Dear Friends,
This is one of the learning papers that I submitted during my PGCHRM course with XLRI. I found it worth sharing with you all.
1. What Is A Psychological Contract?
The term "psychological contract" was first used in the early 1960s but became more popular in the early 1990s. It has been defined as "The perceptions of both parties to the employment relationship, organization and individual, of the reciprocal promises and obligations implied in that relationship."
In the above, the inferred deal is the psychological contract. The psychological contract comes into action as soon as the employment contract or the employment offer, which is a commonly used term, is signed. Where the obligations under the employment contract are formal, precise, and physically signed, the obligations under the psychological contract are informal, imprecise, and unsigned.
These obligations may be seen as "promises" through the employment contract, such as the employer's promise to pay commensurate with performance. On the other hand, the employee's promise to deliver the work as stated in the JD.
The others as "expectations" through the psychological contract, such as the employer's expectation of above-average performance, a reasonably longer tenure, reporting on time, upholding the company's reputation, being courteous to clients and colleagues, being honest, and showing loyalty to the organization, etc. and the employee's expectation of opportunities for training and development, opportunities for promotions, recognition for innovation, feedback, interesting tasks, respectful treatment, reasonable job security, and a reasonably pleasant and safe environment.
The most important thing above is that the expectations are believed by the employee to be part of the relationship with the employer and vice-versa.
Psychological contract – Its relation to the Expectancy Theory
This can also be related to the Expectancy Theory by Victor Vroom on employee motivation. The theory focuses on three relationships, namely, Effort performance relationship, Performance-reward relationship, and Rewards-personal goals relationship.
As per the theory, an employee will be motivated to exert a high level of effort when the effort will lead to a good performance appraisal; that a good performance appraisal will lead to organizational rewards such as a bonus, salary increase, or a promotion; and that the reward will satisfy the employee's personal goals.
Based on the above, it can be said that a psychological contract looks at the reality of the situation as perceived by the parties and may be more influential than the formal contract in affecting how employees behave from day to day. It is the psychological contract (expectation) that effectively tells employees what they are required to do to meet their side of the bargain and what they can expect from their job. It may not - indeed be generally applicable and is influenced by a view of the underlying relationship between employer and employee.
2. Why Psychological Contract is to be viewed seriously?
In the last 10-15 years, the world economy has seen a change, the western world is looking towards East Asian countries like India, China, Philippines, etc., for outsourcing their work. In a recent survey, 7 Indian cities are identified as hot destinations for outsourcing.
The National Association of Software and Servicing Companies (NASSCOM) has pointed out that the total value of outsourcing to India, which was $17.2 bn, is estimated to be 44% of the worldwide total and was 32% higher than the previous year.
The above study also pointed out a mismatch in the demand and supply of trained professionals. Further, the shortfall is expected to be 26.2% by 2008.
One way this might sound very encouraging, the other way it's alarming for various reasons as can be assessed from below:
- Today, organizations are delayered and are working on the concept of 'leanness' means doing more with less, so individual employees have to carry more weight. This also means that there will be immense competition for filling up a vacancy from within the organization.
- Markets, technology, and products are constantly changing: customers are becoming ever more demanding, quality, and service standards are constantly going up.
- 'Human capital' is becoming more critical to business performance in the knowledge-based economy.
This is a little more to the above:
An average stay in any IT / ITES company ranges from 10 – 14 hours against 8 hours per day as prescribed by the Factories Act. This can mainly be attributed to the shortage of manpower (majorly because of high attrition rate in the industry) and stringent targets that the organization needs to meet.
As regards the call center industry, there are additional issues of working in odd hours, talking to strangers in a different accent with pseudo names. (please note that recognition is an important tool for motivation, and most of the employees catering to the American or the British customers are recognized by their pseudo names those have been assigned to them upon joining and not their real name that they are caring for almost 22 years.)
There is a lot of pressure on the ITES employees of maintaining the confidentiality of the data that they are working on. Employees work knowing that they are under continuous surveillance.
In the IT industry, delivery of the module is very important. Any bug in the software coding may require staying back the whole night in the office and debugging.
As an effect of these changes, the employees are increasingly recognized as the key business drivers resulting in increased and sometimes unreasonable expectations.
The ability of the business to add value rests on its front-line employees, or 'human capital'. Organizations that wish to succeed have to get the most out of this resource. In order to do this, employers have to know what employees expect from their work. The psychological contract offers a framework for monitoring employee attitudes and priorities on those dimensions that can be shown to influence performance.
3. Psychological Contract: A framework for monitoring employee attitudes and their influence on performance
The framework for the psychological contract consists of an inter-relationship between background and contextual factors, policies, state of psychological contract, and outcomes as a result of this. The following diagram details the broad parameters:
Some inferences that can be drawn from the model of the psychological contract are:
1. The model of the psychological contract suggests that by adopting 'bundles' of HR practices, employers are likely to improve business performance. Many employees have substantial discretion as to how to do their jobs: it is more likely that they will use their discretion positively if they feel that they are being fairly treated.
2. Simply adopting positive HR policies is not enough: policies need to be translated into practice if they are to influence employees' behavior. The way in which they are implemented by line managers is critical to the way in which employees respond.
3. Employees in large organizations do not identify any single person as the 'employer'. The line manager is important in making decisions about day-to-day working. Another important task with the line manager is to manage the growing expectation of the employee.
4. In order to display commitment, employees have to feel they are being treated with fairness and respect.
4. The Causes of Violations and Its Effects
a. Violations can take many forms: Violation of a psychological contract may fall into 3 basic categories namely
i. Inadvertent violation - Inadvertent violation occurs when both parties are willing and able to keep their part of the bargain, but conflicting interpretations lead one party to act in a manner at odds with the understanding of the other. An example of such a violation would be two people who misconstrue the time of a meeting and therefore fail their commitment to attend.
ii. Circumstantial violation - Disruption to the contract occurs when circumstances make it impossible for one or both parties to satisfy their part of the contract, despite the fact that they are willing to do so. For example, unexpected heavy traffic could prevent an employee from arriving at work on time.
iii. Willful Breach - Breach of contract occurs when one individual, who is capable of implementing the contract, refuses to do so and thereby intentionally creates a violation.
It is the interpretation of the cause or source of these types of violation which influences how the violation is experienced and consequently how the victims behave in response.
There are four main courses of action an individual may take in response to a perceived violation which can be divided into two dimensions: active-constructive, passive-constructive, constructive-destructive, and passive-destructive.
b. Reactions to Violation
i. Active constructive course - Under this usually an employee will approach the line manager or a manager will call upon an explanation to the employee and verbalize so far the unwritten and unspoken expectation. It is an active, constructive effort to change the objectionable features in a situation and compensate for the violation while remaining in the relationship.
ii. Passive constructive course - Silence is a form of non-response and reflects a willingness to endure or accept unfavorable circumstances in the hope that they may improve. As a passive, constructive response, it serves to perpetuate the existing relationship.
iii. Active destructive course – This is most common when voice channels do not exist or if there is a history of conflict. It can involve neglect of one's duties to the detriment of the interests of the other party or involve more active examples of counterproductive behaviors. Vandalism, theft, and work slowdowns are all examples of this type of response.
iv. Passive destructive course - Under this either party is not willing to verbalize the unspoken expectation, probably they believe there is no point in it. For example, employers can terminate employees whose performance does not meet standards, and employees can quit an untrustworthy or unreliable employer.
5. Avoiding a Breach
We need to remember:
- Employment relationships may deteriorate despite management's best efforts: nevertheless, it is the manager's job to take responsibility for maintaining them.
- Preventing a breach in the first place is better than trying to repair the damage afterward.
- But where a breach cannot be avoided, it may be better to spend time negotiating or
From United States, Bedford
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16This is one of the learning papers that I submitted during my PGCHRM course with XLRI. I found it worth sharing with you all.
1. What Is A Psychological Contract?
The term "psychological contract" was first used in the early 1960s but became more popular in the early 1990s. It has been defined as "The perceptions of both parties to the employment relationship, organization and individual, of the reciprocal promises and obligations implied in that relationship."
In the above, the inferred deal is the psychological contract. The psychological contract comes into action as soon as the employment contract or the employment offer, which is a commonly used term, is signed. Where the obligations under the employment contract are formal, precise, and physically signed, the obligations under the psychological contract are informal, imprecise, and unsigned.
These obligations may be seen as "promises" through the employment contract, such as the employer's promise to pay commensurate with performance. On the other hand, the employee's promise to deliver the work as stated in the JD.
The others as "expectations" through the psychological contract, such as the employer's expectation of above-average performance, a reasonably longer tenure, reporting on time, upholding the company's reputation, being courteous to clients and colleagues, being honest, and showing loyalty to the organization, etc. and the employee's expectation of opportunities for training and development, opportunities for promotions, recognition for innovation, feedback, interesting tasks, respectful treatment, reasonable job security, and a reasonably pleasant and safe environment.
The most important thing above is that the expectations are believed by the employee to be part of the relationship with the employer and vice-versa.
Psychological contract – Its relation to the Expectancy Theory
This can also be related to the Expectancy Theory by Victor Vroom on employee motivation. The theory focuses on three relationships, namely, Effort performance relationship, Performance-reward relationship, and Rewards-personal goals relationship.
As per the theory, an employee will be motivated to exert a high level of effort when the effort will lead to a good performance appraisal; that a good performance appraisal will lead to organizational rewards such as a bonus, salary increase, or a promotion; and that the reward will satisfy the employee's personal goals.
Based on the above, it can be said that a psychological contract looks at the reality of the situation as perceived by the parties and may be more influential than the formal contract in affecting how employees behave from day to day. It is the psychological contract (expectation) that effectively tells employees what they are required to do to meet their side of the bargain and what they can expect from their job. It may not - indeed be generally applicable and is influenced by a view of the underlying relationship between employer and employee.
2. Why Psychological Contract is to be viewed seriously?
In the last 10-15 years, the world economy has seen a change, the western world is looking towards East Asian countries like India, China, Philippines, etc., for outsourcing their work. In a recent survey, 7 Indian cities are identified as hot destinations for outsourcing.
The National Association of Software and Servicing Companies (NASSCOM) has pointed out that the total value of outsourcing to India, which was $17.2 bn, is estimated to be 44% of the worldwide total and was 32% higher than the previous year.
The above study also pointed out a mismatch in the demand and supply of trained professionals. Further, the shortfall is expected to be 26.2% by 2008.
One way this might sound very encouraging, the other way it's alarming for various reasons as can be assessed from below:
- Today, organizations are delayered and are working on the concept of 'leanness' means doing more with less, so individual employees have to carry more weight. This also means that there will be immense competition for filling up a vacancy from within the organization.
- Markets, technology, and products are constantly changing: customers are becoming ever more demanding, quality, and service standards are constantly going up.
- 'Human capital' is becoming more critical to business performance in the knowledge-based economy.
This is a little more to the above:
An average stay in any IT / ITES company ranges from 10 – 14 hours against 8 hours per day as prescribed by the Factories Act. This can mainly be attributed to the shortage of manpower (majorly because of high attrition rate in the industry) and stringent targets that the organization needs to meet.
As regards the call center industry, there are additional issues of working in odd hours, talking to strangers in a different accent with pseudo names. (please note that recognition is an important tool for motivation, and most of the employees catering to the American or the British customers are recognized by their pseudo names those have been assigned to them upon joining and not their real name that they are caring for almost 22 years.)
There is a lot of pressure on the ITES employees of maintaining the confidentiality of the data that they are working on. Employees work knowing that they are under continuous surveillance.
In the IT industry, delivery of the module is very important. Any bug in the software coding may require staying back the whole night in the office and debugging.
As an effect of these changes, the employees are increasingly recognized as the key business drivers resulting in increased and sometimes unreasonable expectations.
The ability of the business to add value rests on its front-line employees, or 'human capital'. Organizations that wish to succeed have to get the most out of this resource. In order to do this, employers have to know what employees expect from their work. The psychological contract offers a framework for monitoring employee attitudes and priorities on those dimensions that can be shown to influence performance.
3. Psychological Contract: A framework for monitoring employee attitudes and their influence on performance
The framework for the psychological contract consists of an inter-relationship between background and contextual factors, policies, state of psychological contract, and outcomes as a result of this. The following diagram details the broad parameters:
Some inferences that can be drawn from the model of the psychological contract are:
1. The model of the psychological contract suggests that by adopting 'bundles' of HR practices, employers are likely to improve business performance. Many employees have substantial discretion as to how to do their jobs: it is more likely that they will use their discretion positively if they feel that they are being fairly treated.
2. Simply adopting positive HR policies is not enough: policies need to be translated into practice if they are to influence employees' behavior. The way in which they are implemented by line managers is critical to the way in which employees respond.
3. Employees in large organizations do not identify any single person as the 'employer'. The line manager is important in making decisions about day-to-day working. Another important task with the line manager is to manage the growing expectation of the employee.
4. In order to display commitment, employees have to feel they are being treated with fairness and respect.
4. The Causes of Violations and Its Effects
a. Violations can take many forms: Violation of a psychological contract may fall into 3 basic categories namely
i. Inadvertent violation - Inadvertent violation occurs when both parties are willing and able to keep their part of the bargain, but conflicting interpretations lead one party to act in a manner at odds with the understanding of the other. An example of such a violation would be two people who misconstrue the time of a meeting and therefore fail their commitment to attend.
ii. Circumstantial violation - Disruption to the contract occurs when circumstances make it impossible for one or both parties to satisfy their part of the contract, despite the fact that they are willing to do so. For example, unexpected heavy traffic could prevent an employee from arriving at work on time.
iii. Willful Breach - Breach of contract occurs when one individual, who is capable of implementing the contract, refuses to do so and thereby intentionally creates a violation.
It is the interpretation of the cause or source of these types of violation which influences how the violation is experienced and consequently how the victims behave in response.
There are four main courses of action an individual may take in response to a perceived violation which can be divided into two dimensions: active-constructive, passive-constructive, constructive-destructive, and passive-destructive.
b. Reactions to Violation
i. Active constructive course - Under this usually an employee will approach the line manager or a manager will call upon an explanation to the employee and verbalize so far the unwritten and unspoken expectation. It is an active, constructive effort to change the objectionable features in a situation and compensate for the violation while remaining in the relationship.
ii. Passive constructive course - Silence is a form of non-response and reflects a willingness to endure or accept unfavorable circumstances in the hope that they may improve. As a passive, constructive response, it serves to perpetuate the existing relationship.
iii. Active destructive course – This is most common when voice channels do not exist or if there is a history of conflict. It can involve neglect of one's duties to the detriment of the interests of the other party or involve more active examples of counterproductive behaviors. Vandalism, theft, and work slowdowns are all examples of this type of response.
iv. Passive destructive course - Under this either party is not willing to verbalize the unspoken expectation, probably they believe there is no point in it. For example, employers can terminate employees whose performance does not meet standards, and employees can quit an untrustworthy or unreliable employer.
5. Avoiding a Breach
We need to remember:
- Employment relationships may deteriorate despite management's best efforts: nevertheless, it is the manager's job to take responsibility for maintaining them.
- Preventing a breach in the first place is better than trying to repair the damage afterward.
- But where a breach cannot be avoided, it may be better to spend time negotiating or
From United States, Bedford
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