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Psychological Contracts Introduction There has been a significant movement towards increasing the performance of the human resource (HR) within a business, since the 18th century industrial revolution. The concentration of factors of production created a need to understand the factors that influence the productivity of policy and procedure. This need for performance enhancement has remained a driving force behind the generation of new HR policies. The insights created from compounding numerous research materials has allowed well informed HR managers, to alter internal environments that then becomes more favourable to both employers, who gain performance, and employees, who gain benefits. Psychological contracts (PC’s) are just one of the many insights generated through extensive research into the human resource. It was realised that employees held ideas about the context of their employment, even when these ideas were not accepted or even known to employers. By understanding the type of perceptions individuals within the organisation have, managers can maintain long term exchange relationships with employees. Moreover, management can reduce the amount of damage these perceptions receive through changes to human resources policy, thus maintain the trust, morale and productivity benefits PC’s create. The Psychological Contract A PC establishes both employers and employees have responsibilities to each other, according to the beliefs established by the organisation. The employee then depends on these beliefs and has faith that the employer will honour this agreement. The first establishment of these ideas is during the recruitment and selection process, more specifically, the orientation process. The expectations an individual develops during this process will be then modified through observing the social environment, and HR policies. The reason this is called a ‘contract’ is because there are elements of it shared with contract law. In the case of PC’s, however, the consideration (also known as the payment) is opportunities forgone or accepting employment. This is given up in exchange for promises the employer makes, such as job enrichment and mentoring programs. The employee therefore believes that these will be undertaken by the organisation at a later date, and as long as this contract stays true, the employee will have a greater affinity to stay with the business in order to the maintain good will. It is easy to confuse PC’s with implied contracts (IC’s), for the concepts are very similar (Rousseau 1989).As stated before, a PC is purely individual perception. An IC on the other hand, are relationship based, in that both parties help create it. PC’s are more subjective, and beliefs are based in good will, reliance and in the spirit of fairness. Therefore, PC’s make up a small yet integral part of the employer employee relationship. Cognitive responses to psychological contracts Pc’s are by nature extremely subjective, for the individual perceives not only the contributions of themselves, but of the organisation as well. This means that the obligations that were originally established changes with the employee’s personality, as well as their perspective on the employment situation. (Taliman and Bruning 2008) Two suggested perspectives on how individuals may respond to their situation over time are the instrumental and norm of reciprocity views. The instrumental view, which was confirmed by Robinson (Robinson, Kraatz et al. 1994), is the mentality that the longer an employee is bound to an organisation, the more their obligations decrease. The rationale behind this is that staying within the organisation is convenient for employers, and therefore contributes to the consideration paid. This consideration must therefore be counteracted by the employer’s obligations, such as job security and enrichment programs. The norm of reciprocity view is one that is supported within older literature (Blau, 1964; Homans, 1961; Thibaut & Kelley, 1959 as cited in Robinson, Kraatz et al. 1994). This suggests that over time, the amount of responsibilities and obligations for both parties, increased over the length of employment. This was attributed to the fact that the employee would perceive owe the organisation, and thus responded by increasing their performance to pay for the perceived debt. The organisation, in turn, would then recognise this increase in performance and fulfilment of obligations as a reason to further expand its obligations to the individual. This would therefore develop an organisational norm to constantly improve an individual in order to maintain the PC. Alternatively, it can be seen that responsibilities would increases automatically as the length of employment does, as good will is developed. When predicating behaviour, and in this case whether an employee will lean towards an instrumental or norm of reciprocity view, organisations generally turn to demographics or career stage differences to make generalisations (Hess and Jepsen 2008). However, found that although these variables influence the overall decision, they do so only marginally, and should not be depended on. Therefore, an organisation should either look at individuals separately, or cluster them according to their PC (Janssens, Sels et al. 2003). Types of Psychological Contracts From a management perspective, understanding the types of psychological contracts not only aid comprehension, but also increases the predictability of responses to violations and amendments. The first suggested typologies divided contracts depending on duration, and are referred to as transactional and relational contracts (Rousseau 1990). Transactional PC’s, as the name suggests, deal with transactions of money, and are therefore are precise and financially based. They are generally adapted in the course of short term contracts, such as the recruitment of highly skilled or non-essential contractors. These contracts therefore lack expectations in terms of the social aspects of a contract due to the focus on output.(Svensson and Wolven ; Robinson, Kraatz et al. 1994; Rousseau 2004; Tipples, Krivokapic-Skoko et al. 2007; Cross, Barry et al. 2008) Relational contracts however, do have these elements. Due to the increased time frame, they are less specific in order to remain flexible as the business environment (and therefore, the business) change. This type of PC is considerably less tangible than transactional PC’s, due to the provisions that allow flexibility.(Svensson and Wolven ; Robinson, Kraatz et al. 1994; Rousseau 2004; Tipples, Krivokapic-Skoko et al. 2007; Cross, Barry et al. 2008) An alternate view to these, looks at the power of parties and the perceived level of obligation (Shore and Barksdale (1998) as cited by Janssens, Sels et al. 2003). A balanced PC is when both the individual and the organisation have an equivalent level of responsibility. From this concept, however, four new typologies are developed. A mutual high obligations PC, is one where both the individual and the organisation have many obligations to each other, and are quite intricately woven together. Due to the complexity there is an increase in communication and generally speaking, satisfaction. In contrast to this, there is the mutual low obligations configuration, which is generally found when the task at hand is simple. There is little social dynamics in this relationship, and both parties have minimal obligations to each other. The next two types discuss a lack of balance, or inequality between the employer and employee. The employee under-obligation and employee over-obligation occurs when the reciprocal relationship, for whatever reason, is imbalanced due to an external factor. One example of this in literature is in Mexico where, jobs generally contain high job security due to past economic history and the subsequent laws(Davila and Elvira 2007). There is therefore an imbalance in the power in this situation, and employers turn to performance appraisal systems to maintain the PC’s. These systems, which can be used for PC management, were not created to take into account this unique situation, and therefore are not as effective as it otherwise would be. Violations of Psychological Contracts Due to the subjective nature of PC’s and the development of HR practices geared at performance enhancement, there has been a need to manage these contracts and the social cohesion they bring. However, psychological contracts are amended through the implementation of strategic and human resources policy. These changes to the PC, if unacceptable, can lead to perceived violations which in turn can cause problems within the organisation. From the individual’s perspective, a PC reflects the organisations view of the employee, in that the organisation continues to maintain its obligations as long as the individual reciprocates. However, organisational policies such as downsizing causes mistrust within the employer-employee relationship. There is a violation in the perception of security in exchange for long term performance, and this decreases moral within the business (Min Soo and Jin Nam). Min Soo and Jin Nam went on to say that the employee experiences an ordeal that causes them to mistrust the next employer due to the hardship faced after trusting a previous organisation and this should be taken into consideration by recruitment and selection staff. The fulfilment of PC’s are reflected in the performance appraisal and evaluation systems within an organisation (Davila and Elvira 2007). As an individual performs, they are expected to be rewarded with the promised training and monetary bonuses. Davila and Elvira found that a lack of transparency with these systems creates a lack of justification for withholding these promises. However, as stated before, organisations in Mexico are in a unique position, and therefore must rely on these systems as a way of communicating fulfilled expectations.These managers have also adapted to use feedback interviews to maintain positive relations with employees as well as modify current PC’s and discuss any violations. They have found, however, that violations are shared amongst peer groups, thus reducing the effectiveness of management methods. Violations ultimately lead to higher turnover and reduced performance (Adams, 1965 cited in (Rousseau 1989), hence why PC’s need to be maintained, and taken into consideration when formulating HR policy which indirectly amends them. PC’s and Formulating Human Resource Policy Evidently, PC’s alter an individual’s perspective and if a violation occurs, then the damage to the overall relationship between individuals and organisations becomes significant. According to Davila and Elvira, PC’s are not considered by organisations when developing and implementing HR policy. The rationale behind this is that HR has become geared towards performance enhancement, and therefore, the policies formulated reflect that.  The policies may then violate an individual’s perception, leading to a violation. Unfortunately, an organisation only becomes aware of the violation after it has occurred, and the policies have been completely adopted. Moreover, the violations have been linked to negative behavioural changes, more specifically increasing staff turnover or decreases in performance.Significant violations send shockwaves into the businesses social environment, and not only increase the effect of a single violation, but decrease the effectiveness of maintenance procedures. (Rousseau 1989; Rousseau 1990; Rousseau 2004; Davila and Elvira 2007) Conclusion Psychological contracts are multifactorial belief systems that establish a relation between organisations and individuals. Although organisations can influence beliefs, they technically do not create the final outcome. Despite this, organisations need to be aware that certain types of PC’s exist, and that they must be managed correctly as the business environment dictates. There are negative consequences for not doing so and therefore management should keep in mind the theoretical basis discussed in order to keep violations to a minimum. Management should also recognise that PC’s are established during the recruitment and selection process, and providing realistic job previews and expectations will positively impact on morale over time. Bibliography Cross, C., G. Barry, et al. (2008). "The Psychological Contract in Call Centres: An Employee Perspective." Journal of Industrial Relations 50(2): 229-242. Davila, A. and M. M. Elvira (2007). "Psychological contracts and performance management in Mexico." International Journal of Manpower 28(5): 384-402. Hess, N. and D. M. Jepsen (2008). "THE PSYCHOLOGICAL CONTRACT: INVESTIGATION OF GENERATIONAL AND CAREER STAGE DIFFERENCES." Academy of Management Proceedings: 1-6. Janssens, M., L. Sels, et al. (2003). "Multiple types of psychological contracts: A six-cluster solution." Human Relations 56(11): 1349-1378. 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