Question

What are psychological contracts? Discuss the main features and how they develop? How do employee benefits form a part of employee's psychological contracts?

Answer 1

Psychological contracts:

Psychological contracts are the unwritten agreements between the employer and the employee. It is a concept that originated in the early 1960s and developed by American academician Denise Rousseau. It is unwritten and intangible but it represents the mutual expectations of the employee and the employer. Unlike the written employment contract it is not a written, rigid, formal document. There are two types of psychological contracts as follows:

· Transactional psychological contracts: Transactional psychological contracts are based on short term monetary agreements. This is the amount of money an employer will give in exchange for a precisely defined employee behavior.

· Relational psychological contracts: Relational psychological contracts are long term and involve strong emotional attachments. These can be defined as a promise of growth or defined opportunity within the organization in exchange for a long term commitment from the employee.

The main features of psychological contracts and how they develop are as follows:

The main features of psychological contracts include informal arrangements, mutual beliefs, common grounds, and perception between the employer and the employee. The psychological contract develops and constantly evolves over a working relationship. It is refined and evolved based on the communication between the employer and the employee. Things left unsaid or perceived which are left unsaid can be part of the psychological contract. The employee’s inputs such as efforts, ideas, commitment, and making sacrifices for the company will be rewarded by job security, recognition, status, and personal development. As the employee inputs increase the more the company rewards increase. Conversely, more expectation and responsibility by the employer will define employers' expectations of better commitment and dedicated work from employees.

Breach of a psychological contract can adversely affect the employer-employee relationship. For example, it is a norm that employees will come late to work one day after Christmas. If an employee is reprimanded for coming late on that day. They will feel the psychological contract is violated.

Managing employee expectations is critical so that employees do not get the wrong impression which doesn’t materialize. Employees should also manage employers expectation by not committing to achieving productivity levels or results which are not viable.

Employee benefits form a part of psychological contracts as follows:

Employees are benefitted by being rewarded, acknowledged, and aware their work is noticed and will be suitably rewarded at the annual review, or performance appraisals. These contracts are the unwritten communication between employer and employee and signal how the employee is perceived by the employer. It is based on fairness and is bound by the equity theory employees need to perceive that they are treated fairly to maintain a sustainable psychological contract. It is an important part of employee benefit as the contracts cannot be reworked and redefined continuously. The psychological contracts build a bond and understanding between employer and employee and give heads up on what employees' benefits and growth will be within the organization. It keeps employees motivated by the thought that his behavior will be rewarded and recognized. It also motivates employees to continuously evolve and manage the workload with the expectation that they will be suitably rewarded and recognized in terms of salary hikes, compensation, promotion, and growth within the organization. Employers also feel that the responsibility assigned will be managed and the employee will contribute his best to manage the organization's goals.

To conclude Psychological contracts are unsaid unwritten communication between employer and employee. In the current business scenario flexibility and agility is the key for business survival therefore a psychological contract should be maintained and upheld. Proactively managing employees' expectations is a necessary and ongoing process to avoid any breach in the contract.