Chapter 5 Psychological contracts Flashcards
Definition of psychological contract
‘A set of unwritten reciprocal expectations between an individual employee and the organization.’ (Schein, 1980)
Social exchange theory
the norm of reciprocity operates so that when one party benefits another, an obligation is generated on the recipient to reciprocate
and he or she is indebted to the beneficiary until he or she repays that obligation.
Balanced exchanges
‘economic exchange’: in this relationship, there is a balance between the contributions of the employer and the employee but these contributions are exclusively economic.
Also known as quasi-spot contract, where neither party has an obligation to maintain a long-term relationship.
‘mutual investment’: this type of relationship is based on social exchange and involves long-term investment
Unbalanced exchanges
‘Underinvestment’:
This type of relationship is characterized by the employee adopting a social exchange view and the employer adopting an economic view of the relationship. In other words, employees are expected to undertake broad
and open-ended obligations in return for monetary rewards and no long-term investment.
‘Overinvestment’:
This type of relationship is characterized by employees taking an economic view and employers taking a social exchange view. In this type of relationship, employers provide long-term job security and employees
receive investments from the employer in terms of training but employees are not expected to go beyond their immediate job requirement.
Transactional contracts
Transactional contracts have been characterized by Rousseau as, for
example, hard work (the employee’s obligation) in exchange for high extrinsic returns (high pay, rapid career advancement) as the employer obligations.
Relational contracts
At the other end of the continuum are relational contracts, which exchange employee loyalty in return for job security. This type of contract focuses on the long-term investment between the employee and employer; it is open ended, containing socio-emotional elements, broad in scope, governed by values of good faith and fair dealing, and by the motivation to sustain the relationship over time.
Relational and transactional contracts have been distinguished from each
other along a number of dimensions:
- Focus: To what extent are the incentives for the employment
relationship primarily economic as against economic and emotional? - Time frame: Is the relationship perceived to be time-limited or open
ended and infinite? - Formalisation: How formal is the specification of performance
requirements? - Inclusion: To what extent is the job perceived to be of limited versus
extensive personal involvement (assessing the extent to which the job
overlaps with an individual’s personal life)? - Stability: To what extent is the relationship perceived to be static and
unchanging versus dynamic and subject to future change?
Rousseau (1995) describes transactional and relational contracts as follows:
- Transactional:
- short-term exchanges based on money
- specific economic conditions as primary incentive
- limited personal involvement in the job
- specified time frame
- commitments limited to well-specified conditions
- limited flexibility
- use of existing skills
- unambiguous terms.
Relational:
* open-ended relationship and time frame
* considerable investment by employees and the employer
* high degree of mutual interdependence and high barriers to exit
* emotional involvement as well as economic exchange
* dynamic and subject to change
* pervasive conditions
* subjective and implicitly understood.
Millward and Brewerton (1998) found similar things to Rousseau which forms the basis of the following: as distinct components of the
psychological contracts:
Transactional:
* transactional orientation: focus on financial gain and on the
fulfilment of contractual and job requirements
* long-term future: not seeing the organisation as a long-term
employer
* absence of the extra mile: lack of involvement in work;
unwillingness to go beyond job requirements.
Relational:
* Emotional affinity: feeling of organizational membership,
identification with the organisation’s goals
* Professional development: opportunities for training, development
and personal growth
* Equitability: perceptions of just and fair reward for inputs.
Factors that operate in forming the psychological contract
-messages and social cues from the Messages are conveyed in organisations through a number
of means: overt statements, observation of treatment of others, expression
of organisational policies and social constructions. Organisational leaders
make statements that signal the organisation’s actions and expressed
intentions and this may influence how an individual interprets their
psychological contract.
Reneging
Reneging occurs when the organisation knowingly breaks a promise to the
employee. This may occur because the organisation is unable to fulfil a
promise or because it is unwilling to do so.
Reneging
Reneging occurs when the organisation knowingly breaks a promise to the
employee. This may occur because the organisation is unable to fulfil a
promise or because it is unwilling to do so.
Inability
The organization may at one point in time have promised job security to
new recruits but finds itself in a position of not being able to deliver this
due to changes in the external environment.
Unwillingness
The organization may make a promise with no intention of fulfilling it or
they may have originally intended to keep it but subsequently decided not
to fulfil it. Taking these three factors together, if the employee has greater power,
is perceived to be fulfilling their contract and the organisation sees
the contract as relational, the costs of reneging will be greater than
the benefits and hence the organization will be less likely to renege.
Incongruence
Incongruence occurs when an employee has perceptions of a given
promise that differ from the organisation. This may be a consequence of
three factors: different schemata, complexity and ambiguity of obligations,
and communication
