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’
– A career in return for loyalty
– A fair day’s work for a fair day’s pay
– Loss of professional autonomy
• 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
 What is the psychological
contract?
The The The
Transactional Implicit Inferred
Deal Deal 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 Satisfied
And
The
The High Productive
Deal
Quality Workers
Workplace
 The Deal

Employer Employees
Delivers on Deliver on
Promises Promises

Fairness
Trust
Commitment
Well-Being
Performance
 Framework for applying the psychological
contract to the employment relationship
Contextual
and Policy State of the
and Psychological Outcomes
Background Contract Psychological
Factors Practice Contract
Attitudinal
Individual: Consequences:
Age Organizational
Gender commitment
Education Work satisfaction
Level in HR policy and Work-life balance
organisation practices Job security
Type of work Motivation
Reciprocal Delivery
Hours worked Leadership/ Trust Stress
promises of the
Employment Climate
and deal
contract obligations
Ethnicity Employment Fairness Behavioural
Tenure relations Consequences:
Income Attendance
Quality of Intention to stay/quit
Organizational: workplace Job performance
Sector OCB
Size
Ownership
Business strategy
Union recognition
 The Good Employer
Progressive Human
Resource
Practices
Climate of Positive
Organisational
The High
Support
Good Quality
Employer Workplace
Flexible
Employment
Practices

Employee
Partnership
 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
High
.40 quality
Human workplace .35
Resource
Management .44
.12 Effective State of the
supervisory .37 psychological
leadership contract
Flexible .08
Practices .47
Number .16
.12
of
promises
 Exploring the Links
cont…
Organisational commitment
.32
Job satisfaction
.28
Work-life balance
State of the .13
.24 Life satisfaction
psychological
contract .19 Loyalty to supervisor
.16
Excitement
.11
Organisational Citizenship
-.09
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 Opportunities for promotion
punctuality
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 An attractive benefits package

colleague’s work
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.