTIONS FOR FURTHER STUDIES

There is need to replicate this study in other industries. A larger sample size is also
recommended for the purpose of generalization of findings. In order to validate the findings
from the survey, future research should investigate HR managers’ views and actions relating
to retention management incorporating qualitative aspect.

CONCLUSION

Psychological Contract Fulfilment leads to employee retention and reduces absenteeism.

When a company is fulfilling all obligation and expectation of the employees this will lead
to employee commitment and engagement & ultimately employee retention. The
expectation of the employees like work life balance, trust & feedback, training &
development and reward & recognition. Employer also expect the employee to fulfil their
obligation & organizational expectation. Psychological contract is mutual from both the end.
The study concluded that majority of the employee at the selected hospitals were satisfied
with their current psychological contract. This study provides insights for the employee how
psychological contract to be developed which leads to retention of employees.
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