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The contents of a psychological contract are determined by the individual and the relationship built between them and their employer. New graduates entering the workforce and those in the Millennial generation have higher expectations of implicit obligations than those of their older colleagues. Studies and surveys done throughout America and India reveal that the perceived commitments of psychological contracts involve long-term job security, promotion opportunities, and career development. These studies also explain the performance-related implications when an employer is fulfilling perceived obligations versus when they are not fulfilling perceived obligations. A study published in 2015 reports on post-breach resolutions and how they can affect employees’ work performance and loyalty.
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A psychological contract is an implicit agreement between the individual and the organization that specifies what each party is expected to give and receive in the relationship. It is not formally written in a letter of offer or employment contract. A breach of the psychological contract can be done by the employee or the organization. A violation occurs when one party in the relationship perceives the other has failed to fulfil the promised obligation(s). Psychological contract breaches are more intense than unmet expectations in that they cause a feeling of having been wronged (Peirce et al 2012). In a survey performed by Denise M. Rousseau, 224 graduating MBA students were asked what they believed their new employers’ implicit obligations to them were and the responses are as follows: promotions, high paying salary, pay based on current level of performance, training, long-term job security, career development, and support with personal problems. Obligations owed to the organization included: working extra hours, loyalty, volunteering to do non-required tasks on the job, willingness to accept a transfer, refusal to support the employer’s competitors, protection of proprietary information, and spending a minimum of two years in the organization (Rousseau 1990).
Psychological contracts are grounded in equity theory. Equity theory is a social exchange process approach to motivation that focuses on the interaction between an individual and the environment, this theory is concerned with the social processes that influence motivation and behaviour (Nelson & Quick 2019). Equity expectations are based on a balance of employee’s inputs like hard work and skill level, and an organization’s outputs like salary, benefits, and recognition. These expectations are less precise as they are derived from social cues and an individual’s standard of fairness. Inequities can generally be rectified, but perceived breaches of psychological contracts are not easily corrected (Peirce et al 2012).
Psychological contracts can be broken down into two categories; transactional obligations and relational obligations. These obligations represent opposite ends of the psychological contract spectrum. Transactional obligations are very basic obligations in that they consist of contractual fulfillment between the employee and organization, but also include perceived obligations like high pay and career advancement in exchange for hard work. Relational obligations involve higher expectations like job security and promotion opportunities in exchange for loyalty, long working hours and a minimum length of stay. For example, if an employee expects interesting work, but then finds the job to be lacklustre, they may be disappointed but do not necessarily feel that a promise has been broken. However, when a perceived obligation, transactional or relational, is unmet, a more emotional reaction will likely result (Rousseau 1990).
In a study done by Pant and Venkateswaran on the Millennial generation working in India, it was found that this generation born between the years 1981-1996 is more global, diverse, virtual, and hold different expectations than their older colleagues in the workforce. With a generation that makes up 25% of the world population, it is important to understand the perceived obligations and psychological contracts that are formed revised throughout their careers (Pant & Venkateswaran 2019). The psychological contracts surveyed by over 1,000 information technology employees reveal that the Millennial generation has a significant interest in training, development, and career advancement. This study finds that senior leadership in organizations are facing many challenges in retaining these workers. Senior leadership needs to meet the expectations of these psychological contracts because employees of this generation change loyalty very quickly if they feel wronged, usually only staying in one organization for two-three years (Pant & Venkateswaran 2019). Pant and Venkateswaran identify a sizeable difference between how employees feel and behave when they are perceived to be in favour or out of favour with the organization. Employees who are perceived to be identified as talented (or in favour) show more commitment to increasing performance demands and developing skills that are valuable to the organization. These employees show organizational citizenship behaviour- behaviour that is above and beyond the call of duty (Nelson & Quick 2019) and are more likely to help their co-workers, support strategic priorities, refrain from complaining, and have low turnover intent compared to the employees who are in the non-talent segment (out of favour) (Pant & Venkateswaran 2019). When employees become part of the valued talent segment their psychological contract expectations are revised and their attitude becomes more positive. Those that find themselves out of favour with management feel their voices are unheard, have low support, and report unfairness (Pant & Venkateswaran 2019). If psychological contract breaches can be resolved and employees feel they are in favour with the organization, their organizational citizenship behaviour improves, making the workplace more positive and job satisfaction rise.
An employee’s perception that the organization has failed to fulfil implicit obligations associated with perceived mutual promises is called a psychological contract breach. A breach of the psychological contract is different from unmet expectations and perceptions of inequity (Robinson & Rousseau 1994). A perceived breach of a psychological contract can alter an employee’s performance and commitment to an organization as well as lead the employee to consider leaving or to leave an organization. If an employer is unable to fulfil employees’ psychological contracts and expectations, it impacts their performance, attendance, productivity, in-role duties, loyalty and intention to stay. When organizations can fulfil psychological contracts, it promotes innovative behaviour, loyalty, obedience and greater participation (Pant & Venkateswaran 2019). Psychological contract breaches are, unfortunately, the rule and not the exception in workforces around the globe. A study among management graduates in the United States (surveyed once at graduation and once 2 years later) presented that 54.8% of respondents reported having psychological contracts violated by their employers (Rousseau 1990). A study done in the Pharmaceutical industry reveals that psychological contract breaches are more frequent and intense in organizations that are downsizing or restructuring (Peirce et al, 2012).
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Scholars in the U.K. have done the first study on post-breach reactions and violation resolution and report that highly successful resolution of the breach will result in either psychological contract thriving or reactivation. Psychological contract thriving is a post-breach result in which the relationship between employee and employer has improved and has developed into a beneficial relationship. Reactivation is then the post-breach contract returns to the same expectations of the pre-breach contract. Omar Solinger and colleagues state that a, “less successful resolution will result in either psychological contract impairment or dissolution”. Impairment refers to a scenario where the contract post-breach isn’t as appealing and there is some discourse in the employee and employer relationship compared to the pre-breach contract. Finally, psychological contract dissolution is the disintegration of the relationship between employee and employer and a result in which the employee can no longer depend on the contract to decide their value with the organization (Solinger et al 2019).
The findings of multiple studies highlighted throughout this essay reveal that psychological contract violations are common in the workplace and the severity of the breach can determine if the employee continues to provide hard work and loyalty, or not. Solinger and his colleagues revealed that there can be resolve after a contract breach and that positive outcomes rely on how the organization handles the incident as well as how severely the employee feels the breach impacted their trusting relationship with the employer.
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