The Psychological Contract

From a building block point of view, the psychological contract (Psycon) has a lot to say about
employee responses to employer behaviours. Such in turn links to why and how employees behave
in certain ways in the workplace.

The Psycon helps to bring together a number of psychological influences that may influence
behaviour and performance. Effectively, it is an exchange agreement of needs and performances
between the employee and employer (and/or its agents). Herriot et al (1992) express it as “…the
invisible glue that bind organisations overtime. It incorporates the parties’ beliefs, values,
expectations and aspirations” (p. 132).

A Psycon is not (necessarily) written down, but as it is mutual, between employee and employer, it is
still, however, legally binding – it is an agreement about what should happen, rather than what is
contractually expected (i.e. performance goals). In this way, a Psycon is about the relationship
between employee and manager, it is therefore about (agreed) personal expectations and
reciprocations, in order to achieve a given goal/task, as required by the employer and achieved by
the employee. If, for example, an employee believes that working late (on a number of occasions in
order to fulfil the requirements of a … customer order) over and above what is contractually
required, they might expect reciprocal ‘reward’ when promotion reviews are coming around. In this
sense, one can see that the Psycon is subjective. It is promissory.

With the latter in mind, there is always/also the case where different workers in different jobs, even
in different individual situations of the same jobs, may be looking for, or expecting, different
‘paybacks’ from the employer: it could be bonuses, promotion (opportunities), social aspects etc.

From the work of Rousseau (1990, 1995) and Herriot and Pemberton (1995) there are potentially at
least four different types of Psycon:

1. Relational contracts offer the most…

Employees – trust (in employer), loyalty, conformity, commitment (to goals)
Employer – employment security, promotion prospects, training and development, flexibility

These may be hard to achieve or adhere to in harsh economic times, or even in continuously
aggressive markets and industries.

2. Transactional contracts are more monetary based and defined on specific performance
goals, and relate quite directly to short-term performance contracts…
Employees – longer hours, broader range of skills, tolerance of change and ambiguity, and an
acceptance to take on more responsibility
Employer – high(er) pay, high(er) performance rewards, a job

Such reflect certain realities in harsh economic times, though for some people they will work.

Other Psycon outlooks are:

3. Transitional contracts…where the company cannot offer secure future employment (so it is
moving away from a relational contract)
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 4. Balanced Contract…where a certain flexibility is built in…there is an understanding that
change can (within the company, industry, or globally) happen and the company, and
employees, have the awareness of such and so can move with such – in terms of training
needs, pay, promotion etc. In this sense, this is like a relational contract being
instigated/enacted when instability is looming and the organisation sees the need to retain (a
certain number/type of) employees in order to survive, compete or even to achieve
competitive advantage etc…such should not necessarily be regarded as negative, but rather
as positive as such a company, while looking out for itself, is also recognizant of its assets,
and vice-versa.

In certain ways it can be conceived that Psycon begins as early as the job application and then so
recruitment stage(s). Robinson and Morrison (2000) found that some problems with Psycon are
when employees have little or no contact with employers/managers before being hired. A realistic
job preview has been found to reduce job turnover near the start of tenure. A reason for this is that
research has found/been able to suggest that initial thoughts at job start, even at interview, change.
Any concerns can be dealt with by having appropriate recruitment and selection processes, or even
pre-application processes. By doing so, prospective employees receive a good insight into the job
role and the company they are going to work for. And even though it may happen that some
expectations may be unmet, this does not necessarily impact negatively on motivation or
satisfaction. This shows the fluidity of Psycon. However, it also points to the fact that Psycon needs to
be re-assessed and managed frequently.

What is especially concerning, and perhaps easier to measure, when considering psychological
contracts, is that they are quite easy to break; from either side. The break, or breach, often concerns
factors such as training and development, pay and benefits and promotion prospects.

In terms of breaches to Psycons (see Robinson and Morrison, 2000, for more), the following are quite
interesting (employees were asked to what extent they agreed with these statements):

 Almost all the promises made by my employer have been kept so far (agreement – no
breach)
 I feel that my employer has come through in fulfilling the promises made to me when I was
hired (agreement – no breach)
 So far my employer has done an excellent job of fulfilling its promises to me (agreement – no
breach)
 I have not received everything promised to me in exchange for my contributions (agreement
– breach)
 My employer has broken many of its promises to me even though I’ve upheld my side of the
deal (agreement – breach)

There is a distinction between breach and violation. Breach is more passive, while still being negative.
Violation is more emotive. Think of the words. With breach – we immediately think of a break,
whereas with violation we immediately tend towards something that is done with aggressive intent;
it is more emotional. Such is important in Psycon as in itself there is a personal element: has a
promise been broken, or has it been violently assaulted?

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In terms of Psycon, we might consider that the contract was not of the employer’s doing when
‘breached’ is used (e.g. an oversight), with ‘violation’ it is easily possible to consider that an
employer’s actions were with intent (e.g. breaking an agreement was performed on purpose).

For violations, what are the implications? Do you leave, stay and take it, stay and wait for revenge or
enact retribution? The latter seems harsh. But is following the former any better? In job terms, in
personal security terms, such are hard decisions – individual circumstances will come in to play.

Research has shown that there can be significant outcomes when employees have linked breach of
Psycon to violation of agreements: e.g. turnover intention (though not turnover itself), organisational
commitment, job satisfaction, as well as effects on performance. Here, we can also see links to in-
work justice and equity issues; Zhoa et al (2007).

Important to also consider is that we live in a changing world, and in terms of business that world is
changing constantly. So the reaction to a breach very much depends on each individual. For some
employees, they can live with it or even ignore it, especially if when starting a job there is a
favourable disposition towards the employer. While for others, those who are not so well-disposed
to the employer, a stronger, more forceful reaction may be deemed necessary; e.g. going to tribunal.
What one cannot say is that breach of Psycon is absolutely permissible – resolution has to be met;
but each individual has to be actively involved in bringing that forth. It is doubtful many employers
will feel employees are not (that) bothered. However, here employees must also realise that not
every employer is ‘out to get them’. As mentioned, the world of business is ever-changing and at
times breaches are consequent of such change and so may not be the result of individual factors,
rather they are effects of the changes wrought by the vagaries of being in business.

Nevertheless, It is clear that when (enough) people feel strongly enough about an issue they can
effect change, and the same is true in the workplace, and change, or the consideration of it, is not
solely reliant on such as workers’ unions (though I am not discrediting them and their work in any
way). Organisations rely, have to rely, on their workforce, and that includes managers, directors and
so on.

It seems that those who have experienced Psycon breaches may carry that ‘baggage’ with them to
new employment – that there is a likelihood of breaches happening with the new employer. To
consider are individual differences. Those, for example, who place high value on such as the tangible
benefits of employment (e.g. money), and who are thus outcome-oriented) may perceive the breach
to be greater than for those who are relationship-oriented: the former may adopt an attitude of
wanting to ‘even the score’. The latter may not want to do this as they do want to disrupt
relationships they have in the workplace.

How a breach is handled is vital to how it is perceived and reacted to (Lester et al, 2007). Employer
commitment to informing employees as to why and how breaches have happened, as long as the
reasons are credible, legitimate and consistent, may lessen the affective association (e.g. a breach as
opposed to a violation); so the effects on commitment and loyalty. Quick resolution will also
demonstrate the employer’s awareness of its role in the employee’s outlook.

The concept of Psycon is multi-faceted and thereby complex. Who is the contract with – employee
and organisation, employee and manager/supervisor, employee with others in a department/team?

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For this reason, there is no one clear way to define it. This is according to researchers who are still
working towards clearer definitions as to what Psycon is and how it may work in all work
organisational situations. What the psychological contract does, to my mind, is provide a clearer
understanding that although when employed by an organisation there is a signed contract of specific
obligations, there are deeper more personal and individual levels that need to be understood within
any workplace. Some of these are inherent within our understanding of job roles, duties etc., others,
and perhaps most importantly, can be developed individually with managers or within teams. By
doing such, it is clear what employees and managers require from each other.

Using the notes above, and any research you may do, read through the case study below and answer
the questions. Upload your answers as one document to Moodle.

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References

Herriot, P. and Pemberton, C. (1995) New Deals. Chichester: John Wiley

Herriot, P. (1992) The Career Management Challenge: Balancing Individual and organizational needs.
London: Sage.

Lester, S.W., Kickul, J.R. and Bergmann, T.W. (2007) ‘Managing employee perceptions of the
psychological contract over time: the role of employer social accounts and contract fulfillment’,
Journal of Organizational Behaviour, 28, 191 – 208.

Robinson, S.L. and Morrison, E.W. (2000) ‘The development of psychological breach and violation: A
longitudinal study’, Journal of Organizational Behaviour, 21, 525 – 46.

Rousseau, D.M. (1990) ‘New perceptions of their own and their employer’s obligations: A study of
psychological contracts’, Journal of Psychological Behaviour, 11, 389 – 400.

Rousseau, D.M. (1995) Psychological Contracts in Organizations. London: Sage.

Zhoa, H., Wayne, S.J., Glibkowski, B.C. and Bravo, J. (2007) ‘The impact of psychological contract
breach on work-related outcomes: A meta-analysis’, Personnel Psychology, 60, 647 – 80.

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