Psychological Contract 1

The Psychological Contract and Good Employment Relations

Features of Contemporary Employment Relations • Rise in individualism/individual negotiation • Greater concern for individual employment rights – equal opportunities • Blurring of boundaries of work eg location • Management increasingly in control • Emphasis on human resource management • Persisting issues of trust and fairness

Some Reasons for Change in Employment Relations • • • •

Workplaces getting smaller Flexibility and fragmentation of the workforce Urgency of change Feminisation of workforce and growing interest in issues such as work-life balance • Influence of American culture/individualism at work

The Need for a New Conceptual Framework • The traditional collective model is less relevant in many workplaces • Need a model that can accommodate rise in individualism and flexibility • Need a model that can address core issues in the employment relationship of trust, exchange and control • The psychological contract can meet these requirements

Reasons for Interest in the Psychological Contract •

Breakdown of the traditional ‘deal’

•

Individualisation of the employment relationship Organizational change and violation Search for new ways of managing employment relations to meet the interests and concerns of both employees and the organisation

• •

– A career in return for loyalty – A fair day’s work for a fair day’s pay – Loss of professional autonomy

What is the psychological contract? The Transactional Deal

The Implicit Deal

The Inferred Deal

Defining the Psychological Contract “The perceptions of both parties to the employment relationship, organization and individual, of the reciprocal promises and obligations implied in that relationship” The state of the psychological contract is concerned with whether the promises and obligations have been met, whether they are fair and their implications for trust.

Definition • A psychological contract represents the mutual beliefs, perceptions, and informal obligations between an employer and an employee • It sets the dynamics for the relationship and defines the detailed practicality of the work to be done. It sets the dynamics for the relationship and defines the detailed practicality of the work to be done. • It is distinguishable from the formal written contract of employment which, for the most part, only identifies mutual duties and responsibilities in a generalized form. • the perceptions of the two parties, employee and employer, of what their mutual obligations are towards each other'1. 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

Model of Psychological Contract • the extent to which employers adopt people management practices will influence the state of the psychological contract • the contract is based on employees' sense of fairness and trust and their belief that the employer is honouring the 'deal' between them • where the psychological contract is positive, increased employee commitment and satisfaction will have a positive impact on business performance

The Psychological Contract Framework The Good Employer The High Quality Workplace

The Deal

Satisfied And Productive Workers

The Deal Employer Delivers on Promises

Employees Deliver on Promises Fairness Trust Commitment Well-Being Performance

Framework for applying the psychological contract to the employment relationship Contextual and Background Factors Individual: Age Gender Education Level in organisation Type of work Hours worked Employment contract Ethnicity Tenure Income Organizational: Sector Size Ownership Business strategy Union recognition

Policy and Practice

Psychological Contract

State of the Psychological Contract

HR policy and practices Leadership/ Climate Employment relations Quality of workplace

Reciprocal promises and obligations

Delivery of the deal Fairness

Trust

Outcomes Attitudinal Consequences: Organizational commitment Work satisfaction Work-life balance Job security Motivation Stress Behavioural Consequences: Attendance Intention to stay/quit Job performance OCB

The Good Employer Progressive Human Resource Practices

The Good Employer

Climate of Positive Organisational Support Flexible Employment Practices Employee Partnership

High Quality Workplace

The High Quality Workplace • Reasonable demands/manageable workload • Some personal control over work • Support from supervisors and colleagues • Positive relationships at work • A reasonably clear role • Involvement in changes affecting you

Types of Psychological Contract • Relational long term or open- ended employment arrangement based on mutual trust and loyalty. Rewards are only loosely conditioned on performance, and participation in the organisation derive from membership. • Balanced dynamic and open – ended employment arrangement conditioned on economic success of firm and worker opportunities to develop career advantages. Both worker and firm contribute highly to each other’s learning and development. Rewards to workers are based upon performance and contributions to firm’s comparative advantages, particularly in face of changing demands due to market pressures.

Cont….. • Transactional—employment arrangements with a short-term or limited duration, primarily focused upon economic exchange; specific, narrow duties and limited worker involvement in organization. • Transitional—not a psychological contract form itself, but a cognitive state reflecting the consequences of organizational change and transitions that are at odds with a previously established employment arrangement. .

Exploring the Links .40 Human Resource Management

Flexible Practices

.12 .08 .12

.44

High quality workplace Effective supervisory leadership

.47 Number of promises

.35

.37

.16

State of the psychological contract

Exploring the Links cont… Organisational commitment .32

.28 State of the psychological contract

.13

.16

Job satisfaction Work-life balance

.24

Life satisfaction

.19

Loyalty to supervisor Excitement

.11 -.09

Organisational Citizenship Intention to quit

The Employers’ Perspective • Survey of 1306 senior UK HR managers • 36% said they used the psychological contract concept to help them manage employment relations • Senior managers acknowledge that the exchange is not always fair – and favours the employer • Union recognition associated by managers with a range of negative outcomes. More of a hindrance than a help

Employees promise to:

Employers promise to provide:

Work hard

Pay commensurate with performance

Uphold company reputation

Opportunities for training and development

Maintain high levels of attendance and punctuality

Opportunities for promotion

Show loyalty to the organization

Recognition for innovation or new idea

Work extra hours when required

Feedback on performance

Develop new skills and update old ones

Interesting tasks

Be flexible, for example, by taking on a colleague’s work

An attractive benefits package

Be courteous to clients and colleagues

Respectful treatment

Be honest

Reasonable job security

Come up with new ideas

A pleasant and safe working environment

What happens if the contract is broken?

• Managers need to remember: • Employment relationships may deteriorate despite management’s best efforts: nevertheless it is managers’ job to take responsibility for maintaining them. • 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.

Implications • Process fairness: People want to know that their interests will be taken into account when important decisions are taken; they would like to be treated with respect; they are more likely to be satisfied with their job if they are consulted about change. Managers cannot guarantee that employees will accept that outcomes on eg pay and promotion are fair, but they can put in place procedures that will make acceptance of the results more likely. • Communications: Although collective bargaining is still widely practised in the public sector, in large areas of the private sector trade unions now have no visible presence. It is no longer possible for managers in these areas to rely on 'joint regulation' in order to communicate with employees or secure their co-operation. An effective two-way dialogue between employer and employees is a necessary means of giving expression to employee 'voice'.

Implications •

•

•

Management style: In many organisations, managers can no longer control the business 'top down' - they have to adopt a more 'bottom up' style. Crucial feedback about business performance flows in from customers and suppliers and front-line employees will often be best able to interpret it. Managers have to draw on the strategic knowledge in employees' heads. Managing expectations: Employers need to make clear to new recruits what they can expect from the job. Managers may have a tendency to emphasise positive messages and play down more negative ones. But employees can usually distinguish rhetoric from reality and management failure to do so will undermine employees' trust. Managing expectations, particularly when bad news is anticipated, will increase the chances of establishing a realistic psychological contract. Measuring employee attitudes: Employers should monitor employee attitudes on a regular basis as a means of identifying where action may be needed to improve performance. Some employers use indicators of employee satisfaction with management as part of the process for determining the pay of line managers. Other employers, particularly in the service sector, recognise strong links between employee and customer satisfaction. But employers should only undertake surveys of employee attitudes if they are ready to act on the results

Rousseau’s Framework • ‘Old’ IR

• ‘New’ IR

Idiosyncratic Positional Standard

The State of the Psychological Contract Overall, to what extent has the organisation kept its promises and commitment to you? % fully 45 partly 49 not at all 6

The State of the Psychological Contract Do you feel fairly paid for the work you do? % Yes, definitely 30 Yes, probably 30 No, probably not 19 No, definitely not 21

The State of the Psychological Contract To what extent do you trust your senior management to look after your best interests? % A lot 25 Somewhat 34 Only a little 23 Not at all 18

The Policy Challenges • Consider actively managing the psychological contract as a means of maintaining effective employment relations • Recognise it is a two-way deal • Address the outer context of human resource management and employment relations policy • Address the inner core of “the deal” at the local level

What has persuaded people to take the psychological contract seriously? • • • • •

•

Changes currently affecting the workplace include: The nature of jobs: more employees are on part time and temporary contracts, more jobs are being outsourced, tight job definitions are out, functional flexibility is in. Organisations have downsized and delayered: 'leanness' means doing more with less, so individual employees have to carry more weight. Markets, technology and products are constantly changing: customers are becoming ever more demanding, quality and service standards are constantly going up. Technology and finance are less important as sources of competitive advantage: 'human capital' is becoming more critical to business performance in the knowledge-based economy. Traditional organisational structures are becoming more fluid: teams are often the basic building block, new methods of managing are required.