Psychological Contract
Dr. David McGuire
Napier University Business School
Characteristics of Contracts
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Voluntary Aspect
Self-Organising
Contracts as “bargain”
Psychological Nature
Increasingly Individual
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Economic underpinnings
A unified reality
Singular interpretations
Little tolerance of ambiguity
Why do people keep
contracts?
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Acceptance
Self-image and esteem
Imagery formed by act of promising
Reliance Losses
Social Pressure & Concern for
reputation
Incentives
Dimensions of the
Employment Relationship
Parties
• Managers
• Employees
• Employee Reps.
Operation
• Level
• Process
• Style
Employment
Relationship
Structure
• Formal: Rules/Procedures
• Informal: Understandings
Expectations, Assumptions
Substance
• Individual:
Job, Reward,
Career, Comm.
• Collective:
Joint Agree.
Changes to Psychological Contract
& Employment Relationship
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Greater work demands
End of Paternalism
Insecure and less clearly defined roles
End of promotion, focus on job
enrichment & employability
Contribution-based pay
Rise in transactional contracts
There is no job security. The employee will be employed as
long as s/he adds value to the organisation, and is personally
responsible for finding new ways to add value. In return, the
employee has the right to demand interesting and important
work, has the freedom and resources to perform it well and
receives pay that reflects his or her contribution and gets the
experience and training needed to be employable here or
elsewhere
Hiltrop (1995)
Historical Roots of
Psychological Contract
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Social Contract
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Barnard’s Theory of Equilibrium
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Contract recognising the origin of the state
“Contract for government” or “Contract for
submission”
Exchange – basis of equilibrium in society
Clinical/Psychoanalytical Perspective
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Exchange of intangibles in social
contractual situations (exchange of
companionship)
Defining the Psychological
Contract
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Kotter (1973): “An implicit exchange
between an individual and his organisation
which specifies what each expects to give
and receive from each other in their
relationship.”
Herriot & Pemberton (1995): “The
perceptions of both parties to the
employment relationship, organisation and
individual of the obligations implied in the
relationship.”
Defining the Psychological
Contract
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Rousseau (1995): “Individual beliefs,
shaped by the organisation, regarding
terms of an exchange agreement between
individuals and their organisation”
Guest and Conway (2000): “The
perceptions of both parties to the
employment relationship, organisation and
individual of the reciprocal promises and
obligations implied in the relationship”
Unpacking the language of
psychological contract definitions
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Promises
Obligations
Expectations
Promises: Made by one party to another to
engage in specific action
Obligation: Commitments to be delivered by
party in receipt of promise
Expectation: Less binding language than
promise and obligation
Psychological Contracts
Characteristics
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Define the employment relationship
Manage Mutual Expectations
Voluntary
Reciprocal
Evolving/Dynamic
Subjective
Relational
Transactional
The Changing Psychological
Contract
Characteristic
Old
New
Focus
Security
Employability
Duration
Structured
Flexible
Scope
Broad
Narrow
Underlying prin.
Tradition
Market-focus
Intended Output
Loyalty &
Commitment
Value Added
Employer’s key
responsibility
Fair Pay for good
work
High pay for high
performance
Employee’s key
responsibility
Good performance Making a
in present job
difference
Types of Contracts
Individual
Within
LEVEL
Group
Psychological
Beliefs that people have
about promises made,
accepted and relied upon
between themselves and
another
Normative
Shared psychological
contract that emerges when
members of a social group,
organisation or work unit
hold common beliefs
Implied
Interpretations that third
parties make regarding
contractual terms
Social
Broad beliefs in obligations
associated with a society’s
culture
PERSPECTIVE
Outside
Activity
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Consider the following Questions:
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What did your organisation promise you 5
years ago? What do they promise you
today?
What did you owe in return 5 years ago?
What do you owe them today?
Psychological Contract
Dilemmas
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How can organisations attract
and retain people who can live
and thrive on uncertainty?
How can they meet the career
expectations of employees,
when job security, promotion
and career opportunities are
declining?
How can they meet the career
expectations of employees
who expect rapid promotions
in an organisation that is
becoming flatter, leaner and
not expanding to create new
jobs?
Rousseau Psychological
Contract
Predisposition
Message
Framing
Encoding
Social
Cues
Decoding
Psychological
Contract
Creating an Individual’s Psychological Contract
Individual
Processes
Organisational
Factors
Rousseau Psychological
Contract: An Illustration
Career
Focused
Fast Track
Growth
Hard work =
Fast Track
Success
Stories
Promotion for
High PR ratings
Self-Fulfilling Prophecy
Personal
Energy
Internal promotions
Reliance
Components of Rousseau
Model: Messages
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Organisations express commitment
through messages:
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Overt Statements – example
Observation of treatment of others
perceived as party to the same deal
Expressions of organisational policy,
manuals, handbooks, reward system
Social Constructions – reference to
history or reputation
Components of Rousseau
Model: Social Cues
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Information acquired from coworkers
or work group
Play three roles in contracting process:
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Provide messages for contract creation
Convey social pressure to conform to
group’s understanding of terms
Shape how an individual will interpret the
organisation’s actions
Components of Rousseau
Model: Encoding
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For individuals to attribute a credible or
intended promise requires that the
contract maker
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Be perceived to have power & authority
Operate in a context where promise
making is deemed appropriate
Behave in ways consistent with the
commitment made
Activity
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How do you perceive your role within
the organisation?
How does your supervisor/boss
perceive your role?
Where do you want to be in 5 years
time?
What 3 things do you need to do to
achieve this?
Guest & Conway Psychological
Contract
Background
Factors
Individual
Age
Gender
Union Member
Level in Org.
Type of work
Hours worked
Marital Status
Children
Organisational
Sector
Org. size
Location
Policy
Influences
HR Policy &
Practice
Direct
Participation
Job Alternatives
Organisational
Support
Work Centrality
Surveillance
Org. Change
Suitably qualified
Promises made
The Outcomes
Trust
Attitudinal
Consequences:
Org. commit
Work & Life sat.
Job Security
Motivation
Delivery of
the Deal
Behavioural
Consequences:
State of
Psychological
Contract
Fairness
Intention to stay
or quit
Knowledge
Sharing
Components of Guest & Conway
Model: Policy Influences
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Organisational Culture
Human Resource Policy and Practice
Previous Employment Experience
Expectations about employment
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Investments & sidebets
Alternatives
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Continuance Commitment
Components of Guest & Conway
Model: Justice Implications
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Procedural Justice
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Distributive Justice
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Requires decision-makers to operate procedures
fairly and consistently with reference to criteria
and due process, without resorting to selfinterest and prejudice
Concerns the handing out of benefits and
burdens – address wealth & position inequalities
Interactional Justice
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Refers to the quality of face-to-face treatment
from a decision-maker and how far procedures
are applied by those tasked to apply them
Transactional & Relational
Contracts
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Transactional
Contracts:
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Focused on
monetarised
values, such as
employees taking
on longer hours of
work and additional
roles in exchange
for high
performance
related pay and job
related training
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Relational
Contracts:
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Involve
socioemotional
elements, such as
reciprocity, loyalty,
support and job
security and
characterised by
long-term career
development and
extensive training
Types of Psychological
Contracts
Performance Terms
Short-term
Specified
Transactional:
(e.g. retail clerks hired at xmas)
- Low ambiguity
- Easy exit/high turnover
- Low member commitment
- Little learning
Unspecified
Transitional
(Ee experiences during merger
change or acquisition)
- Ambiguity/uncertainty
- High turnover/termination
- Instability
Balanced:
(e.g. High involvement team)
- High member commitment
- High Integration
- Ongoing development
- Mutual support
- Dynamic
Relational:
(e.g. family business members)
- High member commitment
- High affective commitment
- High integration/identification
- Stability
Duration
Long-term
Psychological Contract and
Career Theory
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Herriot (1992): “An organisational career
can be considered as a sequence of
renegotiations of the psychological contract,
which the individual and the organisation
conduct during the period of his/her
employment”
Shift from career dependence to career
resilience (Protean career)
“Survivor Syndrome”
Types of Contracting
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Principal to principal
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Contract between
employer &
employee
Gardening work for
home
Agent to Principal
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Organisation’s
representative
Recruiter or manager
makes commitments
to employee
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Principal to Agent
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Employer contracts
with representatives
of workers
Employment Agency
Agent to Agent
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Organisation’s
representative and
employee’s
representative
Management Union
Deal
Employer Perceptions of
Psychological Contract
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Based upon research by Guest & Conway
(2001)
84% of managers had heard of
psychological contract
36% of managers used it to help them
manage the employment relationship
Promises to employees fell into three
groups: Information and development (most
made), rewards and context for work (least
made)
Employer Perceptions of
Psychological Contract
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Promises most likely to be kept are in
relation to not making unreasonable
demands on employees and opportunities
for promotion
Promises least likely to be kept are in
respect to safe working environment and a
range of rewards other than promotion, such
as fair pay and job security
Promises less likely to be kept in large
organisations and in public sector
Employer Perceptions of
Psychological Contract
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Employee Involvement in decisionmaking is low – 52% not involved, 24%
involved
Managers report poorer outcomes where
there is a recognised trade union in the
organisation
Organisational management of promises
and commitments has positive effect on
employee attitudes and behaviour
Pressure at Work &
Psychological Contract
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Based upon research by Guest & Conway
(2002)
25% of workforce report their jobs are very
stressful – higher in health and local
government sectors
Pressure at work and long hours are seen
as damaging to health by 50% of workforce
Access to social support at work and
positive control over work is associated with
positive health and wellbeing
Pressure at Work &
Psychological Contract
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Long-term declining level of job
satisfaction, particularly among publicsector workers
25% of workforce believe that changes at
work may force them to change jobs in
the next couple of years
Job security not a concern to workforce
Increased adoption of family friendly
policies
Pressure at Work &
Psychological Contract
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Recognition of benefits of training and
development in improving employability
Evidence of declining level of T&D
provision
52% - performance is constantly measured
27% - under constant observation
Monitoring and control linked to job
dissatisfaction and employee stress
Low level of trust in senior management
Selected Bibliography
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Rousseau (1995): Psychological Contracts
in Organizations: Understanding written and
unwritten agreements, Thousand Oaks, CA:
Sage
Guest, D.E. & Conway, N. (2001): Employer
Perceptions of the Psychological Contract,
London: CIPD
Guest, D.E. & Conway, N. (2001): Pressure
at work and the Psychological Contract,
London: CIPD