A psychological contract refers to beliefs, expectations, values, and ideals shared between an employer and his or her employees (Dyck & Rule 2008).
The contract, which exists in notional form, delineates the practicalities of the job including the duties and responsibilities of the job, worker-manager relationships, and the expectations of both the employer and employee from the job. Essentially, a psychological contract is about employer and employee expectations regarding the job assigned to the employee.
Dimensions of a Psychological Contract
There are two key aspects of a psychological contract; transactional and relational (Conway & Rob 2005).
Transactional Aspect
The transactional side of a psychological contract relates to economic or monetary matters. Employees expect to be remunerated fairly for their work while employers require employees to meet certain performance standards.
Failure by the employer to compensate employees in accordance with their performance will constitute violation of the psychological contract. Similarly, failure to meet the set performance standards or improper acts on the part of the employee is a breach of the psychological contract and may attract punishment from the employer (Conway & Rob 2005).
Relational Aspect
The relational part of the contract concerns the social and emotional issues at the workplace. The employee expects a favorable emotional and social environment at the workplace and so does the employer.
The relational side of a psychological contract is manifested through a sense of mutual respect, values, and a healthy interpersonal relationship between the employer and employee (Conway & Rob 2005). The relational part of a psychological contract is, therefore, about the wellbeing of the relationship between the employer and the employee.
Development of Psychological Contract
The actual employee rights and responsibilities arise as a result of interpersonal relations in the organization. The practical relations between a worker and his or her superiors are not governed by a legal contract but rather a psychological form of agreement (Blau 2007). Workers bargain gradually on what they should be expected to deliver in terms of productivity as well as the compensation they expect from such delivery.
Some aspects of the bargain underlying formation of a psychological contract are formal, for instance, when employees are engaged in setting performance appraisal standards.
Other aspects are usually implicit being characterized by behavioral changes between the employee and the employer. Both the explicit and implicit aspects of this bargain lead to development of mutual expectations between workers and employers thus forming a psychological contract.
Importance of a Psychological Contract
A psychological contract plays a very vital role in employee motivation. The part performed by this contract involves preventing workers dissatisfaction. Thus a psychological contract is more of a hygiene factor in employee motivation (Cullinane & Dundon 2006). To start with, the contract helps employees to predict the rewards they would receive on achieving certain level of performance.
This gives workers the feeling that they can determine their performance making them more productive. Ability to predict rewards also helps employees to reduce stress and in the development of trust.
Other significant functions of a psychological contract include: building worker loyalty and commitment to the organization, creating a sense of belonging among employees, ensuring that workers are compensated fairly, and that the levels of responsibility given to each worker are reasonable. All these factors are necessary to the achievement of sustained high organizational performance.
Violation of the Psychological Contract
Violation of the psychological contract usually results in negative behavior from the aggrieved party (Foa & Foa 2004). For example, an employee may lower his or her productivity, devotion, or commitment to organization goals.
Employers, on their part, may respond to the breach by reducing compensation, their recognition for a particular employee or group of employees, etc. Thus, both parties will be expected to react unfavorably to a breach of the contract.
References
Blau, P 2007, Exchange and power in social life, New York, Wiley.
Conway, N & Rob, B 2005, Understanding Psychological Contracts at Work: A Critical Evaluation of Theory and Research, Oxford, Oxford University Press.
Cullinane, N & Dundon, 2006, “The psychological contract: a critical review”, International Journal of Management Reviews, vol. 8 no. 2, pp. 113–129.
Dyck, R & Rule, B 2008, ‘‘Effect on retaliation of causal attributions concerning attack’’, Journal of Personality and Social Psychology, vol. 36 no. 1, pp. 521–529.
Foa, B & Foa, U 2004, Societal structures of the mind, Springfield, Charle Thomas.