Question

a) Distinguish between ‘over-investment’ and ‘under-investment’ in the context of

unbalanced exchanges between the employer and employee.

(b) Under what circumstances does reneging and incongruence occur?

(c) Should organisations take the psychological contract seriously? Justify your answer using theory and evidence.

Answer 1

a.   There are two types of unbalanced relationships:
•   Underinvestment
•   Over investment
The underinvestment always favors the employer because they expect broad and open-ended obligations from their employees and in return from the short term economic inducements without committing any long term relationship.
In the overinvestment approach, it favors the employee over the employer who offers them long-term investment and rewards for employee outcomes.
The main distinguishing feature is that it captures the employer’s perspective- how the managers view the exchange of contributions and inducements for the employees in a particular job within an organization.

b.   Reneging occurs when the employer and employee know that obligation has to be fulfilled, knowingly fail to do so. And organizations should always be aware of reneging because it can affect the employees negatively ultimately affecting the effectiveness of the organization. The outcomes of the reneging among the employee's area voice behavior and engagement. It is very important to focus on these aspects because employees use and experience it every day and it can have a bad effect on the organization.

Incongruence occurs when the organization and the employees have different beliefs on the obligations. Incongruence occurs in the organization and its employees the employees turn to the leader for help. Hence the leader might influence the outcomes of the employees.

c.   The psychological contract refers to the relation between the employees and the employers, specifically concerning the mutual expectation of outcomes and inputs. It is usually seen from the standpoint of employees and full appreciation requires understanding it from both sides.
We can say that the psychological contract is the balance or fairness between how the employees are treated by the employer and what the employees are putting into the job they are doing. The theory and the principles of the psychological contract can be applied beyond the employment situation to human relationships and society.

The iceberg model is the way to illustrate the critical aspects of the influence within the psychological contract theory. It is said that the iceberg is 90% hidden in the water and the metaphor fits the psychological contract as well because most of the contract perception is hidden and unwritten, with its definition.