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Module-2: The Psychological Contract

Psychological contract refers to mutual unwritten expectations that exist betweenan employee and his/her employer regarding polices and practices in their organization. Psychological contract influences the job attitudes and performanceof employees. Psychological contract has now become an accepted part of thethinking and vocabulary of human resource practitioners. Relationships betweenemployers and employees in many modern organizations resemble a marriageunder stress, characterized by poor communication and low levels of trust.

either is getting the full benefits from the employment relationship which has to be a top priority for organizations. !etting people to turn up for work is the easy bit. !etting them to go the extra mile re"uires effort and imagination. #mployersshould be looking to generate passion and enthusiasm and to make work a happier experience for all their employees. $his can be achieved by building a positive

psychological contract which results in good employment relationships.

%n the new people&economy, organizations cannot survive unless they have theright kind of knowledge. %t is people who drive organizations to success or failure.People as a resource have gained a paramount importance as reflected in most of the annual reports and comments from '#(s. $his turnaround in attitude is

because access to other resources is no longer limited. 'apital flows freely across

borders) technology is available at a price to '#(s who cannot develop it) rawmaterial is free to be transported across the globe) and information is available toany hitchhiker on the digital highway. !lobalization has created an all&important"uality standard. $he world economy has increasingly become service&oriented.

People who can bring practical knowledge to corporations and manageinformation are really scarce today. $hey represent the mew individualism whichis displacing the traditional collectivistic perspective. $hey are becomingincreasingly valuable. *uch people are most conspicuous in the informationtechnology field in %ndia. $hey look upon their employment as a challenge toeffectively apply their uni"ue knowledge to their workplace. $heir redefined roleshave caused drastic changes in their expectations from the organization and viceversa.

+nowledge assets contributed by such employees promote continuous innovation,originality of service, anticipating customer needs and leveraging allorganizational capabilities. +nowledge assets constitute the core competence for

coping with change. %ndividual knowledge has become the starting point for organizational knowledge. undamentally, people spread knowledge resources

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across the company. %t is people who convert knowledge into powerful activities.*ince the knowledge pool of individuals cannot be replicated, the organizationshould respect and manage their expectations.

Understanding Psychological Contract

$he psychological contract refers to mutual unwritten expectations that exist between an employee and his/her employer regarding polices and practices in theorganization. -rgyris 0123first referred to the psychological contract only in

passing as the relationship between the organization and employees.

Psychological contracts are dynamic, constantly evolving through organizational

experiences. $hey basically highlight individuals4 belief structures of what isexpected to occur in the organization and what is expected of them. $hey providea sense of control and can influence employees4 future in an organization, sinceemployees are a party to the contract and can opt to carry out their obligations. %tincreases the certainty by creating in employees& a sense of predictability jobsecurity and control. %t revolves around the e"uity perception of the effort&rewardrelationship thus focusing on reciprocity.

$he strength of the psychological contract depends on how fair the individual believes the organization is in fulfilling its perceived obligations above and beyond the formal written contract of employment. $his in turn determinesindividual4s commitment to the organization and his/her motivation, jobsatisfaction and extent of feeling secure in the jobs. %t leads to positive attitudesand a high level of commitment.

$he concept of psychological contract addresses those relationships that are veryhard to define clearly in a formal employment contract such as5 knowledge and

skills development one4s work and motivation, relationships with one4s boss andco&workers, the role one is expected to fulfill, the ethical code by which theemployee and the organization will act, the support one can expect from theorganization and vice versa and so on.

Psychological contracts are voluntary commitments that limit one4s future action.$hey are open ended and need to be flexible enough to accommodate changeswithout breaking. %t is observed that potential employees can enter into

employment relationships with dramatically opposing views of one another4srights. $he traditional psychological contract provides a clear contract and reduces

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uncertainty for employee with reference to jobs. $he contract was forthright andexisted in stable and unchanging environments that were certain of growth.

$raditional employment contracts which guaranteed a job for life with regular promotion and good career prospects in return to loyalty and hard work are becoming increasingly rare. - different type of workforce is emerging which ismade up of core employees along with subcontractors, consultants, part time andtemporary employees. %ncreasingly people are re"uired to take charge of their own careers, instead of replying on organizations to provide them with a clearlydefined career path. 'appelli 0003 describes this as new deal and believes thatthese changes have come about because of the changes in working conditions asoutlined above. ew management techni"ues have also emerged to deal withchanging work environment.

%n the light of this shift from organizational career to self&managed career one of the crucial challenges is to create and maintain a more viable relationship betweenemployer and employee. - major element of this relationship is the psychologicalcontract.