PSYCHOLOGICAL CONTRACTING: Is it still an important organisational phenomenon?

Current business environments are testing the relevance of the traditional psychological contract between employees and organisations. Commitment,, previously the cornerstones of many psychological contracts, is diminishing in importance as organisations pursue increasingly transactional relationships with employees and as employees move towards ‘protean’ careers. The question of whether these more self-serving organisational and personal strategies diminish the importance of the ‘psychological contract’ is addressed. The paper concludes, firstly, that such contracts continue to make an important contribution to organisational relationships but that organisations must seek ways of adjusting the terms of such contracts to meet the needs of an increasingly mobile and protean workforce. A second conclusion is that the psychological contract can play an important part in creating the ‘agile’ enterprise. WHAT IS THE PSYCHOLOGICAL CONTRACT? The employment relationship can be described as an exchange relationship (Mowday, Porter, and Steers, 1982), which runs the entire contract spectrum from strictly legal to purely psychological (Spindler, 1994). Many aspects of the relationship between an organisation and its employees are covered by legislation, enterprise agreements or an employment contract signed by the employee detailing aspects such as hours, salary and benefit plans. However, there are always likely to be aspects of the employment relationship which are confined to the subconscious (Spindler, 1994). This ‘hidden’ aspect of the employment exchange (Eisenberger, Huntington, Hutchison, and Sowa, 1986; Greenberg, 1990) has come to be known as the psychological contract (Argyris, 1960; Schein, 1980; Rousseau, 1989). The psychological contract can be described as the set of expectations held by the individual employee which specifies what the individual and the organisation expect to give to and receive from each other in the course of their working relationship (Sims, 1994). As such, psychological contracts form an important component of the relationship between employees and their organisations. Psychological contracts differ from other types of contracts not only because of the innumerable number of items they may contain but also because the employee and the employer may have differing expectations in respect to the employment relationship. Few items which make up the psychological contract are likely to have been specifically discussed so most items are only inferred and are subject to change as both individual and organisational expectations change (Goddard 1984; Rousseau 1990; Sims 1990; 1991; 1992). Whilst the individual employee believes in a specific type of psychological contract or reciprocal exchange agreement, members of the organisation may not share the employee’s understanding of the contract (Rousseau and McLean Parks 1993) Based on a wide range of relevant literature Maguire (2001) developed a three-tier model of the psychological contract (Figure 1). The model proposes that, at the most basic level, employees were assumed to contribute reasonable levels of pressure and responsibility, incorporating reasonable hours, manageable workload, moderate levels of stress, appropriate autonomy, reasonable span of control, manageable range of duties and appropriate responsibility in return for appropriate levels of rewards eg appropriate level of pay, suitable working conditions, job satisfaction and the opportunity to demonstrate competence. This aspect of the psychological contract is referred to as the transactional component (Rousseau and Wade-Benzoni, 1994). Figure 1: 3-tier model of the psychological contract Transactional Aspects (Effort-exchange) Career Aspects Relational Aspects Commitment to job Commitment to section/department Commitment to organisation Career path with internal labour market Education and training to increase employability Reasonable levels of Appropriate levels of Rewards eg Pay, Working Conditions, Job Satisfaction, Opportunity to demonstrate competence Pressure and Responsibility eg Hours, Workload, Stress Autonomy, Span of Control, Range of Duties, Responsibility Competent management Sense of belonging Opportunity for input Loyalty Trust in management EMPLOYEE CONTRIBUTES EMPLOYER CONTRIBUTES The second tier of the psychological contract – career aspects – refers to the exchange of commitment (to the job, their branch/department, and to the organisation and its goals) on behalf of the employee in return for a career path within an internal labour market (if applicable) and/or education and training to increase employability. The third tier of the psychological contract model incorporates the relational aspects of the contract. The model proposes that employees would, at the relational level, contribute loyalty and trust in management in return for competent management, the opportunity for input into decisionmaking and a work culture that provided a sense of belonging. The relevant importance of the various tiers of the psychological contract will depend to some extent on the type of work the employee carries out and the position held by the employee in the organisational hierarchy.