Psychological Contract

Literature Review

A psychological contract is an individual’s beliefs about the reciprocal exchange agreement between that person and another party (Rousseau, 1989). Unlike formal contracts, the psychological contract is perceptual, that is, what employees believe that they are entitled to receive, or should receive, based on implicit or explicit promises they believe their employer made to them (Robinson, 1996). In other words, psychological contract is an employee’s expectations of their employer stemming from implicit or explicit promises made by the employer.

Psychological contract violation is a perception that another has failed to fulfil adequately the promised obligations of the psychological contract (Rousseau, 1989).

Morrison and Robinson (1997), argue that this definition focuses solely on the rational, logical calculation of whether expectations have been met and excludes the emotional aspect of violation. Instead they propose a distinction between the cognitive component, they refer to as psychological contract breach, and the emotional component which they label psychological contract violation. Psychological contract violation is more personalised than just unmet expectations, as essentially a promise and trust have been broken. A violation is an “emotional and affective state that may follow from the belief that one’s organization has failed to adequately maintain the psychological contract” (Morrison & Robinson, 1997, p.230). Psychological contract violation has been found to be associated with diminished performance, commitment, citizenship behaviour, and trust, and increased cynicism and turnover intentions (Pate, Martin, & McGoldrick, 2003; Robinson, 1996; Robinson & Morrison, 1995; Robinson & Rousseau, 1994; Zhao, Wayne, Glibkowski, & Bravo, 2007).

Triggers of contract breach leading to psychological contract violation often stem from an organisation not meeting its organisational justice obligations (Andersson, 1996; Pate et al., 2003). Distributive justice violations occur when outcomes, such as financial bonuses and promotions, are unfairly distributed. Procedural justice violations occur when employees perceive an unfair application of a process, such as a performance review. Finally, interactional justice violations are associated with how an employee feels they have been treated by his/her supervisor and is closely linked with issues of trust (Pate et al., 2003).

Whether a perceived psychological contract breach translates into a psychological contract violation is moderated by attributions about why the breach occurred (Morrison & Robinson, 1997). If an employee attributes the breach as an intentional purposeful act by the organisation feelings of violation will be intensified. On the other hand, feelings of violation are less likely to occur if the employee attributes the breach to his or her own misperceptions or to external extenuating factors. Social accounts (i.e., justifications or excuses) offered by the organisation can explain that the breach was not the organisations fault, thereby altering the employee’s attribution of responsibility (Morrison & Robinson, 1997).

Example

In a previous job, I experienced a breach of my psychological contract. As part of my annual performance review, my manager and I agreed upon key performance indicators and associated bonuses. The performance targets were challenging but achievable. I worked extended hours in order to achieve my targets. However, another staff member resigned 4 months before bonuses were due and I was asked to take on some of his former clients and projects. At the time, I agreed and discussed that this may affect my ability to meet my targets. My supervisor assured me that at review time she would take into consideration the additional workload I had taken on and its impact on my ability to meet/exceed my performance indicators. However, my manager reneged on this promise and did not take into account my additional workload in determining my bonus. In fact, I received a bonus lower than what was agreed. This was justified on the grounds I had not met all my performance targets and that the organisation had achieved lower than expected profit margin across the business.

At the time, I experienced a sense of belief at the discrepancy between what I had been promised and what actual occurred. I perceived a very clear inconsistency between my manager’s words and actions. In short, I experienced both a major psychological contract breach and violation. In terms of psychological contract theory, I perceived that my manager had failed to provide distributive (i.e., not paid me the bonus), procedural (i.e., not adjusted my performance indicators), and interactional justice (i.e., betrayed my trust by breaking her word). The final straw occurred a week later, when I found out all the executives including my manager received their financial bonus. Thus, I did not believe the organisation explanation that bonuses were not paid due to lower than expected profits. Consistent with psychological contract research (i.e., Robinson & Morrison, 1995) I found that my engagement, willingness to help co-workers, and job satisfaction all declined. Despite trying to discuss the matter with my manager, I no longer trusted her. I left the company 8 weeks after my performance review.

Recommendation

First, managers need to assist employees to develop realistic psychological contracts by not making unrealistic promises (Lester & Kickul, 2001; Zhao et al., 2007). Second, psychological contract breach is sometimes unavoidable, but it does not necessarily need to lead to feelings of contract violation. Managers can reduce feelings of betrayal and anger by managing the employee’s attribution of the breach through the provision of honest and adequate explanations of why it occurred (Morrison & Robinson, 1997). For example, my former manager could have informed me earlier of the possibility that no bonuses would be paid due to unavoidable external circumstances. This would have started the process of renegotiating my psychological contract. Also, I may have attributed the violation of my psychological contract to the external environment if an honest and adequate explanation had been provided in a timely manner. Instead, my feelings of contract violation were intensified as I felt that my manager deliberately misrepresented purposeful reneging. Therefore, I would recommend based on psychological contract research and my own experience that managers use active and explicit communication to manage both psychological contract formation and execution.

References

Andersson, L. M. (1996). Employee cynicism: An examination using contract violation framework. Human Relations, 49(11): 1395-1418.

Lester, S. W., & Kickul, J. (2001). Psychological contracts in the 21^st century: What employees value most and how well organizations are responding to these expectations. Human Resource Planning, 24(1): 10-21.

Morrison, E. W., & Robinson, S. L. (1997). When employees feel betrayed: A model of how psychological contract violation develops. Academy of Management Review, 22(1): 226-256.

Pate, J., Martin, G., & McGoldrick, J. (2003). The impact of psychological contract violation on employee attitudes and behaviour. Employee Relations, 25(6): 557-573.

Robinson, S. L. (1996). Trust and breach of the psychological contract. Administrative Science Quarterly, 41: 574-599.

Robinson, S. L., & Morrison, E. W. (1995). Psychological contracts and OCB: The effects of unfulfilled obligations. Journal of Organizational Behaviour, 16: 289-298.

Robinson, S. L., & Rousseau, D. M. (1994). Violation the psychological contract: Not the exception but the norm. Journal of Organizational Behavior, 15(3): 245-259.

Rousseau, D. M. (1989). Psychological and implied contracts in organizations. Employee Responsibilities and Rights Journal, 2: 121-139.

Zaho, H., Wayne, S. J., Glibkowski, B. C., & Bravo, J. (2007). The impact of psychological contract breach on work-related outcomes: A meta-analysis. Personnel Psychology, 60(3): 647-680.