Influence of Psychological Contract Breach on Organizational Commitment

The research is designed to examine the influence of perception of psychological contract breach on organizational commitment of employees. The study was carried out on 85 junior level executives working in private banks in North Delhi. Data were gathered on standard questionnaire using convenience sampling method. Psychological contract breach was measured by using scale developed by Knights and Kennedy (2005) and organizational commitment by Allen and Meyer ((1996). Correlation and multiple regressions were used to analyze the obtained data. Result revealed that perception of breach of psychological contract significantly predicts organizational commitment of employees. Result also revealed that employees experienced psychological contract breach at moderate level. The findings have implication for the management that management should focus on the areas of employee’s psychological contract so that employee should not feel a breach in it. Otherwise perception of breach may lower their commitment towards their organization which in turn may affect their performance negatively.

Key Words: Psychological contract breach, Transactional psychological contract breach, Relational psychological contract breach, Organizational commitment.

Introduction

Employees are important assets for organizations especially for service sector organization. Much of the success of organization depends upon healthy relation between employer and employee. Nature of employment relation is changing with the fast changes in the business environment. Current employment trends, characterised by an increase in short-term employment contracts and a loss of job security have resulted in a redefinition of career expectations and of the nature of the employment relationship (Millward and Brewerton, 1999; Kabanoff, Jimmieson and Lewis, 2000; Lawler, 2005). One important aspects of the employment relationship in modern business is psychological in nature, which is based on the perceived expectations and obligations and this drive employee’s job behaviour significantly. The nature of psychological can have a strong influence on organisational outcomes (Rousseau, 1989).

During the past decade, Indian banking sector had under gone rapid and striking changes in terms of structure and functions. Increased internal and external competition, uncertainty in business environment, economic upheavals, downsizing, introduction of technology etc. have affected the banking sector. Banks are focusing on innovation, growth, value creation etc. which depends on employee’s contribution as well. Human resources have significant bearing on the proficiency, profitability, growth and overall organizational effectiveness. This accelerates the need to understand the employee’s attitude and behaviour properly. Employee’s attitude such as organizational commitment can have imperative on the further growth of the sector.

Psychological contract breach has been the issue of research since last few years but much of the researches have been undertaken in western economies. Very few researches have been conducted in eastern economies especially in Indian context on this issue. Being a growing economy and especially the banking sector, it is necessary to understand the employee’s attitude in the perspective of contract breach. The present study is a modest attempt to increase our understanding on the impact of employee’s psychological contract breach on their organizational commitment.

Psychological Contract and Breach

In employment relationship, employee and employer develop certain expectations and obligations towards each other which go beyond the explicitly stated expectations and obligations. Some form of exchange occurs between parties in an employment relationship (Hecker and Grimmer, 2006), and that the nature of the exchange process can have a strong influence on organisational outcomes and lays the solid foundation of employment relationship (Rousseau, 1989). It affects employee’s attitude in organization.

Psychological contract is a set of individual beliefs or perceptions regarding reciprocal obligations between the employee and the organisation (Robinson, Kraatz, and Rousseau, 1994; Wolfe Morrison and Robinson, 1997). Some of the obligations are recorded in the form of a written formal contract of employment, but largely they are implied and not openly discussed (Anderson and Schalk, 1998). For example, the employee has expectations to provide training and career progression opportunities, to recognise innovation and new ideas, to give feedback on performance, to making interesting and challenging work available, to respectful treatment, to reasonable job security and to a pleasant and safe working environment etc. In return, the employer expects the employee to be willing to work extra hours, loyalty towards organisation, upholding the employer’s reputation, work for the growth of organization, bring innovative ideas and suggest innovative practices, being courteous to co-workers and clients etc. Classical approaches to the psychological contract have considered both the employee and the employer as the ‘parties’ involved, however recent work has focused more on the employee and their perceptions (Rousseau, 1997; Coyle-Shapiro and Kessler, 2000). The belief does not need to be agreed formally by the employee and employer; it exists based on the employee’s perception. These types of beliefs and expectations are subjective and perceptual in nature.

Two basic types of psychological contracts have been identified: relational and transactional (e.g. Rousseau, 1990; Herriot, Manning and Kidd, 1997; Anderson and Schalk, 1998; Millward and Hopkins, 1998; Millward and Brewerton, 1999). Relational contracts characterise beliefs about obligations based on exchanges of socio-emotional factors. In it employees are involved and emotionally attached with their organization which results in long term relation as well. Transactional contracts, by contrast, centre on short-term monetary agreements with little close involvement of the parties. In this type of contract employees are more concerned with compensation and personal benefit than with being good organisational citizens.

Because of its implicit nature and given the situation of organizational changes, it is possible to perceive variation in the contract fulfillment by employees. Employee may perceive that organization has failed to fulfill their part of the obligation either full or in part, called as psychological contract breach. It is defined as the perception that one’s organization has failed to fulfill one or more obligations composing one’s psychological contract (Rousseau and McLean Parks, 1993; Robinson and Rousseau, 1994; Robinson and Morrison, 1995). Some researchers have used psychological contract breach and violation as two distinct concepts, i.e. psychological contract breach is the cognitive perception of employees of unfulfilled promises. Violation is emotional reaction to the perceived psychological contract breach. However in the present study breach and violation is taken with the same connotation i.e., when employees perceive mismatch or discrepancy between the actual fulfillment of obligations by the organisation and the promise perceived regarding these obligations. Psychological contract breach can and does occur in the absence of an actual breach (i.e., whereby one party deliberately reneges on another party’s contract and that fact can be determined by a neutral third party) (Morrison and Robinson, 1997). It is an employee’s belief that a breach has occurred that affects his or her behavior and attitudes, regardless of whether that belief is valid or whether an actual breach took place. In this study, psychological contract breach is operationalized as an employee’s perception of the extent to which the employer has failed to fulfill the following promised obligations.

Organizational Commitment

Employee commitment towards the organization has gained much significance in the present scenario because high levels of commitment lead to several favorable organizational outcomes. Three reasons are generally given for this focus. First assumption is that the more committed employees are to the organization, the more motivated they would be and more willing to work ‘above and beyond contract.’ Second, these approaches presume that committed employees feel greater responsibility, reducing the manager’s need to monitor and supervise. Third, committed employees are expected to be less likely to leave the organization, resulting in the reduction of recruitment and selection expenditures. Meta-analyses indicate that commitment is negatively related to turnover and positively related to job satisfaction (Cooper-Hakim and Viswesvaran, 2005), absenteeism (Farrell and Stamm, 1988), and counterproductive behavior (Dalal, 2005), motivation (Mathieu and Zajac, 1990), and organizational citizenship behaviors (Riketta, 2002). Moreover, research studies have provided evidence of a positive correlation between organizational commitment and job performance (e.g., Siders et al., 2001; Jaramillo et al., 2005).

Organizational commitment has been defined as employee’s involvement and identification with the organization. In the present study Allen and Meyer’s (1990) approach of commitment is taken which conceptualizes organizational commitment consisting of three components – affective, normative and continuance commitment. Affective commitment refers to the emotional attachment with the organization based on the match with the organizational values and goals to that of the employee’s personal values and goals. Normative commitment refers to the sense of obligation and responsibility to remain with the organization. Continuance commitment indicates employees attachment with the organization based on the concept of cost and benefit.

Psychological Contract Breach and Organizational Commitment

Psychological contract breach is reality and happens in the organization. Many researchers have found that contract violation occurs more often than not (Robinson and Rousseau, 1994; Turnley and Feldman, 1999). Grimmer and Oddy (2007) based on their research in Australia found that 53.3% of the participants reported violation of their psychological contract. Perception of breach in employee’s psychological contract has negative effects on employee’s commitment. When contract is breached, it may also have great implications for personal and organizational variables and mostly in negative ways (Coyle-Shapiro and Conway, 2005; DelCampo, 2007; Nadin and Cassell, 2007). Researches have revealed that breach of psychological contract significantly influences organizational commitment (Lemire and Rouillard, 2005; De Cuyper and De Witte, 2006; Grimmer and Oddy, 2007). Coyle-Shapiro and Kessler (2000) suggest that when faced with contract violation, employees seek to remedy the imbalance in their relationship with their employers through the reduction of their commitment. Tekleab, Takeuchi, and Taylor (2005) found that perception of breach results in decreased motivation and commitment to the organization and employees become more likely to leave their jobs. Johnson and O’Leary-Kelly (2003) reported a correlation of -0.52 between psychological contract breach and commitment whereas Lemire and Rouillard (2005) reported a correlation of -.45. Sels, Janssens, and Van den Brande (2004) described the relationship as ‘strong’. A study conducted by Ran (2007) on psychological contract violation and commitment to organizational change by employees found that perceived psychological contract violation significantly reduces the employees affective commitment, increases continuance commitment but does not affect normative commitment to organizational change.

The Current Study

The primary aim of our research is to examine the relationship between psychological contract breach and organizational commitment. Thus based on this broad objective and above discussion, following hypotheses were formulated for the present study:

H1: Employees are experiencing breach of their psychological contract

H2: Psychological contract breach will be negatively related to organizational commitment

H3: Relational and transactional psychological contract breach will significantly and negatively predict affective commitment, normative commitment and continuance commitment

Methods

Participants and Procedures

Participants in this study were executives working at junior level in different private banks North Delhi (NCR). All the respondents had work experience ranging from 1 to 4 years. Data were gathered personally on standard questionnaire from a total of 85 bank employees based on convenience sampling method. Approximately 62 per cent of respondents were male and 38 percent female and the average age of respondents was around 29 years. All the respondents were informed about the objective of the study. It was also emphasized that the results of the surveys would be confidential and that all findings would be reported in a generalized way so as to ensure anonymity.

Instruments

Psychological Contract Violation Scale

Psychological contract violation scale developed by Knights and Kennedy (2005) was used in this research which is based on the nine areas of violation as identified by Robinson and Rousseau (1994). The 9-item scale measured the respondents perception that their employer had fulfilled its obligations and/or the promises made in relation to training and development, compensation, promotion, the nature of the job, job security, feedback, management of change, amount of personal responsibility, and the expertise and qualities of co-workers. The scale measures relational as well as transactional psychological contract violation with four & five items respectively. The responses were rated on a 5-point scale ranging from 1 (strongly agree) to 5 (strongly disagree). The coefficient alpha of the scale is 0.84.

Organizational Commitment Questionnaire

Organizational Commitment Questionnaire, developed by Allen and Meyer (1996) was used in the study. This scale measures commitment in three areas namely affective, normative and continuance commitment. There are six items each of the three areas, making 18 items scale in all. Reliability of the scale was found to be .87 for affective, .75 for continuance, and .79 for normative commitment (alphas).

Result

The obtained data were analyzed with the help of Statistical Package for Social Sciences (SPSS Version 12). As the study is co-relational study, so we have used correlation and multiple regression analysis as a tool in analyzing the data. Correlation was used to see how the variables in questions were related. Multiple regression was applied to ascertain how much predictors influences the outcome variables, that is to find out that how much relational and transactional psychological contract breach predict affective, normative and continuance commitment, organizational citizenship behaviour and trust.

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Table 1 about here

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The result in the above table (table – 1) clearly reveals that employees have experienced the breach of their psychological contract (M = 23.1). The result also revealed that psychological contract breach and its two dimensions, relational and transactional psychological contract breach, are significantly related to the affective commitment, normative commitment, continuance commitment and employees trust towards their employer / organization.

In order to know that how psychological contract breach and breach in its two dimensions (relational and transactional psychological contract) predicts affective, normative and continuance commitment, we need to focus on regression analysis presented in Table- 2 below.

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Table 2 about here

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Table 2, reveals that significant correlation exists between psychological contract breach (breach of relational and transactional contract) and affective commitment (R = 0.48), normative commitment (R = 0.41) and continuance commitment (R = 0.39). Adjusted R square was found to be 0.216 for affective commitment, 0.159 for normative commitment and 0.148 for continuance commitment. This imply that 21% of the variance in affective commitment, 16% variance in normative commitment and nearly 15% variance in continuance commitment can be attributed to psychological contract breach. All the values of Adjusted R- Square were significant as indicated by the significant F-values. The result indicates that perception of the breach of employee’s psychological contract has negative effects on employee commitment. To make things more clear, i.e., to know how relational and transactional psychological contract breach individually contributes affective commitment, normative commitment, continuance commitment, we need to focus on Beta values, presented in Table- 3 below.

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Table 3 about here

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Above table (table – 3) reveals that transactional psychological contract breach predicts affective commitment significantly (β = -.26; p < .01) but not normative and continuance commitment in significant manner.

Whereas relational psychological contract breach is significantly and negatively predicting affective commitment (β = -.40; p < .01) and normative commitment (β = -.32; p < .01). But breach in relational contract predicts continuance commitment (β = .19; p < .05) positively and significantly.

Discussion

As the study is designed to explore the level of psychological contract breach and its relationship with organizational commitment, the obtained result revealed that employees under study have experienced breach in their psychological contract, which in turn affected the employee’s commitment towards their organization.

Regarding the perception of the breach of psychological contract, the results of our research (table – 1) indicated that respondents reported a moderate level of breach in their psychological contract. This finding supports our first hypothesis. The result is in line with the results as found by Grimmer and Oddy (2007), Turnley and Feldman (1999) and Robinson and Rousseau (1994), that contract violation occurs more often than not. The possible range of score for psychological contract breach would be 9 – 45, with transactional contract breach (5 – 25) and relational contract breach (3 – 20). In the present research, the obtained mean values are above average (M = 23.21) for psychological contract breach, (M = 8.75) for relational psychological contract breach and (M = 14.46) for transactional psychological contract breach. Thus the present findings suggest that psychological contract breach is the reality and employees are experiencing it. This may be probably organizations are passing through the age of tough time and because of this organizations don’t have enough resources to meet with these obligations. Other reasons could be employer reneging on promises made during recruitment and induction process. If we look at closely we find that employees are experiencing more a transactional contract breach than relational contract breach. In the present study mean age of the respondents are around 29 (M = 28.66). Respondents in the study can be considered as young and probably at this stage of life employees are more concerned towards tangible return especially financial return of their contribution to the organization. It is also possible that young employees are not mature enough to understand properly the perceived promises made, thus leading perception of breach. Moreover during this time recession has still not completely over and organization may be having some problem and this may be the reason that organizations are not able to meet their employee’s expectations in this regard. Transactional contracts describe obligations related to monetary agreements with little close involvement of the parties i.e. employees are more concerned with compensation and personal benefit than with being good organisational citizens. This suggests that it is essential to manage employee’s psychological contract efficiently. So organizations have to seriously look into it and do some soul searching because it may impact the bottom-line.

With regard to the relationship between the psychological contract breach and its two dimensions and three dimensions of organizational commitment, it is found in the study that breach is negatively and significantly related to organizational commitment (r = -.469, p <.01). The result supports second hypothesis of the study. Organizational commitment is found to be negatively related with the breach of employee’s psychological contract in earlier researches as well. Failure to meet perceived obligations results in lower commitment (e.g. Sturges et al., 2005, Zhao, Wayne and Glibkowski, 2007). When the employee feels that organizations has failed to meet its obligation, employees try to reciprocate their contribution by keeping himself / herself detached from the organization because commitment refers to the attachment of employees with their organization.

Perception of the breach of the transactional contract is significantly and negatively predicting affective commitment and not normative and continuance commitment. Relational contract breach is significantly predicting affective commitment negatively, but normative and continuance commitment positively. This finding partially supports the third hypothesis of the study.

Affective commitment is being predicted by transactional psychological contract breach (β = -0.26, p = 0.006) as well as relational contract breach (β = -.406, p = 0.000) significantly and negatively. It means that affective commitment decreases with the increase in the perception of transactional and relational contract breach. Ran (2007) in his study on psychological contract violation and commitment to organizational change by employees, found that perceived psychological contract violation significantly reduces the employee’s affective commitment. People with affective commitment are deeply engaged and committed with the organization and exhibits better performance. But when employees experience breach they reciprocate by lowering their affective commitment. Reason could possibly be that people are normally attracted towards the private sector to earn and get more pay and benefit, fast growth, development etc. Also with the changing nature of business, employees may be experiencing less stability and less exposure etc. which in turn may generate a feeling in the employees that organizations are not able to fulfill their expectation and obligations, they get disappointed and frustrated which in turn reduces their affective commitment towards the organization. Another reason could be the diversity of work force. Present day workforce is most diverse ever. Employees of different age, gender, ethnicity, race etc are working together. Many employees think their employment relationship not only in terms of financial terms but much more. The MetLife Employee Benefits Trend Study (2006) found that among all age groups the opportunity for work balance was the second most important recruitment/retention criterion. For the youngest workers surveyed, aged 21-30, work/life balance was cited as the most important consideration when deciding to join or remain with an employer. These kinds of people operate from a different psychological contract and affective attachment to the organization is low and they consider very normal to move from one organzaition to another (Ferras, Travaglione and Firms, 2003). Violation of the transactional obligations of the psychological contract (e.g., pay and benefits) results in a decrease in job satisfaction, (Anderson and Schalk, 1998) which may in turn leads to reduced organizational commitment.

Perception of breach of employee’s relational contract is found to be significantly and positively predicting employees normative (β = 0.32, p = 0.001) and continuance commitment (β = 0.19, p = 0.045). Normative commitment is characterized by the employee’s belief that he or she is obligated to stay with a particular organization because of personal loyalty and/or allegiance. In the present study employees perceived breach of relational obligations such as partial or non-fulfillment of organizational obligations such as empowerment, job security, growth etc. It may be possible because of lack of proper option in the market because of the economic recessions and uncertain business environment where jobs are not easily available. Economic recession also may have affected the employee’s growth aspirations. Continuance commitment is said to occur when an employee remains with an organization largely out of need, whether due to lack of alternatives or costs associated with leaving, such as loss of income, seniority or retirement benefits etc. Perhaps unsurprisingly, perceived lack of alternatives or an inability to transfer skills and education to another organization is the primary antecedents of continuance commitment (Meyer et al., 2002). In this study relational contract breach is positively predicting continuance commitment. It is logical to assume that once an employee experiences this restriction of options the perceived need to remain with his or her organization may increase. Because the employee “has to” remain in an organization because of the restriction of options, the employees remain no matter psychological contract is fulfilled or violated by the organization. Other reason for the continuance commitment may be the global recession including India. During such period, there is less employment opportunity and so lack of it may have resulted people in general to stay and just waiting things to improve in the market.

Conclusion

The study supports the impact of employee’s perceived breach of their psychological contract on organizational commitment. It has been found in the study that relational dimension of employee’s psychological contract is more important than transactional dimension as perceived breach in relational contract influencing affective and normative commitment negatively. Whereas breach in transactional contract resulted in decreased affective commitment significantly. If employee perceives that organizations failed to fulfill its promised obligations, employees may retaliate in terms of decreased commitment towards the organization which in turn will decrease work motivation. Thus the organization should not undermine the value of employees and should take care of their expectations and feelings, otherwise perception of breach may break harmonious and healthy employment relation which in turn will affect employee’s contribution towards the organization. Another notable finding from the result is that perceived breach is influencing affective commitment. Organizations should manage the employee’s psychological contract effectively so as to develop and maintain employee’s affective commitment a significant aspects of employee’s work performance.

Table – 1

Mean, Standard Deviation (SD) and correlation coefficient among variables (N= 85)

Mean

SD

Gender

Age

Qualification

RPCV

TPCV

PCV

AC

NC

CC

OC

Gender

1.37

0.485

–

Age

28.66

2.916

.162

–

Qualification

1.58

0.495

.035

.098

–

RPCV

8.75

1.958

.023

.106

.075

–

TPCV

14.46

4.249

-.037

-.017

.034

.422(**)

–

PCV

23.21

5.376

-.021

.025

.054

.697(**)

.944(**)

–

AC

13.41

4.695

.092

.097

.102

-.308(**)

-.463(**)

-.478(**)

–

NC

13.47

4.363

.027

.026

.126

-.293(**)

.393(**)

.417(**)

.827(**)

–

CC

14.20

4.613

-.092

-.005

.079

.349(**)

.307(**)

.370(**)

.655(**)

.666(**)

–

OC

41.09

12.308

.010

.044

.113

-.352(**)

.431(**)

-.469(**)

.920(**)

.920(**)

.861(**)

–

** Correlation is significant at the 0.01 level (2-tailed).

* Correlation is significant at the 0.05 level (2-tailed).

RPCV = Relational Psychological Contract Violation

TPCV = Transactional Psychological Contract Violation

PCV = Psychological Contract Violation

AC = Affective Commitment

NC = Normative Commitment

CC =Continuance Commitment

OC = Organizational Commitment

Regression Analysis

Table – 2: Regression analysis of psychological contract breach in relation to three dimensions of organizational commitment (N = 85)

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Variables R R2 Adjusted R2 F – Value Significance

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AC .48 .230 .216 16.728 .0001

NC .41 .174 .159 11.807 .0001

CC .39 .153 .148 10.117 .0001

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AC = Affective Commitment

NC = Normative Commitment

CC =Continuance Commitment

Table – 3: Beta Table

Dependant Variables

Transactional Psychological Contract Violation

Relational Psychological Contract Violation

β

t-valu

Significance

β

t-valu

Significance

AC

-.267

-2.786

.006

-.406

-4.436

.000

NC

.155

1.635

.105

-.328

-3.460

.001

CC

.137

1.496

.137

.195

2.028

.045

AC = Affective Commitment

NC = Normative Commitment

CC =Continuance Commitment