Why "Psychological contract" is a key characteristic of HRM

What is "Psychological contract" ?

Psychological contract is a term which is somewhat difficult and challenging to define. However, it is generally accepted that it is concerned with an individual's subjective beliefs, shaped by the organisation regarding the terms of an exchange relationship between the individual the individual employee and the organization (Rousseau, 1995). 

A major feature of psychological contract is the concept of mutuality that there is a common and agreed understanding of promises and obligations the respective parties have made to each other about work, pay, loyalty, commitment, flexibility, security and career advancement.

According to Cassar and Briner, (2011) employees' beliefs are understanding and perception of the exchange relationship between what employees give to the organization (Competence, effort and loyalty) and what the organization gives in return (Reward, promotion and satisfactory work environment). This perception is made based on the understanding of the organizational commitment.

Transactional contract and Relational contract are the main dimensions of psychological contract according to Rousseau, (1995). Employees do not become the organizational members really but they are only concerned about the short term material reward and personal benefit under the transactional contract whereas the Relational contract reflects employees' affective involvement and belief in organizations because organizations not only provide necessary material reward in return to employees, but also provide guarantees for employees' work safety, skill training and career development.

Organizational commitment

Meyer and Allen, (1991) emphasized that organizational commitment illustrates the psychological status between employees and organizations. Organizational commitment implies employee determination of whether to stay not to stay in the organization and it contains three dimensions.

Figure 1. Three-component model of organizational commitment adapted from Human Resources Management Review by Meyer and Allen, (1991)

Accordingly, this defines the organizational commitment as the employees' psychological perception of the relationship between individuals and organizations and it reflects employees' psychological status of being loyal to the organization (Meyer and Allen, 1991). Further, Organizational commitment is employees sense of identification, loyalty, involvement and willingness in organizations based on their affection to organizations, individual benefits and sense of responsibility (Yamaguchi, 2013).

Effects of psychological contract on organizational commitment

The difference between the organizational commitment and the psychological contract is that, the content of organizational commitment is unidirectional which only reflects employee emotion to organization. But, the psychological contract involves a bidirectional relationship which indicates employees' belief to taking responsibilities as well as the organization is taking responsibilities too. In this employees will compare and modify the extent of both sides fulfilling the contract, in order to reach the balanced state ultimately (Cassar and Briner, 2011).

Organizational commitment is actually a result of psychological contract (Rousseau, 1995). Psychological contract has an important effect on employees as it is guaranteeing to provide high level of reward, pay for performance, promotion and development. Accordingly it will hugely affect on employees' love for the organization and decision about whether they will stay in the organization. As per the analyzing done by Luo and Yu, (2013) regarding the effect of psychological contract on organizational commitment, transactional contract has a significant negative effect on organizational commitment whereas relational contract has positive influence.

It is debatable when these facts are applying towards the work satisfaction. Since the work satisfaction changes more readily and since it is considerably unstable, it can be identified as a antecedent of organizational commitment. Yamaguchi, (2013) has shown that employees' (Mainly knowledge workers') high level of organizational commitment is mainly contributed by a high level of work satisfaction.

Figure 2. Effect of knowledge worker's psychological contract on organizational commitment and work satisfaction adapted from Psychological Contract, Organizational Commitment and Work Satisfaction by Jianwu et al, (2014). 

Reference

Cassar, V. and Briner, R. B. (2011). The Relationship between Psychological Contract Breach and Organizational Commitment: Exchange Imbalance as a Moderator of the Mediating Role of Violation. Journal of Vocational Behavior, 78, 283-289. <http://dx.doi.org/10.1016/j.jvb.2010.09.007>

Luo, J. and Yu, M. F. (2013) A Study of Knowledge Staffs’ Loyalty Based on the Psychological Contract. Journal of Xi’an Shiyou University (Social Science Edition), 1, 50-54.

Meyer, J. P. and Allen, N. J. (1991). A Three-Component Conceptualization of Organizational Commitment. Human Resources Management Review, 1, 61-89. <http://dx.doi.org/10.1016/1053-4822(91)90011-Z> 

Rousseau, D. M. (1995). Psychological Contracts in Organizations: Understanding Written and Unwritten Agreements. Sage, Newbury Park, CA.

Yamaguchi, I. (2013). A Japan-US Cross-Cultural Study of Relationships among Team Autonomy,  Organizational Social Capital, Job Satisfaction, and Organizational Commitment. International          Journal of Intercultural Relations, 37, 58-71. <http://dx.doi.org/10.1016/j.ijintrel.2012.04.016>

Wisdom IT Services India Pvt. Ltd 2018, Psychological contract in HRM - HR Management, viewed 29 October 2019, <https://www.wisdomjobs.com/e-university/hr-management-tutorial-69/the-psychological-contract-9056.html>

Zhou, J. et al. (2014) ‘Psychological Contract, Organizational Commitment and Work Satisfaction: Survey of Researchers in Chinese State-Owned Engineering Research Institutions’, Open Journal of Social Sciences, 02(09), pp. 217–225. doi: 10.4236/jss.2014.29037.