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THE PSYCHOLOGICAL CONTRACT

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1 THE PSYCHOLOGICAL CONTRACT
HFM 180 Technical Course on “Strategies to Address Recruiting and Retention in the Military” THE PSYCHOLOGICAL CONTRACT Maj. Psy. José M. Puente MOD - Joint Medical Staff - Madrid, Spain October 2009 Based on the RTO Technical Report Recruitment and Retention of Military Personnel. Pub. Ref. Nbr. RTO-TG-034. Chapter “The Psychological Contract: A Big Deal!”, by Cyril van de Ven.

2 Why interest in Psychological Contract Research is rising?
ORGANIZATIONAL AND ENVIRON- MENTAL FACTORS INDIVIDUAL FACTORS Unemployment Job insecurity Flexible work Temporary work contracts Fragmented and cross- functional career paths. Labor market forcing to refreshing and retraining in order to keep employability. Downsizing Market Globalization Contract Flexibilization ITs Segregation of “core” and “peripheral” labor markets Outsourcing Flexible ways of work organization Rise of interest in Psychological Contract Research Source: Alcover, 2002 [adapted from Anderson and Schalk (1998). The Psychological Contract in Retrospect and Prospect. Journal of Organizational Behavior, 19, ]

3 Outline Defining psychological contract Types of contracts Development
Content Functions Past v emergent forms of PC: A New Deal PC and outcome variables Breach and violations of PC Conclusions Practical implications and recommendations

4 Definition In broad terms, the Psychological Contract is the implicit and core component of labor relationships. Current trends in employment relationships, i.e., globalization of work activities, organization restructuring, downsizing, etc., have lead to an increasing importance of PCs –nuclear element of modern labor relationships.

5 Definition Rousseau (1995) defined initially the psychological contract as a set of person’s individual beliefs regarding the reciprocal obligations and benefits established in an exchange relationship. According to Rousseau’s view, the PC results from a subjective/individual perception of employee’s obligations towards the organization and of employer’s obligations towards the employee (Anderson and Schalk, 1998, p. 639). Morrison and Robinson (1997) hold that PC is the foundation of work relationships.

6 Definition McLean Parks, Kidder and Gallagher (1998) defines PC in terms of the reciprocal expectations hold between employees and employers concerning their obligations and rights.

7 Definition Also Rousseau (1995) refers to PC as a mental model an individual uses in order to frame events such as promises made, acceptance conditions and trust setting.

8 Definition Contrary to formal or explicit* contract, PC is essentially perceptual, hence its interpretation by one party does not necessarily needs to be shared by the other party (Robinson, 1996). (*) Alcover says implicit (page 53, 1st par.) Robinson (1996) advocates that PCs (consisting of perceived obligations) should be distinguished from expectations –i.e., general beliefs of employees concerning what they can expect from their workplace and their organization. These expectations come from a variety of sources –past experience, social norms, comments by friends and work mates, etc. On the contrary, PCs involve beliefs about what employees think they are entitled to get according to their employer promises. According to this author, only expectations stemming from perceived implicit or explicit promises made by the employer take part of PC.

9 Definition Expectations or beliefs are used as points of reference against which the employee compares his/her work experience, the employer’s behavior (or that of other organization agents involved in the PC), and the extent to which promises and obligations are held. As a result of this comparison, different adjustments/ changes in expectations and beliefs can be made if discrepancies exist between what is expected and what is achieved. This connects to the theory of equity and to Festinger’s cognitive dissonance theory. An employee involved in this situation can make adjustments in line with predictions of this theory, whether changes of a cognitive type (i.e., changing his/her thoughts, expectations or beliefs about the evolutions of the relationship) or of a behavioral type (changing his/her behavior or trying to modify his/her employer’s expectations or behavior).

10 Definition Guest (1998a) makes some interesting points about PC definitions: They imply different contents: beliefs, perceptions, expectations, promises and obligations. This in turn may imply different levels of psychological commitment. The existence of conflicting conceptions of the relationship underlying the PC –unilateral (focus on the individual) or bilateral (focus on the relationship). The problem of the “organizational agent” The organizational agent refers to the identification of the party or parties representing the organization in the psychological contract. A candidate can get different offers from different organizational agents, some of them even conflicting. Owing in part to this organizational agent problem, the PC has shifted from the bilateral/relational pole to the individual beliefs/expectations one. Rousseau adheres to this shift.

11 Types Source: Alcover, 2002 (adapted from Rousseau, 1995)
According to Rousseau (1995) four basic types of contracts can be distinguished depending of their level (individual vs group) and of the view adopted in their development (internal vs external). The psychological contract refers to individual beliefs (as they are shaped by the organization) about terms of the exchange agreement between employee and employer. The normative contract occurs when the organization is large enough as to allow its members identify themselves an between themselves in a manner such that they assume the belief they share the same psychological contract. The implicit contract consists of attributions made by people who do not take part in the contract (i.e., third parties who can take the form of mediators, judges, etc.) about its terms and levels of acceptance and mutuality. The social contract results from the shared collective beliefs referring to adequate behaviors in a particular society. Source: Alcover, 2002 (adapted from Rousseau, 1995)

12 Types: The Transactional-Relational Continuum
Psychological contracts involved in work relationships usually combine the terms and obligations of both relational and transactional type. The major characteristics of the relational contract are open and indefinite relationships involving a high confidence in the other party both on the employee side (e.g., long term career development, a commitment toward requirements exceeding contractual terms, etc.) and on the employer side (e.g., a policy of extended and continuous training, a retention oriented compensation, etc.). This concept of RC is very closely related to the organizational commitment. Source: McLean Parks, Kidder and Gallagher (1998)

13 Types (timeframe x performance terms)
According to Rousseau (1995), although transactional and relational terms are the basic elements of work relationships, current situation of labor market suggest the need to consider two main characteristics interacting with transactional and relational terms –i.e., timeframe and performance requirements. The combination of these characteristics results in a 2x2 matrix identifying 4 types of contracts: Transactional contracts. Limited duration with well established terms concerning performance demands. Transitional contracts refer to contracts with “no guarantees” about contract break, no commitment and few and unspecified performance demands, rewards and the like. Relational contracts are open and they ensure the continuity of the work link although performance demands are ambiguous or partial. Balanced contracts are also open and include a well specified performance demands –subject to change over time. They combine transactional and relational terms. Source: Alcover, 2002 (adapted from Rousseau, 1995)

14 Development There are three main models attempting to explain the development of the psychological contract: Rousseau (1995), McFarlane Shore and Tetrick (1994), and Sparrow (1996)

15 Development The three models essentially agree upon the main elements taking part in the PC developing process. Basically they suggest the existence of two types of factors: Individual factors: predispositions, information processing related cognitive variables, and expectations –these latter influenced by individual work related values and goals.

16 Development Organization factors: social information coming from coworkers, teams, and the messages sent by the organization through the various agents intervening in recruiting, selection, socialization, and promotion processes.

17 Content PC is job dependent
Past vs current PC forms [see “New Deal” section below]. Most literature highlights three basic components in PCs: trust, justice and distribution of agreements –basically contribution/gains balance.

18 PC as a multi-dimensional construct
Content PC as a multi-dimensional construct Source: De Voos et al. (2001)

19 Functions PC leads to a reduction of uncertainty by filling up the gaps, i.e.: Clearing ambiguities Letting both parties know the course of future relationship. Predicting behaviors Reduction of uncertainty. McFarlane & Tetrick (1994) state that as not all aspects potentially involved in an employment relationship can be made explicit in the formal labor contract (there would be a need of dozens of pages to be filled), the psychological contract let us fill up to a large extent those gaps. Predictability is a basic component of of work motivation theories (e.g., the notorious theory of Vroom, 1964, based on the concepts of valence, instrumentality and expectations). More recent developments of motivation theory, based on goal setting (e.g., Locke and Latham, 1990) incorporate Bandura’s concept of self efficacy –i.e. people’s need to count on a certain sense of predictability with respect to a task in order to accept and assume goals and carry out an adequate performance. Perceived self efficacy can play a key role in these processes as it refers to an individual’s belief in his/her abilities to release motivation, cognitive resources, and courses of action needed to control life events. The role PC can play in reducing uncertainty towards work events through a good definition of goals and means to achieve them, may lead to an increased perceived self efficacy and hence increase self regulation of his/her motivation, effort and performance. The way PCs let control and predictability increase is similar to the way schemata and scripts act (McFarlane Shore and Tetrick, 1994). As schemata, PCs gives the employee a sense of order and continuity, orienting him/her throughout the employment relationship aside from promoting a sense of predictability and control of the situation. This connects with Rousseau’s mental model when she referred to the PC as frames of reference. Not to forget the importance of knowledge, predictability and control as key factors in work stress prevention and psychological wellbeing promotion (e.g., Peiró, 1993).

20 Functions PC as an internalized norm that shapes behavior
PC as a “sophisticated” way to turn employee hetero-control into self-control.

21 Functions PC gives the employee a feeling of influence on the terms that define employment relationships: “If organizations are to achieve and keep quality HRs in line with its goals, they have to pay closer attention to [employee] expectations and quality of life demands. They will not only fulfill legal contracts but also the ‘psychological contract’…” (Peiró, 1992).

22 Past vs Emergent Forms: A New Deal
Characteristic Past Form Emergent Form Focus Security, continuity, loyalty Exchange, future employability Format Structured, predictable, stable. Unstructured, flexible, open to (re)negotiation Underlying basis Tradition, fairness, social justice, socio-economic class Market forces, saleable abilities and skills, added value. Employer’s responsibilities Continuity, guaranteed job security, training and career development facilitator. Equitable (as perceived) reward for added value. Employee’s responsibilities Loyalty, attendance, satisfactory performance, compliance with authority. Entrepreneurship and innovation, enacting changes to improve performance, excellent performance. Contractual relations Formalized, mostly via trade union or collective representation. Individual responsibility to barter for their services (internally or externally) Career management Organization responsibility inspiring careers planned and facilitated through personnel department input. Individual’s responsibility, inspiring careers by personal reskilling and retraining. Source: Anderson and Schalk (1998).The Psychological Contract in Retrospect and Prospect. Journal of Organizational Behavior, 19,

23 PC and outcome variables
Two categories of outcome variables can be distinguished: Behaviors Attitudes A stronger emphasis has been placed on attitudes vis-à-vis behaviors.

24 PC and outcome variables
A number of outcome variables can be significantly influenced by the fulfillment -or lack of fulfillment- of PC (McLean, Kidder and Gallagher, 1998): Extra-role behaviors –particularly organizational citizenship behavior. Identification with organization Organizational commitment Extra-role behaviors. If we look at the table on slide on Transactional vs relational terms, there are three dimensions particularly related to outcome variables –Scope (the narrower the scope the least the implication in organizational citizenship behaviors), Focus (the greater the emotional component the more extra-role behaviors) and Tangibility (the more tangible the contract the less spontaneous and innovative will behaviors be). Identification with the organization. The narrower the contract scope, the least socio-emotionally focused, and the closer the time-frame, the weaker the identification with the organization Organizational commitment. The more restricted the scope and the shorter the contract term, the lower the commitment towards the organization (particularly as the contract approaches its end)

25 PC and outcome variables
Trust, i.e., expectations and beliefs that organizational agents’ actions will help (or at least will not hamper) get individual achievements. Perceived breach or violation of PC –the organization does not fulfill some obligations the individual takes as a part of the contract not to be waived. Role conflict or incompatibility between the expectations of the different parties involved or conflict between different roles played by the same person. Trust. This will be enhanced by dynamic, flexible, open to negotiation contracts Perceived breach. The more tangible the contract the more it will ease perceived breach or violation Role conflict. The longer the contract term the greater its potential to lead to role conflict.

26 PC and outcome variables
CAUSES CONTENT CONSEQUENCES Work satisfaction Organizational Climate and Culture Justice Organizational Commitment Sense of security HR Policies and Practices Labor relationships Trust Motivation Experience This model by Guest covers some aspects not covered by McLean Parks et al. The author advocates a causal relationship between the variables involved in the process. Both models adopt an employee’s view of the PC –unilateral perspective. On the other hand, Guest’s model lays more emphasis on behavioral consequences (e.g., beside organizational citizenship the author adds absenteeism and intentions to quit normally leading to a behavior of searching alternatives). Therefore, PCs have a great potential [positive or negative] impact on a lot of attitudinal and behavioral organization relevant factors. PC management may be a key factor in the development of work attitudes and behaviors (including extra-role behaviors) leading to quality performance in the end. Organizational Citizenship Expectations Range of “Agreement”/ Equity Distribution Absenteeism Alternatives Intentions to quit Source: Guest, 1998

27 PC and outcome variables
Extra-role behaviors - definition They refer to spontaneous and intentional behaviors beyond existing role-related ones, for the benefit of the organization. They have much to do with innovation, initiative, proactivity and organizational climate. Extra-role behavior is one of the PC outcomes that have received closer attention by research.

28 PC and outcome variables
Extra-role behaviors - features Voluntary Intentional Positive Disinterested

29 PC and outcome variables
Extra-role behaviors - dimensions Caring behavior Sportsmanship Organizational loyalty Organizational conformity Individual initiative Civic virtue Self realization Caring behavior. One of the most important forms of organizational citizenship, it is also called altruism, enthusiastic support, interpersonal help, mediation in problem solution, etc. Sportsmanship. It entails tolerance and acceptance of drawbacks with a positive attitude –when things go wrong; acceptance of different opinions and a willingness to sacrifice own interests for the team’s good. Organizational loyalty. Promoting, supporting and defending organizational goals. Organizational conformity. Compliance with organization norms and procedures. Individual initiative. Individual creative and innovative actions Civic virtue. It represents the individual acknowledgement of being a member of an organization Self realization. Individual strive to increase their knowledge, abilities and skills Source: Podsakoff, MacKenzie, Paine and Bachrach (2000)

30 Breach and violation of PC
Flexible, dynamic and changing modern work environment increases the probability of psychological contract breach (Robinson, 1996). In a study by Robinson and Rousseau (1994), 55 percent of managers perceived their organizations had failed to keep their promises and obligations over the first 2 years of employment relationship.

31 Breach and violation of PC
The key concept in PC theory is perceived contract breach (PCB). PCB refers to a perception by one of the parties to the contract that the other has failed to adequately fulfill promised obligations (Robinson, 1996). PCB goes well beyond a mere breach of expected rewards, extending to beliefs toward the organization and determining his/her trust in his/he employer and the perceived justice in the employment relationship.

32 Breach and violation of PC
PCB plays a crucial role in the field of employment relationships and influences negatively employee attitudes and behaviors. Sensu strictu PC Breach refers to the perceptive or cognitive component whereas PC Violation is the affective or emotional component.

33 Breach and violation of PC
According to Rousseau (1995), PC violation can take three forms: Inadvertent violation Disruptive or abrupt violation Breach of PC Inadvertent in the sense of involuntary. Different interpretations of the contract by both parties may inadvertently lead interests of one party against the other party’s interests. Disruptive. External factors make it impossible for one party or both to fulfill the contract despite their willingness to do so. Breach. One party is unwilling to fulfill the contract although he/she is able to do it. When the victim realizes this lack of good will or deliberate unwillingness to fulfill the term he or she gets very upset and can therefore react consequently.

34 Breach and violation of PC
Strength of relationship __ Monitoring Reparation __ __ + __ + + Contract/outcome Discrepancy Perceived loss size Violation + + __ PC violation starts with a perceived discrepancy between expected and actual outcome. Yet, PC violation to be perceived as such needs three requirements –monitoring, loss (i.e., discrepancy) size and strength of relationship. The person is paying close attention to behaviors of contract related organization agents –any tiny discrepancy with respect to expected behavior will be then detected. Major discrepancies are more likely to be considered as violation than minor discrepancies. The meaning of loss may be changed by means of reparation (e.g., outplacement) and credible explanations on the organization’s side. The use by the organization of practices aimed at maintaining procedural justice, may reduce PC perceived violations. Perceived willfulness Procedural Justice __ __ Credible Explanations A model of contract violation. Rousseau, 1995.

35 Breach and violation of PC
Causal Attributions – H9 Employee Performance – H1 Perceived Fairness – H10 - Employee Performance – H2 - INTERPRETATION PROCESS RENEGING PERCEIVED CONTRACT BREACH VIOLATION INCONGRUENCE - VIGILANCE There are two main casual factors of perceived PC breach –reneging and incongruence. The first one takes place when organizational agents acknowledge the existence of an obligation and fail to accomplish it. Perceived PC breach is more likely when organizational performance has fallen and employee performance is low. Incongruence occurs when interpretations of both employee and organizational agents concerning obligations differ. Perceived PC breach will be more likely when the employee has undergone a socialization process and there has been an interaction with organization representatives prior to the contract, but the perceived breach will be more likely when promises are more of an implicit nature. A third casual factor is vigilance by the employee –i.e., the extent to which the employee actively controls the way the organization fulfills psychological contract terms. This factor is very similar to monitoring in Rousseau’s model (previous slide). Perceived PC breach will be more likely when there is a high level of organizational change, when there is a history of perceived breaches and there are employment alternatives. Perceived breach may produce a variable degree of emotional reaction depending on two aspects of the interpretation process –employee’s casual attributions and perceived fairness of interactions. The link between perceived breach and violation will be strong when 1) the employee believes that the breach results from a deliberate reneging on the part of the organization, 2) the employee perceives low interactive justice. Summarizing, in a study with managers Robinson and Morrison (2000) found that the perceived PC breach was twice likely when: both organizational and individual performance were poor, when the employee had not undergone a formal socialization process, when there were few contacts with organizational agents prior to hiring, when there was a history of PC breaches with other employers, and when there were alternative jobs by the time of being hired by the current company. Formal socialization – H3 Organizational Change – H6 Implicitness of Promises – H4 Perceived Breach History – H7 - Pre-Hire Interaction – H5 Employment Alternatives – H8 Factors predicting psychological contract breach and violation. Robinson and Morrison, The Development of psychological contract breach and violation. Journal of Organizational Behavior, 21,

36 Breach and violation of PC
SOURCES OF VIOLATION BY CONTRACT MAKERS AND SYSTEMS Source: Rousseau (1995)

37 Breach and violation of PC
EVLN Typology Constructive Destructive Active Voice Neglect/Destruction Loyalty/Silence Exit Passive This model comes from the business world, where consumer and policy makers behaviors are explained in cost/benefit terms. There are 4 possible reactions to PCB: exit, voice, loyalty and neglect (EVLN). Exit refers to en employee voluntary drop out perceiving his/her contract has been violated. This response is more likely when: the contract is of a transactional type and short term, there are job alternatives, there are other employee who have quit the organization for the same reason and attempts to restore PC have failed. Intention to quit is a less dramatic behavior but closely related to quitting behavior that may result from contract violation. Voice is a kind of reaction involving complaints made to superiors, formal claims, participation in trade union activities, etc. Voice aims at reducing losses caused by violation and at restoring trust. This reaction to PC violation is more likely when there is a positive and trustful relation between the parties, there are well established communication channels, a prior experience of other people and there is confidence in influence the other party. Silence is a passive reaction to mean whether loyalty (optimistic response based on the hope the situation changes and there is a restoration of gains lost) or avoidance of the situation (pessimistic response of no hope and lack of way out). Both reactions lead to an everlasting situation. This reaction to PC violation is more likely when there are no channels convey complaints,… and there are no other alternatives of way out. Neglect/destruction, i.e., passive vs active aggression. Neglect towards duties and responsibilities in the workplace. Neglect/destruction as a reaction to PC violation is more likely when there is a history of conflicts, distrust en PC violation (e.g., mobbing, harassment, etc.), there are no communication channels established to convey employee opinion and there are other people showing neglect/destruction behaviors in the organization. Nevertheless, there seems to be a power-distance bias in this model. Thus, the model seems difficult to apply with most employees –their likelihood to use exit or voice in front of PC violations become limited; neglect/destruction are not usual either. Therefore, loyalty/silence may hide a broader range of reactions. Source: Rousseau, 1995

38 Conclusions PC is an intuitive construct, then having apparent validity and hence a great heuristic potential. PC integrates key attitudinal and motivational constructs and concepts involved in organizational behavior. PC has a deep effect on work behavior from recruitment stage to retirement or resignation. Although unwritten, PC play a key role in work behavior by better specifying the dynamics of employment relationship.

39 Conclusions PC appears to be a wide theoretical model entailing a considerable set of personal and organizational outcomes. Meta-analytically it has been shown the impact or PCB (PC perceived breach) on the increase of negative outcomes and on the decrease of desirable ones (Topa et al., 2008). The impact of breach on attitudinal outcomes seems to be stronger than the impact on behavioral outcomes. Relationship between PCB and outcomes, far from consistent varies as a function of the sample and occupational characteristics (moderator variables). For example, managers will show stronger effect of PCB on both attitudes and behavior (job satisfaction, intention to leave, performance, whereas the lowest relationship was between PCB and trust and commitment, -they have more employment alternatives). Also, the greatest influence of OCB, neglect and performance appeared in public companies (may be in private companies there is little tolerance for decrease of performance)

40 Conclusions The relationships between PCB and intention to leave, satisfaction, OCB and performance are mediated by trust and organizational commitment (Topa et al., 2008) Nevertheless, PC is differently shaped in different cultures, countries and organizations (e.g., public vs non public companies –which in its turn results in differences in PCB processes and consequences. Research is needed to check the effects of PCB on outcomes among different countries.

41 Conclusions Because of its great impact, PC should be taken into account at the time of planning recruitment and retention policies and watched for its fulfillment in the workplace. The armed forces would benefit a great deal by taking PC into consideration, In view of redundancy and overlapping of PC with other concepts, there is a need for common grounds on construct definition and operationalization –this will in turn lead to a more sound construct validity.

42 Practical Implications and Recommendations

43 Any comments, Questions?


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