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Psychological Contract Employees

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Published: Mon, 5 Dec 2016

The psychological contract is a metaphor that includes the unwritten perceptions and mutual obligations of employees and employers from each other such as motivations, opportunity to develop, job security and decent wages. These perceptions may be the results of the formal contracts or they may be implied by the expectations which each holds of the other and which are communicated in a multitude of subtle or not subtle ways (Bratton and Gold, 2003 – Herriot et al 1997). A major feature of the psychological contract in that the individual believes that the agreement is mutual and that a common understanding exists between the parties.

The migration of earthlings is bringing us face to face with more culturally different people than ever before. During the last decade, the workplace has changed because of transitions such as mergers and acquisitions, restructurings and downsizings and privatisations. These transitions emphasizing flexibility and cost reduction have impacted not only organisations and jobs, but also the employer-employee relationship, bringing about a new employment contract (Burke & Cooper, 2002). For the managers to be successful in these international organisations with the variety of cultures it is vital to have the ability to work effectively in a situation of cultural conflict (Choi, C.J. 1994).

Employers can no longer offer job security and long-term career opportunities but they are responsible for providing their employees with an environment for growth and learning so that employees gain the experience and training needed to be employable in the organisation or elsewhere. Consequently, the primary expectations towards employees are no longer focused on loyalty and commitment but on adding value and being responsible for one’s own career (Hall & Moss, 1998; McCarthy & Hall, 2000). Although the current literature focuses extensively on discussing this new deal and its consequences, the question remains to what extent this new contract is widespread across employment relationships. It is the purpose of this research to examine employment relationships across a representative sample of the working population instead of expert informants or targeted populations.

One way to examine the new employment relationship is by analysing the employment relationships from psychological contract points of view (Herriot, 2001; Rousseau, 1995). The psychological contract is a metaphor that includes the unwritten expectations and mutual obligations of employees and employers from each other such as motivations, opportunity to develop, job security and decent wages (Bratton and Gold, 2003). It can be defined as an exchange agreement of promises and contributions between two parties, an employee and an employer. This implies that each of the parties might have a different perception of what these obligations are. It contains an individual’s belief regarding the mutual obligations of both parties to the relationship (Rousseau, 1990, 1995). Therefore, research on psychological contracts provides the opportunity to understand employment relationships by examining the types of obligations that both parties have promised each other. It can be argued that the initial anger at the breaking of the old deal of security for loyalty has given way to recognition that psychological contracts have changed (Herriot, 2001). The question, however, remains whether one can only distinguish between old and new psychological contracts or whether multiple types of psychological contracts can be distinguished.

Organisations across the globe are experiencing stiff competition and a business environment marked by uncertainty and change. In response, many companies have altered the psychological contracts that they have with their employees (Cappelli, 1999). Initial research on psychological contracts in the United States has focused on identifying various components of the psychological contract (Rousseau, 1998), and examining the negative consequences that arise when employees perceive that their organisation has breached the contract by failing to fulfill one or more of their obligations (Robinson and Rousseau, 1994; Robinson et al., 1994; Robinson 1996; Rousseau, 1995). While these early studies were informative and helped managers identify ways to better manage their domestic workforces, they still did not provide a complete picture of the challenges of (and potential solutions to) effectively managing the employee-employer relationship in other countries (Westwood et al., 2001). “Despite the academic origins of the term, many managers believe that the idea of the psychological contract offers a valid and helpful framework for thinking about the employment relationship against the background of a changing labour market (CIPD, 2008)”.

The psychological contract can be distinguished from the legal contract of employment. The legal contract suggests only a limited and uncertain representation of the reality of the employment relationship. The psychological contract on the other hand looks at the reality of the situation as perceived by the parties, and may be more influential than the formal contract in affecting how employees behave from day to day. “It is the psychological contract that effectively tells employees what they are required to do in order to meet their side of the bargain, and what they can expect from their job. It may not – indeed in general it will not – be strictly enforceable, though courts may be influenced by a view of the underlying relationship between employer and employee, for example in interpreting the common law duty to show mutual trust and confidence.” (CIPD, 2008)

My research will be based on psychological contract in multicultural organisations and the theories and methods used by HR managers and/or HR departments in practice, with an emphasis on the international organisations. Research into the psychological contract has produced a number of important messages for managers. In every multicultural organisation there are employees from different cultures. Any larger the geographical domain of the organisation, any more variety of the cultures will be present. These employees will have different expectations from their employers, base on their culture, religion and experience backgrounds. Different backgrounds result in different decisions makings based on interpreting things observed in the light of things believed (Leavitt H. J 1988). This mixture, clashing and co-evolution of cultures is fascinating and at the same time very important and challenging for the international organisations.

In harmony, this research will tend to cover the work-life balance as integral part of recently established psychological contract in Multinational Companies which have a diverse culture or workforce.

2.0 Research Question

Further to facts mentioned above, there are Reward, Remuneration and Perquisites as the underlying subjects which I will concentrate on. These, together with training, are important in employee relations in an organisation. And to what extent they may lead to labour turn over if not satisfied or absenteeism.

This research will contrast previous findings into the violation of the psychological contract in that it indicates that a more complex interpretation of the psychological contract is used by the management, the more readily influenced by/to an individual’s sociological environment.

I also want to point to the difference may exist in the psychological contract and the expectation in non-profit organisation such as Oxfam. There are continues debates on money as a motivator. Frederick Herzberg motivational theory, for example, whose ideas relate strongly to modern ethical management and social responsibility (BusinessBall, 2006). The theories of money as a motivator will not necessarily work for these organisations. Challenging the current debates and theories and applying them to non-profit organisation will be the next step in my research. I will also critically analyse the difference between people’s expectation according to their working environment and determine the extent to which they may be affected by the organisation nature. I also aim to critically analysis the role of gender and religion background to evaluate the importance of the correct implications of psychological contract.

And finally using the literature on international human resource management, the research will address some issues which may happen in international organisations when recruiting internationally, from psychological contract point of view. So the initial question of this research will be: How can international organisations manage their employees with different culture backgrounds in terms of psychological contract?

2.1 Background

The term ‘psychological contract’ was first used in the early 1960s by Argyris, but became more popular following the economic downturn in the early 1990s (CIPD, 2008). It was subsequently popularised and discussed by Levison (1962), Price, Muden, Mandl, Schein (1978; 1980) and Soley and much literature is written about the process of forming psychological contracts.

“Earlier works completed by Argyris, argues the psychological contract as a conceptually different form both formal and implied contract in that it considers the individuals beliefs in the terms of an agreement between the individual and their employer” (Hall R, 2003).

Career success encompasses the real or perceived achievements individuals have accumulated as a result of their work experiences (Judge, Higgins, Thoresen, & Barrick, 1999, p. 621). Real or objective career success reflects verifiable attainments in areas such as work performance (e.g., publications), pay, position, and promotions. Following Hughes’s (1958) emphasis on the importance of the beholder’s eye when assessing a career, career scholars (e.g., Hall, 1976, 2002; Sturges, 1999) have also addressed subjective career success as experienced directly by the person engaged in his or her career. A review of published empirical research on this topic over the past decade revealed that five of the most commonly identified precursors of career success are gender, personality, education, mentoring relationships, and career tactics. The first two are ascribed characteristics, the latter three are enacted. For instance, gender has been found to be related to salary and managerial level (Melamed, 1995), as well as salary increases, management promotions, and hierarchical levels (Cox & Harquail, 1991). The personality dimensions of conscientiousness and extraversion have both been generally associated with higher subsequent job satisfaction, income, and occupational status (Judge et al., 1999; Seibert & Kraimer, 2001), whereas emotional instability has been related to lower income, occupational status (Judge et al., 1999; Seibert & Kraimer, 2001), as well as job and career satisfaction (Boudreau et al., 2001; Seibert & Kraimer, 2001). Regarding education, a person’s educational level, quality, prestige, and type of degree have all been found to predict subsequent financial success (Judge, Cable, Boudreau, & Bretz, 1995).

This research will focuse on psychological contract in multicultural organisations and the theories and methods used by the human resources managers in practice, with an emphasis on the international organisations. Research into the psychological contract between employer and employees has produced a number of important messages for managers. In every multicultural organisation there are employees from different cultures. Any larger the geographical domain of the organisation, any more variety of the cultures will be present. These employees will have different expectations from their employers, base on their culture, religion and experience backgrounds. Different backgrounds result in different decisions makings based on interpreting things observed in the light of things believed (Leavitt H. J 1988)

The concept of the psychological contract has recently achieved considerable prominence in managerial texts in human resources discourse. The extant literature has emphasised the importance, the type and the nature of these expectations. Psychological contract must respect people’s difference, their emotions and feelings, thinking -learning -problem solving and reasoning differences, attitudes, beliefs and values etc.

Cross-culture management and power distance are other issues that need to be addressed. What are the reasons that generate distance? They can be social class, religion, nationality, education, quality of speaking the local language or the common language of the organisation etc (Tjosvold D., 2003). Even with the best intentions from the employer and employee, relations can break down and the psychological contract can be violated. Disruption to the contract may occur when circumstances make it impossible for one or both parties to satisfy their part of the contract, despite the fact that they might have been willing to do so. The subjective nature of psychological contracts may sometimes leave it open to interpretation which makes it easier to feel that a violation has occurred but harder to actually know if it really has.

3.0 Research Methodology

This chapter outlines discussion on the methodological concerns with regards to the analysis of the research question. The main focus of this chapter is the research approach and the research design adopted to conduct the analysis.

3.1 Research approach

The research strategy I intend to adopt is a combination of multi-methods, of deductive, inductive and exploratory. Quantitative data will be collected throughout, from secondary sources: journals, databases, books, newspapers and magazine articles etc. Secondary data includes raw and published; quantitative and qualitative data which can be used in both descriptive and explanatory research (Saunders et. al., 2003). A comprehensive review of the relevant literature including a computer-assisted search will be undertaken through secondary data derived from various case studies and administrated questionnaires in order to develop an understanding of previous work and practices in the field of Culture and Psychological Contract. It is important to be aware that some literature may contain out-of-date material. For this reason I also use articles from the databases through the university, because the information available in databases is relatively new.

I intend to use the following secondary databases:

  • Emerald Full text, Reviews
  • Proquest
  • Swet Wise
  • Reuters Business Insight
  • Regional Business News
  • Questia Media

I will also access the following information sources:

  • Oxford Brookes University library
  • Bodleian Library
  • Oxfam GB library in Oxford
  • Library of Bilkent University in Ankara, Turkey

Primary research will be conducted for the case study of this research, using a closed questionnaire. Saunders et al (2003) says that data collected using open-ended questions allows individuals more flexibility in answering, which may confirm a hypothesis or otherwise. The limitation or disadvantage of this approach is that it is subjective and can only be applied to a limited sample of participants (Saunders et el. 2003). The inductive approach takes to account social/cultural considerations, which enables to establish the intentions of the respondents more clearly.

3.2 Research design

According to Nachmias & Nachmias (1987) the research design is a logical model of proof that allows the researcher to draw inferences concerning causal relationships among the variables under investigation. Consequently, the appropriate research design will depend on the problem to be investigated (Churchill, 1991), the purpose of the research, the research questions, and the state of the knowledge existing prior to the research plan (Eisenhardt, 1989). The three basic types of research designs are: Exploratory (Case Studies), Descriptive and Causal. Research methods and data collection, form the elementary part of this research’s design.

The research title “How can international organisations manage their employees with different culture backgrounds in terms of psychological contract?” can be divided into its core components to provide the aims and objectives for research. The research’s terms of reference for investigating the relationship between culture and the psychological contract are:

  • To explore the notion of culture, cultural differences and cross-culture issues within organisations
  • To explore the notion of psychological contract and how it is perceived within international organisations
  • To critically review the published theories and contributions to human resources management issues within international organisations.

3.2.1 Case Study

Beside the theories I will use case studies to develop the arguments that I need to achieve my research objectives. The case study approach is the most widely used in management fraternity. Case studies are detailed investigations of single individuals, single groups or departments in an organisation, or a whole organisation. Case study data can be extremely rich, varied and detailed. The sequence of events can help to establish cause and affect relationships.

Case study data can be collected over an extended time series to produce what are called longitudinal studies (Buchanan & Huczynski, 1985 p.25). Case study is not a new form of research; naturalistic inquiry was the primary research tool used until the development of the scientific method. There are four types of case studies, which are selected depending on the objectives/ goals of the investigator: Illustrative Case Studies, Exploratory Case studies, Cumulative case studies, Critical Instance Case studies (Buchanan & Huczynski, 1985 p.25).

For this research the critical instance case study will be used. This type of case study examines one or more sites for either the purpose of examining a situation of unique interest with little to no interest in generalisability, or to call into question or challenge a highly generalised universal assertion. This method is used to answer cause and effect questions.

I begin the case study after selecting from the different sub categories of case study and identifying a theoretical perspective. The process of deduction begins with theories from which hypotheses are derived, and thus providing generalisations. The process of induction, on the other hand, begins with the observation of some phenomena from which generalisations are derived, thus finally resulting in theorising.

Although prior evidence has demonstrated racial differences in employee absenteeism, no existing research explains this phenomenon. The present study will try to examine the roles of 2 diversity cues related to workplace support-perceived organizational value of diversity and supervisor-subordinate racial/ethnic similarity-in explicating this demographic difference among 659 Black, White, and Hispanic employees of U.K companies. There are a number of ways to estimate the financial impact of absenteeism on organizations. For instance, some analysts use the employees’ daily wages whereas others also include the costs of replacement workers and lost revenue. No matter what the method of estimation, there is no denying absenteeism is costly. In fact, conservative estimates place the cost around $200 dollars per employee per missed day (Anderson, 2005). More liberal estimates suggest costs may be closer to $700 dollars per employee per missed day and that the resulting annual losses for some employers exceed $1 million dollars (Armes, 2005). Accordingly, minimizing avoidable absence is a key concern among organizational administrators.

Despite a rich history of research examining absenteeism, it appears this trend has slowed of late. A recent review of topical coverage in scholastic human resource management (HRM) journals from 1994 to 2001 concluded that absenteeism articles were “quite scarce, despite the fact that Harrison and Martocchio (1998) have deemed absenteeism a ‘vigorous area of scholarship'” (Hoobler & Johnson, 2004, p. 671). The existing literature on absenteeism has provided a wealth of knowledge regarding its causes and consequences, but the recent paucity of research has left some pressing questions regarding the topic unanswered.

The participants in this study were a part of the Equal Employment Opportunity Commission 40th Anniversary Civil Rights in the Workplace survey, conducted by the Gallup Organization from January through September 2008. A total of 1,252 individuals working in the United Kingdom took part in the telephone-administered survey. Eight hundred sixty-one respondents were full-time employees. Because our focus is on racial and ethnic group differences, we included only data from the subgroups with large enough sample sizes to test the study hypotheses (TV = 755). Of the remaining participants with complete data (N = 659), 301 (45.7%) were men and 358 (54.3%) were women. In terms of race and ethnicity: 294 were White, 172 Black, and 193 Hispanic.

3.3 Questionnaire

The questionnaire is with the aim of collecting information on the management process of retaining psychological contracts in Multinational organisations in the United Kingdom and the elements affecting the process of implementation (absenteeism). The questioner (copy available upon request) was sent to the case study organisation’s employees thorough their local network. The same questions were given to this group which was a mixture of male and female, with different cultural backgrounds, holding various positions in different hierarchy levels.

3.4 Triangulation

All the data collected from secondary and primary sources are analysed to make any comparisons in data patterns within the sources, identify a new hypothesis or trend, and to identify any possible factors present in the results of the analysis, for future research. The findings for the research question are then compared with existing research carried out by psychological contract Monitor Trends Report (2004) to make relevant assumptions.

4.0 Literature Review

4.1 Absenteeism and Cultural Diversity

There is no shortage of studies examining employee absenteeism. Researchers have invested a great deal of time and effort in determining its antecedents and outcomes (see Harrison & Martocchio, 1998 for a review of this literature). In doing so, they have answered a number of important questions concerning who is more likely to be absent and why. Unfortunately, questions remain regarding the origin of racial differences in the propensity to be absent from work. In fact, we could find almost no theoretical or empirical inquiry devoted to explaining this phenomenon.

What theory and research do suggest, however, is support received from the organization, and its members, is a primary determinant of employee attendance. Perceived organizational support is proposed to relate to organizational outcomes, such as attendance, through a social exchange mechanism (Blau, 1964; Rhoades & Eisenberger, 2002). Employees who perceive their organization as supportive, in turn, feel an obligation to reciprocate in the form of enhanced job satisfaction and organizational commitment, and reduced withdrawal in terms of turnover and absenteeism (Eisenberger, Armeli, Rexwinkel, Lynch, & Rhoades, 2001). In addition, employees, particularly those in leadership, are perceived to personify the organization and its motives. A supportive supervisor, therefore, is equated with a firm caring for its employees, resulting in positive employee affect and reduced withdrawal (Eisenberger, Stinglhamber, Vandenberghe, Sucharski, & Rhoades, 2002).

A number of studies underscore the role of organizational support in influencing absenteeism. For instance, Eisenberger et al. (2001) found perceived organizational support significantly predicted attendance, with those perceiving more support being absent less often. Consistent with social exchange theory, employees’ “felt obligation” to reciprocate organizational goodwill mediated the perceived organizational support-withdrawal behavior relationship. In a subsequent investigation, Eisenberger et al. (2002) showed perceived supervisor support preceded perceived organizational support, suggesting employees view a supportive supervisor as a form of organizational support. Rhoades and Eisenberger’s (2002) meta-analysis further demonstrated the significant relationship between perceived organizational support and a number of relevant outcomes, including supervisory support, work attitudes, and withdrawal behaviors. Thus, it appears supportive supervisors and work environments are associated with lower employee absenteeism.

Unfortunately, the support experienced by an employee often differs as a function of race and ethnicity. Elsass and Graves (1997) discuss how minorities commonly find themselves excluded and denied the same type of support available to White employees. For example, Black managers feel less accepted by their organizations and are evaluated more harshly by their supervisors than comparable White managers (Greenhaus, Parasuraman, & Wormley, 1990). More recent evidence indicates Black employees routinely experience more discrimination and less supportive work environments than their White counterparts (Deitch, Barsky, Butz, Chan, Brief, & Bradley, 2003). Although the literature on Black-White differences in organizational experiences far exceeds that on Hispanic-white differences, there is reason to believe Hispanics also receive differential treatment, which may affect their perceptions of support (e.g., Foley, Kidder, & Powell, 2002; James, Lovato, & Khoo, 1994; Sanchez & Brock, 1996). In fact, a recent study showed Hispanic professionals face more stress than their White peers, and much of this discrepancy is attributable to a lack of organizational support (Rodriguez-Calcagno & Brewer, 2005).

The preceding discussion suggests perceived support predicts absenteeism, and experiences of organizational support differ by race and ethnicity. Spence’s (1973) work on market signaling provides a theoretical basis for understanding the manifestation of demographic differences in perceived support. Basically, he proposed that employees interpret cues in the workplace and assign meaning to them to represent unknown information. For instance, a supervisor providing mentoring for a subordinate could lead the subordinate to infer that the company values the development of its personnel. Highhouse and Hoffman (2001) further expanded on this process to include signals, cues, and heuristics. Signals are the messages organizations attempt to send, cues are the factors employees detect, and heuristics are the cognitive rules of thumb employees use to make sense of the cues.

Arguably, organizations attempt to send signals of support to all of their employees. The interpretation of support-related cues, however, could vary across groups. For instance, cues indicating the organization’s stance on diversity could precipitate racial or ethnic differences in interpretation because support for diversity is aligned more closely with identity affirmation for minorities than for White employees (Ashforth & Mael, 1989). Accordingly, the former should be more apt to enlist positive heuristics for interpreting these cues, such as inferring that more support for diversity equals more support for me. Consistent with this notion, several investigations have shown organizational support for equal employment opportunity and diversity to be perceived more favorably among women and minorities, relative to their White male counterparts (e.g., Konrad & Linnehan, 1995b; Parker, Baltes, & Christiansen, 1997).

Taking this argument one step further, research has shown psychological contract expectations to differ for minority and majority employees. A psychological contract is the implicit set of reciprocal obligations between an employee and the organization (Rousseau, 1990). Essentially, employees develop a sense of what is expected of them as well as a set of expectations concerning what the organization should provide for them in exchange. Though many elements of the psychological contract are consistent across racial and ethnic groups (e.g., performance-based pay, job security, career development), there appears to be an additional set of expectations unique to minorities (Chrobot-Mason, 2003). These include factors such as minority representation, elimination of systemic bias, support for unique minority issues, and equal valuation of diverse perspectives. Thus, cues pertaining to diversity should exert disproportionately more influence on employee perceptions of support among minority employees.

4.2 Work Satisfaction and psychological empowerment enhancing organisational commitment

According to Hackman and Oldham’s job characteristics model, the five primary job characteristics of skill variety, task identity, task significance, autonomy, and feedback have impacts on employees’ productivity, motivation, and satisfaction. In the organizational change process, if work characteristics can be changed and redesigned to enhance employees’ perceptions of psychological empowerment–which in turn makes them feel the meaning, impact, self-determination, and self-efficacy of their work–employees’ loyalty and commitment to their organization can be maintained.

Based on Hackman and Oldham’s job characteristics model, work redesign is defined as changes in skill variety, task identity, task significance, autonomy, and feedback. Good work performance results from an employee’s inner motivation, which can be improved by increasing work responsibility, meaning, and feedback. In a changing environment, employees’ work content and mission will become different, and the organizational structure will change. In this situation, work redesign can make employees feel that the organization has provided the necessary resources to help them deal with the stress arising from the change. Evangelista and Burke noted that corporate downsizings mean extended hours and a heavier workload for surviving employees, It is vital for managers to assess business unit obligations and internal tasks to effectively and fairly manage and balance workloads among the employees that remain after a downsizing. Engaging in work redesign is unavoidably necessary in such situations. Field experiments have provided fairly clear and consistent evidence of the effects of work redesign. In particular, studies have shown that employees perceive the changes that have been made to their jobs and express higher levels of motivation, satisfaction, or both. In addition, Mishra and Spreitzer noted that job redesign change could enhance the intrinsic quality of the remaining employees’ work, which is likely to help those employees feel better able to cope with the downsizing and increase the likelihood of more active responses to the resulting changes.

Theorists and practitioners discuss the empowerment concept from two different perspectives. First, some consider empowerment as a set of activities and practices by managers that give power, control, and authority to subordinates. In an environment characterized by intense competition and new technology, many top managers believe that giving up centralized control will promote speed, flexibility, and decisiveness in employees’ actions. In this regard, empowerment means an organization ensures that (1) employees receive information about organization performance, (2) employees have the knowledge and skills to contribute to achieving the organi


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