Changing Nature Of The Psychological Contract Management Essay

The mutual expectations people have from one another in a relationship of employer – employees are commonly referred to as a psychological contract. The content of these contracts can be changed over time and can affect the behavior of the two. The origins of these psychological contracts go beyond thousands of years back. Amidah (1998) was one of the initial writers who used the term psychological contract as the mutual understanding between employees and their employers.

The psychological contract between employers and employees related to job security has been facing changes due to the economic down grading. The increasing rates of short term and contractual employment have forced employees to seek self – actualization sort of psychological contracts.

The changing nature of psychological contracts of generation Y has certain implications on organizations which have always been interested in having workforce committed to the organizational goals and objectives.

According to recent literature, psychological contract is an individual’s beliefs necessary to perform commitment that may exist between the employee and the organization (Lester, 2002). Individuals’ perception and expectations from the organization in terms of receiving benefits, wages and opportunities against the services provided to the organization by the employee used to form the foundation of any psychological contract (Lester, Turnley 2002). The inherent perceptual nature of the psychological contract between employers and employees may have contrasting implication about obligations of the contract (Lester and Kickul, 2001).

Nowadays companies are more focused on the achievement of corporate goals and profit margins while noticing stock market prices because of the competitive business environment all around the world (De Meuse, Bergmann et. Al., 2001). This is because of the fact that the world has seen the problem of corporate downsizing, restructuring and mergers since 1980s and 1990s (De Meuse, Bergmann et. al 2001).

This current scenario of doing business has absolutely changed the nature of employee and employer contract and the demand of this relationship. In the past, these psychological contracts were of long term where employees were committed with an organization where they continued to learn as well as they got high job ranking but now the psychology of the contract has seen changing nature because of the availability of short term employment with upscale designation for technical and professionals workers (Smithson and Lewis, 2000, Lester and Kickul, 2001). Hiring of high skilled professional(s) for a specific task completion is one of the emerging trends in the business community (Lester and Kickul, 2001) and consequent termination of the staff with the attainment of work objectives. This phenomena has made the modern workplace a source of stress and extra work load and job insecurity and decreased commitment to organizational goals and objectives in return (De Meuse, Bergmann et. al).

The need of personal growth, development of transferable skills, networking opportunities and career management for immediate job has been gaining potential among professionals due to the current scenarios of job insecurity (De Meuse, Bergmann, 2001, Lester and Kickul, 2001).

The changing environment of employment has considered another driver of the change in nature of psychological contracts of generation Y. The previous employees to employer psychological contracts were relational in nature and their specific features were trust, respect and loyalty between the employee and the employer, but, this new insecure job environment has randomly changed the nature of the psychological contract from relational to transactional nature.

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This transactional exchange has been defined by De Meuse and Begmann (2001) as “an explicit or an implicit promise having the capacity of maintaining information about monetary remuneration available to employee against his services to the organization”. This periodical change in nature of the psychological contract was predicted by Rousseau and Parks in a research conducted during 1993 with an explanation of change in the nature of contract from relational to transactional in case of occurrence of any violation of the contract.

However, it is important to maintain the equilibrium of trust between the employee and the employer either in relational psychological contract or in transactional psychological contract, but, in the present situation of job insecurity it is hard to have any trust on the employer or employee. Therefore, the lack of job security has brought the concentration of employees to acquire transferable skills and techniques and contracts of transactional type (De Meuse, Bergmann et al).

Impacts of the changing nature of the psychological contract of generation Y on organizations

With the emergence of new markets, competitors and technologies have been increasingly changing the behavior of organizations towards the hiring of skilled and well trained employees at every level of the organization (Lester and Kickul, 2001). Businesses of today are only selecting skillful employees for short term periods to make their projects accomplished by utilizing the skills and expertise of professionals (Lester and Kickul, 2001). It is because of the use of new technologies in business processes and to get a competitive edge in the market. To achieve this desired level, organizations have to keep track of professionals and motivated and committed workforce to efficiently achieve their goals.

It has been studied that the changing nature of psychological contracts is because of the reducing commitment of employees due to job insecurity and enhanced competition faced by today’s employers (Bunderson 2001, Lester and Kickul, 2001). However, high level of commitment and satisfaction is enjoyed by employees who have long term psychological contract as per studies conducted during 1998.

There are certain measures that should be taken by the organization to retain and motivate their employees even on the presence of economic pressure and new organizational structure (Lester and Kickul, 2001). The level can be achieved by just understanding the elements of psychological contracts as well as the fact that it is an evolving and continually changing contract and organizations have the right of making a choice regarding an employee to get committed and motivated workforce and employment.

According to Maslow’s hierarchy theory, the highest need for humans is self-actualization. Lester and Kickul (2001) states that today employees are becoming “increasingly aware of the non-monetary rewards which the firms are willing to provide” in exchange for their skills. It entails that employees have now reached at a certain point in time; where they’re able to seek out the self-actualization.

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Self-esteem or self – actualization is the highest need of humans as stated by Maslow’s hierarchy theory. Employees are increasingly getting awareness of the behavior of organizations of giving non-monetary rewards to employees against the skills of professionals and technical persons (Lester, Kickul, 2001). This is the time when it can be suggested that employees are gradually heeding towards the state of self – actualization.

Stalker (2000) stated that successful companies of the day are keeping balance between the needs of the employee and the needs of the organization. To achieve this, companies are needed to maintain a balance between their efforts and time investment. Managers are responsible to achieve this balance while keeping the workforce committed and motivated (Lester, Turnleyet, al., 2002).

It is a fact that nowadays job insecurity has made psychological contracts a dynamic and evolving one and can be handled by the organization by just understanding the causes of changes and timely changes in the contract according to the needs and demand of the sources (Lester and Kickul, 2001). Lester and Kickul (2001) shows that a “proactive approach to the psychological contracts can reduce employees’ intentions to leave” since their needs can be fulfilled by the organization.

The other step that can be an effective support to minimize the gap of the psychological contract is communication. Better and timely communication between the contracting bodies can reduce the conflict and can reduce the gap of psychological contracts (Lester and Kickul, 2001). Open book management techniques are an effective communication tool between the organization and employees and help in the formation of an effective communication frameworkfor the organizations.

Successful organizations are required to startworking on the psychological contract before the hiring of the employee. The organizations’ ‘publications, interview processes, contract negotiation and orientation processes are some of the ways that can help organizations to make better changes in the psychological contract and keep it up to date (Niehoff and Paul 2001).

Organizations’ literature and publications create the first impression of all the values espoused by the employers. The interview process then helps in establishing the image of the organization for potential employees (Niehoff, Paul, 2001), while promoting expectations ranging from the tangibles such as pay and benefits, to the intangibles such as “treatment of employees or degree of empowerment” etc (Niehoff, Paul, 2001). As suggested by Niehoff and Paul (2001), by providing Realistic Job Previews like Cisco Systems (Lester and Kickul, 2001), candidates can be given a realistic and clear view of the actual expectations of the work hours, duties and performance levels (Niehoff and Paul, 2001). The negotiation process (after an offer is made to a candidate) provides a further opportunity to clarify the specific details regarding the expectations of both parties (Niehoff, Paul, 2001). Finally, the orientation program gives an opportunity to re-enforce the psychological contract which has been formed. Once all of these are in line with each other and also in line with the company’s expectations, the company can form a contract that is expected to be clearly understood by both parties and has less chances of being breached.

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Changed psychological contract is the demand of the modern economic environment. It is the demand of both the organization and employees. The psychological contracts of generation Y are more transactional and related to self – actualization. This change in the nature of the contract has been considered by the management of an organization and employees with the increasing demand of giving more time and effort in the formation of the psychological contract acceptable to the organization and employees.

As it has been seen that psychological contracts are formed on the basis of trust, but it can be strengthened by the two following factors:

Internal factors

External factors

Internal factors can be the individual’s perception that can be the outcome of his or her cultural behavior, but external factors include situations that how organizations are shaping their policies in the interest of employees and how much they are acknowledging the perceived obligations according to the formal contract of employment with those professionals or skilled technicians. These measures can be used to determine the commitment of employees to the organizational goals and objectives and any violations can lead to the job – satisfaction depletions actions. However, the choice to be in the employment contract can be up to individual employee. The long lasting employer to employee relationship can only be possible if there is a strong build up credibility between employer and employee. This credibility can give the contract more and more reliance and can be effective to build up a long lasting relationship. Psychological contract will remain strong till the time they remain in favor of the employee’s orientation towards life and can be the source of strong commitment of individuals to be or not to be part of an organization. But with the change and any amendments in organizational structure, strategy and the job role, the individual can shift to new works and job roles and this new work role can be the source of better return on relationship (ROR) than on return on investment (ROI). Strong and reliable psychological contract can provide the organization with a healthy and fruitful relationship between the employee and employer that would be helpful in the sustainability of the organization. Whatsoever it can be better concluded in a way that the changing nature of the psychological contract of generation Y is only the result of changing nature of job environment and increasing insecurity to jobs, therefore, employees have transformed their interest from signing relational contract to transactional contract. This transformation of contract nature has caused the organization to bear the loss of committed and loyal workforce for a long period of time on one hand while getting the benefit of having highly skilled professionals for the completion of their project within a short period of time.

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