PSYCOLOGICAL CONTRACT

“Mantra for enduring and mutually beneficial employee – employer relationship”

In management student’s perspective the relation between employee and employer is an agreement to abide to both the parties to work for a common purpose to achieve different objective for mutual betterment. This contract has two sides, verbal and felt. The verbal could be in the form of letter of appointment, job description, performance goal, yearly targets etc. The other part is even stronger and influential than previous which is in unwritten and implied form. The breach of the previous can be brought to the court of justice for fulfillment however, the later one could not be. In common words it is called psychological contract.

The psychological contract is a set of unwritten expectations concerning the relationship between an employee and an employer. The psychological contract deals with factors that are neither defined nor written in contract of employment such as employee commitment, productivity, integrity, loyalty, commitment, quality of working life, job satisfaction, attitudes to flexible working, and the provision and take-up of suitable training.

The “psychological contract is defined as an individual's beliefs about the terms and conditions of a reciprocal exchange agreement between that person and another party”, Rousseau, 1989. Psychological contract was originally defined by Argyris, 1960; Levinson, 1962; and Schein, 1980; to characterize the subjective nature of employment relationships, the present conceptualization focuses on individuals' beliefs in and interpretation of a promissory contract. Unlike formal or implied contracts, the psychological contract is inherently perceptual, and thus one party's understanding of the contract may not be shared by the other.

The UK Chartered Institute of Personnel Development defines the concept in April 2010 as, '…the perceptions of the two parties, employee and employer, of what their mutual obligations are towards each other'. These obligations will often be informal and imprecise: they may be inferred from actions or from what has happened in the past, as well as from statements made by the employer, for example during the recruitment process or in performance appraisals. Some obligations may be seen as 'promises' and others as 'expectations'. The important thing is that they are believed by the employee to be part of the relationship with the employer..."

Psychological contracts, comprising perceived obligations, must be distinguished from expectations, which are general beliefs held by employees about what they will find in their job and the organization. For example, a new manager may expect to receive a high salary, to be promoted, to like her job, or to find the walls of her office painted a neutral color. These expectations emanate from a wide variety of sources, including past experience, social norms, observations by friends, and so forth. Psychological contracts, by contrast, entail beliefs about what employee believes she is entitled to receive, or should receive, because she perceive that her employer conveyed promises to provide those things. Thus only those expectations that originate from perceived implicit or explicit promises by the employer are part of the psychological contract.

The work culture and environment have also changed worldwide over period of time which has to be addressed in order to address the psychological demand for right treatment for parties:

The psychological contract is very distinct from the legal contract of employment. The psychological is a reality of the situation as perceived by the parties, and may be more influential than the formal contract in affecting how employee behave from day to day.

It is the psychological contract that effectively implies the employee what she is required to do in order to meet her side of the bargain, and what she can expect from her job. Employer’s expectation must be on doing the right thing and succeed for the clients, building relationships, teamwork and the course to lead taking the charge and personal responsibility for building the better career of the employee. Similarly, employee must expect for being recognized and getting reward for her contribution in the company, enjoyable work place, respect and respond to their ideas and continuous learning opportunities having access to knowledge and support for personal and career growth.

Venn diagram represents quite complex views of the Psychological Contract, significantly including external influences, which are often overlooked in attempting to appreciate and apply Psychological Contracts theory. Venn diagrams created British logician and philosopher John Venn in 1880 is useful in representing all sorts of situations where two or more related areas interact or interrelate. The Venn diagram provides a simple interpretation of the factors and influences operating in Psychological Contracts.

Psychological Contract - Venn diagram

vc = visible contract - the usual written employment contractual obligations on both sides to work safely and appropriately in return for a rate of pay or salary, usually holidays also, plus other employee rights of notice and duty of care.

pc = psychological contract - which is hidden, unspoken, unwritten, and takes account of the relationship references (r) between employee and market (which includes other external factors), also the employer's relationship with the market (also r), and the visible contract (vc). Note that only the visible contract (vc) element is written and transparent. All the other sections are subject to perceptions until/unless clarified.

What would happen if the contract is broken?

Research evidence shows that, where employee believes that management have broken promises or failed to deliver on commitments, this has a negative effect on job satisfaction and commitment and on the psychological contract as a whole affecting in the real output. This may result to low employee morale; job dissatisfaction; employee losing interest on job and employer losing confident on trust; capability; and drive of employee. This may lead to relationship break up.

This is particularly the case where managers themselves are responsible for breaches, for instance where employees do not receive promised training, or performance reviews are badly handled. Managers cannot always ensure that commitments are fulfilled - for example where employment prospects deteriorate or organisations are affected by mergers or restructuring – but they may still take some blame in the eyes of employees.

In order to prevent the break of psychological contract the Managers need to remember that the employment relationships may deteriorate despite management’s best efforts and preventing breach in the first place is better than trying to repair the damage afterwards.

But where breach cannot be avoided it may be better to spend time negotiating or renegotiating the deal, rather than focusing too much on delivery.

In nutshell, keeping all the above fact together in order to manage the mutually beneficial and relationship process fairness; clarity of mutual expectations; transparent leadership; change management; selling of ideas; empathizing on each other sentiments; open communications; employee involvement; managing expectations; and timely frequently measuring employee attitudes are recommended by Management Gurus. Furthermore, it has been empathized that accommodating each other’s the expectations as far as possible for mutually beneficially enduring relationship.

The kinds of commitments employers and employees need to one another and reflect in an employment are: employees must promise to work hard, uphold company’s reputation, maintain high levels of attendance and punctuality, show loyalty to the organization, work extra hours when required, keep updating skills required for the benefit, be courteous to clients and colleagues and be always honest.

Likewise, on the part of the employers, they must promised to offer pay commensurate with performance, opportunities for promotion, recognition for innovation or new idea, feedback on performance, attractive benefit packages, time to time respectful treatments, job security and a pleasant and safe working environment.