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Managing The Psychological Contract Management Essay

The concept of the psychological contract has, over the past 20 years attracted increased academic interest. One of the first scholars to expound the concept of the psychological contract was Argyris (1968), who used this concept in order to analyse the employment relationship and the expectations that arise between the employer and employee. The expectations that arise are characteristics such as mutual obligations, values and aspiration; principals that are mentioned in the traditional formal contract but go over and above the actual employment contract (Smithson & Lewis, 2003).

Psychological contract research is considered as a useful methodology that assists in and understands the employee’s relationship with the employer and any consequence, which include things such as performance and work attitudes (Robinson, Kraatz, & Rousseau, 1994; Shore & Tetrick, 1994; Turnley & Feldman, 2000).

It has been indicated that psychological contracts are very significant within the employment context as its existence helps frame the employment relationship and it helps guide employee behaviour. Again, the psychological contract can be distinguished from the normal contract as it is different from the normal contract as a result of the fact that it is constructed in the individuals mind and then has the potential to act as a double edged sword, this arising from the fact that it could cause disagreement and dispute between the parties (Rousseau and Parks 1993). As a result of understanding both the negative and positive implications that a psychological contract encompasses, it has rapidly become a very important source of knowledge that can assist managers to better understand the dynamics of the employment relationship. Looking at earlier works by marketing scholars such as those dealing with the distributor - supplier relationship, viewed from the social exchange perspective, it tends to suggest that there are both managerial and theoretical implications to the psychological contract in marketing relationships, based upon the social exchange theory (Anderson & Narus 1984, 1990; Ford 1980; Håkansson 1982).

Research conducted individually and collectively by Robinson (1996) and Wolfe Morrison and Robinson (1997) illustrates that there is a very different understanding of the employment relationship from an employee perspective in relation to the understanding that is held by the organisation (Knight & Kennedy 2005).

The majority of the research relating to the psychological contract is focused predominantly on the employees perspective. Guest (2004) stated that for the psychological contract to be able to be considered a tool that is suitable for use when analysing the employment relationship then it is imperative that there is a two way exchange between the employer and employee and that the prime focus should be on the perceptions of mutual promises and obligations by both parties. Guest (1998) also suggested that the abstract distinction between the given expectations and obligations are still unclear (Cullinane & Dundon 2006).

In organisational behavioural literature, the term “contract” within the concept of the psychological contract is used as a metaphor. A psychological contract cannot (at present) be legally enforced. There is a disparity between a contract of employment and the psychological contract. Despite this, the theory behind the psychological contract has a rather long history, commencing with social contract theorist such as inter alia (Roeling 1997). This social contract theorised that when individuals are living in a natural state they will develop an organised civilization. The social contract looks at a mutual agreement between the state and its citizens, where the state offers various services in return for the citizens paying their taxes, obeying the law and shouldering defence responsibilities. In the late 1950’s, researchers in management first described the psychological contract using an inducement contribution model where pay and certain benefits where received by the employees in return for their contribution to the organisation. It was also postulated that such a contractual relationship involved aspects such as companionship, which concerns the mutual satisfaction of the psychological needs of both parties together with the other contractual exchanges (Roeling 1997).

When the term psychological contract was first introduced in the early 1960s, it was seen as the implicit understanding of the given terms between employers and employees. It was observed by Menninger (1958) that high production levels where maintained by employees in return of receiving fair treatment and wages from the employer. Argyris (1960) found that employees perceived it to be the duty of the employer to satisfy such expectations that employees’ have.

As time passed and literature relating to the psychological contract expanded and proliferated, academics altered the term to mean the expression of mutual obligations as being a one sided perspective that arises from the given expectations that have formed in the minds of the employees. This shift overlapped with new trends occurring in the workplace including aspects such as corporate restructuring, part time workers and downsizing (Marks 2001).

In order to research the psychological contract, the organisation that was chosen was the Electric Authority of Cyprus (EAC). This organisation was created in 1952 and remains a semi-governmental organisation to date. EAC is currently a monopoly and therefor there is no competition to the organisation. However, over the past few years, EAC has experienced many challenges arising from the use of petrol as the sole energy source. The cost of oil amounts to 60% of the authorities operating costs. In addition the EAC adds a 2% Renewable Energy Source tax charge due to the fact that using oil instead of gas as a main source of power is in direct conflict with EU regulations (Rodoulis 2010).

Over the past few years there have been discussions as to whether or not new sources of energy creation such as the use of gas should be introduced, however a decision was made not to do so. In 2011 the youngest electricity generating power station in Cyprus was destroyed by a negligent accident, rendering parts of the country temporarily without power and necessitating the rationing of electricity. These events have had an added negative impact on both the organisations’ profits and the way in which it operates.

Furthermore, constant changes in the external economic environment have forced EAC to go through organisational change in areas such as structure, pay cuts and freezing of current held positions.

The reason why EAC is an interesting organisation within which to conduct research relating to the psychological contract is because of those changes which are referred to above. In the past, when employees joined the organisation they expected the job to be for life, this as a result of the fact that EAC is a semi government organisation. However, this no longer appears to be the case. Plans suggest that the organisation will soon be privatised signifying that the manner in which it operates may no longer be the same. These significant changes create a suitable opportunity and a productive setting to investigate the possible impact that they may have on the psychological contract. It remains important to understand the organisations role in creating and managing the psychological contract and how this aspect of the employer – employee relationship is formed and maintained.

The aim of this study is to look at the understanding of the psychological contract by both the organisation and the employees and the possible effects it could have on performance if a violation or breach was to be perceived.

The studies objectives are to:

Analyse the organisations and the HR approach towards managing the psychological contract; and

Evaluating the factors that could enhance or damage the psychological contract; and

Evaluate the employees perceived effect of the psychological contract on performance; and

Provide recommendations to the organization on how to better manage the psychological contract, and the perceptions thereof.

Chapter 2: Literature review

2.1 Introduction

Levinson, Price, Mundun and Solley (1962) used the principle of the psychological contract to explain the obligations and expectations relating to employees work experience.

The Chartered Institute of Personnel and Development (CIPD 2010) defines the psychological contract as being the perception of obligations that employee and employer have towards each other.

The definitions given so far all refer to the mutual obligations that exist between employees and employers. However, and as it would be expected, not all scholars agree with this hypothesis. Rousseau (1990) influenced the understanding of the psychological contract research by defining it as being the perceptions the employee has in respect of the mutual obligations that exist between the employee and the employer (Rousseau 1990:391 cited in Sharpe 2001).

The definition given by Rousseau (above), suggests that the psychological contract is concerned with the way employees perceive the mutual obligations between them and the organisation. Researchers have reached consensus that investigating the psychological contract from an organisations perspective can be precarious and problematic. Schalk and Freeze (1993) suggest that it is very difficult to even consider an organisation as having a uniform set of expectations. An organisation can be viewed as being multiple collective with different expectations that are constructed by various departments. This is one of the reasons that most studies tend to focus on the way that employees perceive the psychological contract (Sharpe 2001).

It is however clear from the literature there is not one universally accepted definition as to what the psychological contract is. The definitions that are provided vary from author to author, suggesting that there is no real consensus within the academic domain as to what it actually encompasses and as to whether or not it exists. It is difficult to explore a concept such as the psychological contract when there is no universally accepted definition and debate often occurs as to what it actually is.

2.2 Managing the Psychological Contract

The CIPD (2005) survey gives a statistical demonstration to the practises that assist in creating a positive perception of the psychological contract. The practises identified where expected to create a more positive environment, and it is important to acknowledge organisations that maintain a culture of trying to achieve competitive advantage through creating the correct practise. However not all organisations accept the importance of rewarding their employees for their efforts. Some view the traditional psychological contract that is based upon commitment and trust to no longer exist. The idea of a traditional career path is also non-existent in these entities. This however is not the view shared by all.

In a survey conducted by the CIPD (2005) the overall results relating to employee commitment where measured in order to establish how employees are feeling about their current organisation. 54% of respondents stated that they were loyal to their organisation with 32% stating that they have some loyalty to the organisation. 37% stated that they were very proud and a 49% said that they were quite proud to work for the organisation. Satisfaction results can also be viewed as positive, as only 8% of the employees reported as having low satisfaction and 6% felt that they had low satisfaction in regards to work life balance (CIPD 2005).

It has been illustrated and remains an accepted principle that the psychological contract can influence employee’s motivation, their intention to resign and organisational citizenship. However from the responses (see above) each result can be viewed from either the half full or half empty perspective. 38% stated that they were very motivated and 46% stated that they were somewhat motivated. 66% said that they have volunteered to do things that are outside their job description while 40% stated that they have never considered leaving their current job (CIPD 2005).

Inspecting the psychological contract from an organisations perspective it is clear that the HR practices of the organisation are pivotal to sending out messages to the employees in relation to what is expected from them and what they will receive in return (Rousseau 1995). Other authors such as Tsui et al (1997) recognised that the overall business strategy has an impact on the psychological contract but the emphasis will focus on the way in which HR practices are influenced by the business strategy (Schuler & Jackson 1987). HR can be seen as a communicative representative that sends out calculated messages in order to better define the relationship between the employee and the employer (Guzzo & Noonan, 1994). The HR practices are indorsed through social interactions. This makes leadership a very important factor in organisations (Rousseau 1995). However literature relating to the psychological contract has a deficit of knowledge concerning the combination and influence of HR practises and the leadership style on the way in which the psychological contract is formed and the way violations are perceived.

It is understood that organisational leadership may differ from individual to individual. HR practises within an organisation are however more institutionalized and stable. For example, a range of various organisational HR practices such as teamwork, high job security, group incentives, things like talent management and brand management are considered to be institutionalised and stable, irrespective of the prevailing leadership characteristics (Flood, et al 2008).

Taking this into consideration, it can be argued that the HR practices of an organisation and the manner in which the line manager supervises can influence the content of the psychological contract.

The most important considerations are those of job security, career development, and performance management, the nature of the employment contract, skill development and incentives. Psychological contract studies (Coyle-Shapiro & Kessler, 2000; Flood et al., 2001; Kraimer, Wayne, Liden & Sparrowe, 2005; Paul, Niehoff, & Turnley, 2000; Sapienza et al., 1997) suggested that the considerations referred to above are the most important to employees.

The psychological contract has become a type of framework which assists in analysing the employment changes and the impact these changes can have on employees (Guest 2001). This is based upon the perception that individuals have obligations that have been agreed to by the employer in return for the contribution that the employee provides to the organisation (Turnley & Feldman 2000). As defined by Rousseau (1990) the psychological contract is subjective and there is a belief that the obligations are mutual. The psychological contract goes beyond the terms that are visible in the formal contract and the psychological contract usually combines abstract dimensions that imply various aspects to the employment relationship (Anderson & Schalk 1998; Rousseau & Schalk 2000).

Literature suggests that psychological contracts could be operationalized based upon the perception of the type of relationship between the employer and the employee (Robinson, Kraatz & Rousseau 1994, Robinson & Rousseau 1994, Rousseau & Wade-Benzoni 1995, Stiles, Gratton, Truss, Hope-Hailey & McGovern 1996, Herriot, Manning & Kidd 1997, Anderson & Schalk 1998, Cavanaugh & Noe 1999).

A transactional contract is based upon the economic exchange which is seen as being short term with a main focus of reward for exchange of the employee’s defined contribution to the organisation (Rousseau & McLean Parks 1993, Millward & Hopkins 1998, Aselage & Eisenberger 2003).

On the other hand, relational contracts look at social exchange as its basis and are broader, meaning that it is more long term with the obligations centred around trust, support and loyalty (Arnold 1996, Millward & Hopkins 1998, Aselage & Eisenberger 2003).

According to Robinson et al (1994) the relational and transactional aspects are correlated inversely. According to Millward and Hopkins (1998) the lower the orientation in transactional contracts then the higher the orientation in the relational contracts. This suggests that the contract has the potential to involve both intrinsic and extrinsic elements but the weight of these elements is different (Rousseau & Wade-Benzoni 1995).

2.3 Factors that influence the Psychological Contract

Employees expectations tend be focused on areas relating to remuneration, promotion, job security, career development and training. Employers on the other hand tend to expect employees to be loyal, protect information relating to the organisation, work over time if it is required and even volunteer for tasks that are not mentioned in the job description (Knight & Kennedy 2005).

According to a survey conducted by the CIPD (2005) a number of variables that are considered important to the relation of the psychological state have been identified. Aspects such as trust, fairness and fulfilled promises where all seen to be important to the employees. The status of the psychological contract has been found to be more positive when the following are evident:

A workplace that is of high quality: There are six factors creating this and these factors are linked to wellbeing and stress. Predominantly a workload that is manageable, there is a need for control over the job, support must be given by both colleagues and supervisors, relationships at work must be positive, the role must be clear and there is a need for control and involvement in any possible changes. Leadership is also important as there is a link between leadership and support. The number of promises that have been made is related to the amount of progressive HR practices that the organisation has in place (CIPD 2005).

A suggestion by Robinson and Rousseau (1994) is that the belief that forms the psychological contract is by nature promissory. This suggests that a psychological contract is constructed not only by expectations but also the shared obligations that are formed from the explicit and implicit promises arising from the bond between the employee and the employer (Morrison & Robinson 1997; Robinson and Rouseau 1994; cited in: Montes & Zweig 2008).

Violations of the psychological contract happen when the employee perceives that the organisation that he/she works for has not fulfilled one or more of the obligations that where implied and is part of the psychological contract that were formed (Rousseau & Parks 1993).Rousseau (1995) suggests that the way in which an employee understands a possible breach can impact both on the way in which the employee experiences the breach but also the way in which he/she reacts to it (Bies & Moag 1986).

Although there are a number of different ways in which a contract can be breached there are a number of common ways that have been identified. There may have been an exaggeration of the job opportunities, development or growth potential. It can however also be said that new eager employees may read more into the promise and interpret matters differently. When line managers or senior managers make a statement but do not follow through with it they are in danger of breaching the psychological contract. One of the most common reasons why a breach in the psychological contract occurs is as a result of a change in managers. If a manager is promoted or retires and is no longer the manager then the psychological contract ceases to exist and a new one will be formed. Even changes within HR practices can appear to break commitments. Rousseau (1995) believes that different contract sources may include many different mutual obligations.

As mentioned above, a psychological contract is deemed to have been breached when an employee perceives that the organisation for which they work has not fulfilled one or more of its obligations (Morrison & Robinson 1997). In order for a breach to occur, the employee must respond to the perceived violation. A suggestion is made by Morrison and Robinson (1997) that psychological contract violations occur as a result of two reasons. The first is when the employer breaks a promise deliberately. This is called reneging. The second is when the employer and employee view a promise differently. This is called incongruence.

According to Robinson et al (1994) after a violation the psychological contract becomes transactional. This shows that employees move away from social exchange aspects and focus more on benefits, creating a distance psychologically between them and the source of violation (McLean Parks & Kidder 1994). A suggestion is also made in regards to the changes in behaviours and attitudes as a result of this shift.

In today’s world psychological contracts have various characteristics. Firstly, an organisation may not perceive an employee’s psychological contract as an obligation. Secondly a psychological contract is formed by both informal and formal cues (DeMeuse et al 2001).

These expectations more often than not take the form of company policies and/or explicit oral promises, but they can also arise from implicit social signs, casual statements and even conduct patterns (Stone 2001). Thirdly, psychological contracts are held by employees on multiple constituencies that include both the organisation as a whole, and individual managers within the organisation (Kickol & Troth 2003). Finally changes are made to the psychological contract as the relationship between the parties grows over time as there are changes to the expectations. These changes may occur when new management is introduced, when there is a shift in economic conditions, when there is a change of task or updates in policies in the organisation (Herriot & Pemberton 1999).

2.4 The perceived effect of the Psychological Contract on employees performance

There has been a suggestion that there is a negative relationship between the psychological contract breach and work performance (Turnley et al.,2003; Zhao et al., 2007). This based on the fact that employees and employers engage in exchanges where both parties express the contributions that are expected (Blau, 1964 cited in: Bal et al 2010). According to the reciprocity norm, when employers do not fulfil their obligations and expressed promises, the employee in return then responds by altering their contributions whether that be by reducing the efforts that where put in for a task and performance or otherwise. Thus the suggestion is made that a breach in psychological contract is expected to have a negative effect on employee performance. In addition, it is accepted that when the organisation fulfils its obligations and promises it can potentially increase employee effort and organisational citizenship along with providing motivation to employee and engaging them in the desired organisational discretionary behaviours (Coyle-Shapiro, 2002).

Morrison & Robinson (1997) suggest that when there is a perception that the psychological contract has been breached or violated then problems begin to arise. Irrespective of the fact that any violation can be imagined or factual the fact remains that the way the individual perceives such a reality is fundamental (Rousseau & Tijoriwala 1998).

Fundamentally, violations of the psychological contract are merely a misrepresentation of the employees’ expectations, the way things are and the way in which they should be. In order for the contract to remain intact there is a need for commitment and trust and there needs to be a perception of equal contribution. Where there is deemed to be an inequality of contribution then the contract will be redefined.

Various studies have established a relationship between attitudes and behaviours in the workplace and breaches of the psychological contract. It has been highlighted that the lesser expectations or obligations are met by the organisation so the consequences are more significant on aspects such as performance, commitment, turnover and job satisfaction (Wanous, Poland, Premack and Davis, 1992). According to Schalk et al. (1995) when the psychological contract is poor then there is a relationship between the lower commitment to both the organisation and the job. The employee turnover is higher and employees’ identification with the company is less than what it would be if the state of the psychological contract was better. Furthermore Robinson, Kraatz and Rousseau (1994) found that there was a negative connection between breaches of the psychological contract and job satisfaction, trust and a positive relation with increased turnover.

A negative relationship between behaviour, performance and turnover (on the one hand) and breaches (on the other hand) within the psychological contract where found in a study conducted by Robinson (1996). As a result the fact that the psychological contract is based on trust, when it is breached employees react and they feel betrayed by the organisation (Robinson & Rousseau 1994).

Guzzo et al (1994) found that there are consequences even when the breach is not considered to be severe. Bunderson (2001) found that in cases where the breaches occurred to administrative roles, employees reacted by leaving the organisation, resulting in an increase of turnover and dissatisfaction whereas when there where breaches in obligations of a professional role employees reacted by lowering job performance and commitment.

There is a relationship between commitment, job satisfaction and workplace justice. There is also an association between distributive justice and commitment and an association between procedural justice and commitment (Dailey & Kirk, 1992; Sweeney & McFarlin, 1993). Intentions of turnover have been found to be associated strongly with job satisfaction and commitment (McFarlane Shore & Martin, 1989).

When a violation occurs to the transactional obligations of the psychological contract it results in job satisfaction decreasing. When there is a violation to the relational obligations then commitment levels are lowered (Anderson & Schalk, 1998; Guzzo & Noonan, 1994; Robinson et al. 1994; Rousseau, 1990). Due to the similarities that these 3 aspects share, Turnley and Feldman (2000) suggested that the mediator between commitment and violation is satisfaction.

The transactional aspects of the psychological contract are related to the structure of an employee’s job as are security, levels of advancement that are measurable, the objectives of the employees cooperation, compensation and other factors. The relational aspects look at issues relating to behaviour which more often than not are more personalized, but that is due to the subjective nature of the issue. It is the relational aspects that are more difficult to manage, leaving the organisation at greater risk that the employees will perceive a breach to the psychological contract (Blancero et al 1995).

Violations of the psychological contract occur when it is perceived that obligations or promises where not fulfilled by either the employee or employer (Knight & Kennedy 2005).

Sparrow (1996) suggested however that even if a contract is good it does not always give a higher level of performance. If the contract is bad then it does prove to be a demotivator and this can have the result on higher absenteeism, turnover and reduced commitment (Maguire 2003).

Taylor (1991) believes that the reason behind why the majority of individuals respond more to events that are negative (than to events that are positive) is primarily due to the surprising nature that follows a negative event, necessitating that more resources are required. Another explanation as to why this occurs can be found in sense making which relates to Folger and Cropanzano’s (1998) fairness theory, which is often referred to as counterfactual thinking. This thinking can lead to employees having feelings of injustice (Conway et al 2001).

Conway and Briner (2002) conducted a study that concluded that when promises are not kept or are broken the effect was greater on the daily mood than when promises were exceeded (Conway et al 2001).

This fundamentally means that fulfilment does not necessarily mean that attitudes and behaviour are enhanced but a breach will damage these current attitudes and behaviour (Conway et al 2001).

2.5 Recommendations on how to better manage the Psychological Contract

Over the last few decades the relationship between employees and employers has become strained (De Meuse & Tornow 1990). This has resulted in a formation of different groups within the organisation in terms of the psychological contract and career expectations that employees have (Herriot 1992).

One of the most fundamental changes is the requirement of improvement in productivity and minimising costs, which has forced western organisations to reduce jobs on all levels, both the lower hierarchical levels and roles that traditionally where considered more long term (Hiltrop 1995).

According to Longworth and Stein (1995), during the period of 1989-1991 over 12.2 million employees lost their jobs and a further 3 million thereafter. Of that number only 6.3 million were able to find a job and then there was an average of 30% less earnings.

Pressure has also been added on the required need for constant change in recent year. This obliges restructuring of the organisation in order for the organisation to become more agile and flexible.

Psychological contracts have an important role to play in decision making and the employee perceptions that are related to the workplace. This is very important given the current unstable workplace that is being faced by the current modern employee. The traditional employment environment has disappeared and this has created a significant degree of uncertainty in the employee employer relationship (Anenson & Lahey 1999). The employment relationship has significantly changed since the 80s and 90s when downsizing and restructuring policies where implemented (Sims 1994). These new strategies have not taken into consideration the important role that employees play in sustaining long term organisational success. The psychological contract still plays an important role despite these changes in the employment relationship. As a direct result of employer insensitivity and the lack of long term labour force and commitment to retain loyal work force, evidence suggests that employee expectations have been lowered. Despite the fact that employee expectations are lower today than they were in the past this does not necessarily mean that the expectations are eliminated (Pfeffer 1998).

As a result of this employers continuously breach the psychological contract. In a study conducted by Robinson & Rousseau (1999) it was found that 25% of the respondents perceived significant psychological contract violations during an organisational restructuring. A high percentage of most of today’s workforce feel that they have been treated unfairly or that they have suffered an injustice by and at the hand of their employers (Robinson & Rousseau 1999).

It has become evident that the psychological contract is very involving and dynamic and it is important that organisations invest in the attempt to try and understand the changes that occur at various time and when the contract needs to be renegotiated. It is also suggested that by having a proactive approach towards the psychological contract there is a reduction in the likelihood that employees will want to leave the organisation as their needs are more likely to be met by the organisation (Lester & Kickul 2001).

According to Lester and Kickul (2001) one of the most important elements in this area is communication. One of the main reasons why psychological breach is perceived is as a result of the lack of communication. A suggestion has been postulated that a framework can be established by using open book management techniques and that will provide for communication between the employees and the organisation.

In order for the psychological contract to be successfully managed and maintained effort needs to begin before employees are hired. Niehoff and Paul (2001) say that all the organisations processes that occur before an employee is hired, such as interviews, induction and the like all play a vital role in contributing to forming the psychological contract between the organisation and the employee.

The organisations vision and mission booklets are often the first impressions of what the employer values entail. Through the interview process the image that employees must have as a requirement of the organisation is established, along with aspects such as pay and other benefits which are the tangible aspects and the intangible aspects that are the degree of empowerment and the way in which employees are treated. Further the process when negotiation of the contract occurs gives the opportunity to establish the details of what is expected by the employer and the employee. Finally the induction period provides the opportunity for the psychological contract that has formed to be re enforced.

If all these aspects are aligned with each other and accord with what the organisation expects then it allows for a contract to be formed which is clearly understood by both the organisation and the employees. This provides for a less chance for the contract to be perceived as being breached.

The relationship between the employee and employer can be determined to a large extent through the HR processes and practices (Rousseau and Greller, 1994). More specifically performance management processes are fundamental in creating a framework where the employee and employer psychological contract is determined. Performance management is created by three features: 1) setting objectives that are aligned with the business strategy, 2) evaluating performance, and 3) linking the performance evaluation, employee development and rewards in order to promote and reinforce the organisations desired behaviours (Storey and Sisson, 1993). Performance management contract making includes aspects such as a clear understanding of the job role, establishing fair, accurate and timely performance evaluations, distributing rewards in a fair manner, giving development opportunities and allowing for employee feedbacks (Rousseau and Greller, 1994).

Chapter 3: Methodology

3.1 Introduction

This chapter will be looking at the philosophy, strategy and overall methods that were used to carry out this research. It also provides information as to how the research was conducted, how the questions were formed and which method of analysis was used in order to analyse the gathered data.

3.2 Philosophy and approach

The philosophy and approach that was selected for this research was that of interpretive philosophy. The reason for this is because interpretivists contend that only through the subjective interpretation of and intervention in reality can that reality be fully understood. The study of phenomena in their natural environment is key to the interpretivist philosophy, together with the acknowledgement that scientists cannot avoid affecting the phenomena they study. Scientists admit that there may be many interpretations of reality, but maintain that these interpretations are in themselves a part of the scientific knowledge they are pursuing. Interpretive philosophy does not have a tradition that is no less glorious than that of positivism, nor is it shorter (Cohen et al, 2007).

Interpretive philosophy offers a view that understanding something, in this case the psychological contract, involves a subjective interpretation and that it is important that the exploration of this phenomena is done in its natural environment. Interpretive philosophy seems to be more appropriately used when exploring a concept such as the psychological contract, as a result of its subjective nature itself. In order to understand what is presently going on in the organisation it is important to use a philosophy that assists in achieving this understanding of reality.

3.3 Strategy

The strategy used in this research is that of a case study. Yin (1994) defined the case study as being an investigation of an existing phenomenon that is taking place in actual real life context, more so when it is unclear as to where the boundaries between the context and the phenomena are located (Rowley 2002).

Some advantages of the case study are the fact that it is a valuable method in understanding our surroundings and also the fact that the psychological contact can be viewed in its context. On the other hand one of the disadvantages is that it is often confused with other research paradigms such as ethnography and that there is said to be less control over variables with the use of a case study strategy but in this given case that is not an issue (Rowley 2002).

The reason why this strategy was chosen is because it enables a researcher to explore and investigate a given topic, such as the psychological contract, as it is occurring at the time and this is a fundamental aspect to the research as it is important to view both the way in which the organisation manages the psychological contract and also the effects that changes that occurring to it are having on the employees at this point in time.

3.4 Research Organisation

The organisation, chosen to conduct the research in regards to the psychological contract, was that of the Electrical authority in Cyprus. The reason behind choosing this organisation was as a result of the fact that it is a semi-government organisation, where once one was hired it meant that they had a job for life, career progression and more than adequate wages. However over the past 2 years and more so over the last few months, changes have been occurring in the organisation, not only with regard to structure, but also in the way the organisation operates. Wages have been cut and current employee positions have been frozen, suggesting that promotions are very difficult to attain.

This environment provides for an interesting start to exploring the management of the psychological contract by the organisation and also how employees perceive any possible breaches to the psychological contract. It is a starting point in trying to better understand how the psychological contract functions and what factors could influence this employer and employee relationship. Given the fact that certain expectations were already in place from an employee perspective, such as career progression, the job for life and the like, it is important to see the effects that it could have not only on the relationship that the employees have with the organisation but also on their overall performance.

3.5 Research methods

The research method that was chosen to conduct this research was that of qualitative methods. Qualitative interviews depend on the approach that will be used by the interviewer. The two most recognised types are the unstructured interview and the semi structured interview.

When the interview is unstructured then the researcher uses memory and prompts in order to deal with certain topics. A single question may be asked and the interviewee then responds freely. The interviewer then simply picks up key points that seem worthy of further exploration. Unstructured interviews tend to take the shape of a conversation (Burges, 1984).

A semi structured interview is when the researcher has a list of questions in specific topics but the interviewee is able to replay how the question is best understood. The questions do not need to be asked in a specific order and questions that are not on the list can be asked as they could provide more detail into a point that has been raised. However more often than not all the questions will be asked and the questions will be asked in the same way to everyone. It is important how the interviewee interprets and understands issues and events. This will determine as to what the interviewee deems to be important in explaining and how behaviours are formed (Bryman & Burges 2002).

Qualitative research is not the same as quantitative research, where numbers are involved. The way in which the qualitative research is carried out typically looks at life history and oral interviews. The two main methods of qualitative research are considered to be extremes and there are many differences between them, but most of the interviews that are conducted are either the one or the other (Bryman & Burges 2002).

A variety of factors play a role in the decision as to which method is best used. Unstructured interviews are used by researches that are concerned with the fact that a structured interview may limit the access into the world that is being explored. Semi structured interviews are formed when there is a clear focus rather than a general notion into the research topic. In this way more specific issues are addressed. If there is more than one person taking part in the research the semi structured interview style is preferred as it can assist in ensuring that the interview style of each interviewee is compatible (Bryman & Burges 2002).

Semi structured interview style was preferred because exploring the psychological contract would be a difficult task if the questions where all planned out, this as a result of the fact that the psychological contract is a perceived rather than a written contract. This style of interview also gave scope for more questions to be asked allowing certain topics could be explored further. The difficulties that presented themselves when using this style was that it was difficult to get the conversation flow that the unstructured interview provides for. Another issue was that not everyone understood the questions in the same manner although because it was semi structured the was room for alterations to be made to the questions so that they were better understood.

3.6 Time Scales

The time scale for this research was a cross sectional studies. This type of study is primarily used in order to determine prevalence. It measures the prevalence of cases in a population at that given point in time (Mann 2003).

One of the advantages of the cross sectional study is that it is a quick method and requires less resource as there is no requirement to follow up. Cross sectional studies are also useful in identifying possible associations and determining prevalence. Through the use of an additional study the associations identified can be studied more in depth (Mann 2003).

The disadvantages of a cross sectional study include the fact that differentiating association from cause and effect can be an important problem when using the cross sectional study. Another problem is that, more often than not, there are many plausible explanations as to why something is occurring. No explanation is provided for the findings of a cross sectional study (Mann 2003).

This approach was adopted because it provided the opportunity to establish what is occurring at the time with the psychological contract. It was important to study the psychological contract in its given time point. The problems that where faced were that because many associations can be made without the consideration of another study it is not possible to say as to how valid these associations are.

3.7 Conducting the research

From the literature that was explored it was established that what was very prominent factors in the psychological contract where aspects such as development, promotion and career progression. So from the use of the literature and the secondary data which was the employee handbook the questions where formed. Through the combination of these two sources the question where shaped on the basis of what the organisation states in the employee handbook in reference to development, promotion, career progression and various other procedures (See appendix C).

The questions were then designed in accordance with the objectives. This was done so that there could be a link between the literature and what was ascertained from the literature and the objectives, so that the questions that have occurred could be linked. The first objective refers to the exploration of the organisation and HR’s approach towards managing the psychological contract. In order to form the questions for this objective the employee handbook was used. This provided insight as to what the organisation tells new employees when they join the organisation, the fact that development is an important part of the organisation. This assisted in framing questions that could explore the way in which the organisation and the HR team keep or maintain such statements.

For objective two, which looks at evaluating factors that could enhance or damage the psychological contract, the questions where fashioned through the use of the literature reviewed and also through the use of the handbook, after which an identification of similarities between the two were made.

The questions for the third objective were composed through use of a combination of the questions developed for objective one and two but also through the use of the literature reviewed and the employee handbook, the latter which makes reference to the desired performance that the organisation requires.

The questions for objective four, which relates to providing the organisation with recommendations as to how to better manage the psychological contract were formed through the use of the questions designed for the above objectives, thus ensuring that there is both a logical flow to the questions and ensuring that any negative feelings towards any practices or procedures will be established.

After designing the questions time was a very important factor that needed to be considered. At first there were approximately 25 questions establishing a time scale of around 30 minutes per interview. This was done so that a great detail could be gathered so as to better ensure the validity of the research results. However when a test sample was taken, it was established that most employees and managers where very reluctant to spend 30 minutes away from their schedule merely to take part in the interview. After a review the number of questions reduced to 15, each interview lasting approximately 10-15 minutes. By adjusting the time that the interviews where going endure the risk that the answers would not be as detailed as they could potentially be was created. However if something important was stated in the interview follow up questions were asked in order to get the detail that was required.

In total, there were 21 interviews conducted. These were with 4 line managers, an area manager, the HR director and 15 employees interviewed throughout a 2 week period. The line managers and employees where selected randomly from 3 different locations that were visited. The employees range from road workers, mechanics to employees that work in the head office. The said employees were:

Table 1: List of the number of employees/managers interviewed

Number of employees interviewed

Number of managers interviewed

2 Law department employees

1 HR

2 Employees from the engineering department

1 Area manager

5 Mechanics

1 Road worker line manager

3 Superintendents

1 Mechanic line manager

3 Road workers

2 Engineering line managers

The interviews were arranged on specific days at all 3 locations (see appendix D). The first interviews conducted where at the head office where difficulties were encountered when the room that was meant to be used for the interview was not available. To overcome this without rescheduling the interviews most of the interviews were conducted in the various participants’ offices. This caused issues in relation to privacy and concentration on the part of the participant as often people would knock on the door or the phone would ring. In regard to the results the fact that there was privacy issues and constant interruptions could mean that the answers were not as detailed as they could have been and there is a possibility that as a result of this lack of privacy participants may not have felt as much at ease as they could have meaning that certain information or facts or detail may have not been forthcoming.

The second location was the Moni power station, where conducting the interviews was a lot more manageable as a library was made available in order for the interviews to be conducted. The employees that wanted to take part took turns in coming into the library and the interviews were conducted in a more conducive environment, away from distractions and interruptions.

It was the same situation for the third location an AHK station was a room was provided within to conduct the interviews. The exception to this was the interview with the area manager, which was conducted in his office, but fortunately there were no distractions or interruptions.

The interviews were recorded through the use of audio recording equipment. This was done in order to ensure that all the information being gathered from the participant could be analysed without the risk of forgetting or overlooking any important information. An option was also offered to participants for the recording equipment not to be used if they felt uncomfortable with the idea. In these circumstances the use of note taking was to be implemented. This was not an issue that arose often and out of all the participant only one requested that the interview was not recorded.

One of the other difficulties with interviews was getting people to be forthcoming with information and detail. The question where open ended in an attempt to avoid yes or no answers. However at times the question wasn’t understood clearly, so the question would be rephrased in order for the participant to better understand the question. It was also established that body language played a very important part in making people comfortable enough to speak openly. The more engaged the researcher is in what is being said, the more comfortable participants feel and they are then more willing to provide information. In some cases the interviews seemed to take a conversational style which made it easier for information to flow.

When it came to answers about performance there was an issue in relation to how honest the responses actually were, but the validity of the answer came from the follow up question, where participants had to give reasons as to why they said what they said. The performance objective was the most difficult to accomplish as the appraisals that are used cannot be seen as an accurate measure of performance, and the only way to establish it was through the interview. This however is subjective and everyone views performance in their own manner.

The interviews lasted from anything from 7 minutes to 30 minutes. The average however was approximately 10 minutes per interview.

After the data was gathered, the use of thematic analysis was implemented in order to identify possible themes that emerged from the interviews and then through those themes an analysis was conducted in order to determine what was discovered. Once the data from the interview was collected a transcription of those interviews was made. This assisted in allowing, firstly a better understanding of the data that was gathered and secondly to provide for a more organised system in finding and matching up themes. Following the transcription, the data was then sorted into the first set of interesting themes that arose. After examining the first themes, restructuring and re defining came the final themes that where then used to in the analysis of the data.

3.8 Research Ethics

In order to ensure that the research being conducted is ethically sound, an ethics committee reviewed the research proposal. This included the way in which ethical issues would be dealt with. All participant where handed a consent letter (see appendix E) which explained the purpose of the research and asked for their consent, such indicated by having them sign the form if they agreed to take part. In the consent letter it was also made clear that if the participant agrees to it the interview would be recorded, however a choice was also given for recording not to take place if the participant felt uncomfortable. A debriefing form was also implemented (see appendix E2). This provided the participants with the contact details of the researcher and the option to remove themselves from the research, which option was available up to a specific date, should they decided to. A code number was used in order for participants to remain anonymous and to ensure that confidentiality was maintained.

All data is stored anonymously and securely conforming to the relevant data protection legislation, ensuring that the research conforms with all the ethical requirements. The participants that took part in the research will remain anonymous and all data gathered will not be shared with any third party. This aspect was also dealt with in both the consent and debriefing letter (see appendix E and E2) so that the participants were made aware that any information they provided would remain private and confidential at all times.

Chapter 5: Conclusion

5.1 Summary

From a review of the literature and the research findings it was established that the organisation facilitates the creation more of a relational psychological contract rather than a transactional contract for which it seems that it is currently in an unstable condition but is not seemingly affecting the organisations performance in a negative way. However as was suggested by Taylor & Tekleab (2003) elements within the relational and transactional contract can overlap so it cannot be clearly established as to what form of psychological contract it currently takes.

It was also established that the principal promises that where initially made by the organisation, relating to personal and career development that the organisation has made, were followed by an attempt to address and fulfil the obligation to provide employees with such opportunities.

The issues that have arisen are whether or not performance is measured accurately and whether or not the organisation has sufficient HR practices and procedures that can maintain a balance between what the organisation expects and what is being given. This is a fundamental question as there is a suggestion in the literature that performance management forms a framework that supports and helps maintain the psychological contract.

Other interesting aspects that where revealed by the endeavour related to the role that organisational culture plays in relation to the organisations obligation towards the employees, their attempt to maintain the psychological contract and the way in which the organisation operates in its environment. The fact that the organisation is semi-governmental and that at this point there is still a sense of security around the organisation helps maintain important aspects of the psychological contract that means that for the moment management do not have to. This could potentially be the subject research in the future, as to whether or not both organisational culture and a countries culture changes the principles of the psychological contract.

The fact that the major changes that are expected to take place, such as the privatisation of the organisation have not as yet taken place makes it difficult to say as to whether or not a breach of psychological contract would have a negative effect on the organisation as a result of the values of the culture that should be taken into consideration. On the other hand the fundamental fact that the employees still have job security and job security being the most likely aspect that will change if the organisation is privatised then there is a greater possibility of there being a negative effect on employees behaviours and attitudes.

From the literature that was reviewed it was established that certain things where to be expected, such as the loyalty that the employees feel towards the organisation despite major changes occurring and the distinct possibility of changes occurring directly to the employee and employer relationship. What was also different was the employee’s attitude towards the organisation. Fundamentally the loyalty that is exhibited may not be towards the organisation but more towards their co-workers and the job itself. This has partly to do with culture but also the role that team work could potentially have within the psychological contract. The values and what are considered important changes from culture to culture was evident in the research.

The fact that the promises made and the way in which the organisation portraits its expectations of employees is in accordance with the literature. The fact the transactional aspects of the contract have seemingly been maintained means that there has not yet been a perceived violation of the psychological contract precluding a negative effect on performance. In fact what has seemed to happen is that there seems to be an increase in performance.

This suggests that employees in the organisation will try to attempt to maintain a high level of performance no matter what is going on and this partly as a result of culture, the nature under which they work that is team work and not wanting their co-workers to have to work harder because of them.

To the line managers this would imply that by assisting and maintaining this created culture they are potentially leading themselves to an unwanted trap. Line managers often play an important role in communicating with employees as what is required of them and a suggestion is made that through the way the organisation operates and the fundamental instrument of teamwork that the line managers are pivotal to communicating the organisations expectations.

The literature suggests that HR practices are important in maintaining a steady and stable psychological contract along with helping communicate expectations (Guzzo & Noonan 1994). So far it appears as if HR is attempting to do this the procedures and practices are weak, they lack the strategic outlook which HR should be striving to achieve and also this could suggest that with the further changes that the organisation will be faced with the HR department is very much unprepared for what is expected and required of them.

Other organisations on the other hand could potentially see the importance of understanding both the culture in which they operate and that, by creating a strong team based mentality, a lot of the issues such increase in workload and a cut in wages can be managed. Team work enhances positive attitudes and behaviour that are in favour with the organisation.

Other HR practitioners can evaluate the prospect of aligning their HR strategy with the organisation strategy as suggested by Tsui et al (1997), so as to ensure that the organisations mission and vision are met while also creating more stable and operationalized procedures that can identify possible issues and help in managing them.

For further research into the psychological contract, it is important that the culture in which the research is being conducted is taken into consideration. Through this research the role that both organisational culture and culture in general in the way in which aspects of the psychological contract are perceived have been imperative. It has been seen that as a result of the culture a lot of issues that have been identified in the literature where not found as they are not considered important.

The change of the psychological contract is also an area worth exploring in greater detail as the expectation of permanent work, work life balance, high wages etcetra are no longer important. What seems to be important now is being able to work and having a job to go to. This is as a result of the current global economic crisis rendering the employee employer relationship very different to what it was when the psychological contract was first initiated.

Pressure has also been added to the need for constant change in recent years which requires restructuring of the organisation in order for the organisation to become more agile and flexible.

The overall aim of this research was to look at the understanding of the psychological contract, by both the organisation and the employees, and the possible effects it could have on performance if a violation or breach was to be perceived. What was established was that there is no real understanding of the psychological contract but that certain aspects such as development and career development do play an important role within the employee and employer relationship. As a result of factors such as culture, teamwork and the external environment, it was established that there seems to be no perceived violation or breach to the psychological contract thus not having a negative effect on performance. This cannot however be categorically stated because the performance measurements currently being used do not portray the actual truth in relation to performance.

The study conducted is limited to a deeper exploration that should have been made into the fact that the organisation works with similar if not the same structure as is predominantly done in the public sector. There are many differences between public sector organisations and private organisations that where not taken into consideration, leaving many questions unanswered because of these differences.

5.2 Recommendations

The first recommendation to be made is that of a reformation to the execution of the appraisal schemes so that there can be a clearer indication as to employee’s performance. In turn this can assist in establishing where greater emphasis should be placed on development. By being able to identify wider development issues money could also be saved from unnecessary seminars that are not giving the desired result need for the current climate. Through the reformation of the appraisals feedback can also be obtained as to how well the seminars assisted in the employee’s development creating both a strong bond between the employee and employer relationship but also helping create a development practice that is beneficial for the organisation and the employees alike. What can also be a part of this process is making a booklet with the organisations, vision and mission, the behaviour and attitudes that the organisation requires that way each time the appraisals are conducted these attitudes and behaviours are reinforced.

The second recommendation is with reference to managing the future changes that may occur in the organisation. According to Hersey & Blanchard (1993) communication is the most important factor in any organisation, large or small, as it help the organisation maintain high levels of functioning and assists in getting the most out of the organisations greatest resource their people. It is important that management keeps the employees updated as to the potential changes that may occur, thus minimizing the risk of having negative effects on behaviours and attitudes as a result of various rumours spreading and employees feeling the sense of trust and commitment that is required to maintain a balanced psychological contract.

According to Lester and Kickul (2001) one of the most important elements within an organisation is communication. One of the main reasons why psychological breach is perceived is as a result of the lack of communication. A suggestion is made that a framework can be established when using open book management techniques that will provide for communication between the employees and the organisation.

The third recommendation is that the HR department develop and enhance their overall practices and take up a more strategic position within the organisation. This will help communicating the organisations mission and vision throughout the organisation as suggested by Tsui et al (1997). It will also assist in managing resources more efficiently and effectively for the upcoming changes that the organisation will be faced with. There are also suggestions made that by linking the HR strategy to the organisational strategy you can create a source of competitive advantage which may be required if the organisation is to be privatised.

The problems that could be encountered with these recommendations include the fact that the organisation has operated in the same way for many years and making sudden changes as suggested may also have a negative impact on the psychological contract. In the long term however the organisation will be better off. Given the possibility that there could be a negative impact on the psychological contract the risk must be minimised. This could be done through the use of reward incentives that should be introduced. This could also help in assisting to bring about the required changes and also help maintain the desired behaviours.

A final recommendation made relates to the induction process. The psychological contract is first formed during the early stages of employment so it is fundamental that a structure is implemented for the induction process of the employees so that it is clear from the very beginning what the organisation requires of them rather than waiting some months into the employment relationship for this to occur.

It has become evident that the psychological contract is very encompassing and dynamic and it is important that organisations invest resources in the attempt to understand the changes that occur at time and when the contract needs to be renegotiated. It is also submitted that by having a proactive approach towards the psychological contract there is a reduction in the probability that employees will want to leave the organisation as their needs will be fulfilled by the organisation (Lester & Kickul 2001).

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