The Psychological Contract.

The Psychological Contract

EXPLORING THE UNWRITTEN AGREEMENT.

During the years people spend working and either employing staff or being employed by business managers and owners, there are certain aspects within the relationships they have on a professional level with their employers or employees. The success of these working relationships is very much based on aspects that aren’t necessarily stated in writing or even verbally between the two parties. The purpose of this paper is to explore what is meant in terms of a psychological contract and the differences between the format of a psychological contract and that of a formal contract of employment. The survey results included in this paper illustrate how three different generations interpret and value the varied aspects of a psychological contract.

There are complex and profound factors that need to be taken into account when defining a psychological contract. On the surface, the psychological or unwritten agreement entails both the perceptions of what the employer’s and employee’s mutual obligations are towards one another. According to Guest, D E and Conway, N. (2002),

“These obligations will often be informal and imprecise: they may be inferred from actions or from what has happened in the past, as well as from statements made by the employer, for example during the recruitment process or in performance appraisals. Some obligations may be seen as 'promises' and others as 'expectations'. The important thing is that they are believed by the employee to be part of the relationship with the employer...”. To explain the psychological contract more in-depth one needs to explore employees and employers attitudes respectively in given situations."

One of the main differences between a psychological contract and a formal employment contract are that psychological contracts are normally unwritten agreements or expectations between an employer and an employee. These agreements are also of an intangible nature and entail expectations such as loyalty, empathy and work ethic among other things. On the other hand, the employment contract states more formal and tangible agreements such as the terms of employment, duties within the position, and formal legalities concerning both the employer and employee. However, within the employer contract the tone to the psychological contract might also already be set. Considering the requirements stated by an employer and the employee’s interpretation thereof and his or her response towards these requirements, one can easily study the initial tone assumed in terms of the psychological contract when assessing these requirements and responses within the employment contract. The idea that the elements within a psychological agreement reflects the basic things people value in society and that morally guides people when interacting with each other even outside the workplace, requires that a much deeper understanding of this agreement is vital to ensure a good working relationship. Consequently, the unwritten agreement and accepted or expected behaviour between colleagues or employer and employee is not restricted to the working environment but is relative to how people interact within a society.

The iceberg model was first introduced as a tool to illustrate the various dimensions of the psychological contract (Chapman, A, 2010). The diagram indicates both written or verbally stated agreements or expectations and the inputs by employees and the rewards by employers. In most cases only the 10% tip of the iceberg is visible – this is the written agreement between the two parties. The rest of the iceberg remains submerged under water, and is often vague or unspoken as is the case with the psychological agreements or obligations. see the link for image of the diagram: http://crewsofca.com/demo/wp-content/uploads/perception-psychology-examples-i1.jpg

The iceberg model can also be used to sufficiently exhibit how different leadership styles and different generations interpret and assign value to the psychological needs of an employer and employee in the workplace. By incorporating the model into the analysis the observation can be made when comparing different management styles like the autocratic versus democratic leadership. Within an autocratic working environment a very limited percentage of the tip of the iceberg is visible, which means that most of the unwritten expectations remain out of sight. The assumption can be made that an autocratic leader or manager attributes little value or understanding to the importance of his or her employees’ psychological needs, whereas the democratic and more modern manager possesses a greater understanding of these needs and therefore attributes a significant amount of value and importance to these needs. In the democratically govern workplace one presumes that a larger percentage of the tip of the iceberg will be visible because the unwritten psychological needs are acknowledged and attended to. This type of modern working environment is also occupied a more enlightened and liberal employer and employee (Chapman, A, 2010).

To further explore this occurrence, the importance in value associated with psychological factors or needs is discussed. The differences between how much importance is attributed to psychological needs in different generations is expressed when in the results of the survey conducted by myself with three members representing each generation and who all have formal tertiary level qualifications;

¯  a 79 year old from the ‘baby-boomer’ generation who is no retired,

¯  a 51 year old from the ‘X-generation’ who is still employed,

¯  and a 20 year old from the ‘Y-generation’ who is now entering into the workplace.

Parallels can be drawn between the type of management style during the 1960’s to 1970’s where it was mainly autocratic, and the environment in which the 79 year old subject spent most of her working years which influenced the value she and her former employers attributed to her psychological needs. Between the generation ‘X’ subject and the ‘Y-generation’ subject the same link to a modern working environment is observed, but less differences between these two are noticed than between the 20 year old and the 79 year old.

 The main factor that contributed to the noted results of the survey is the type of working environment they are in and the management style by which each are governed respectively. Each subject was asked to allocate value, on a scale of one to ten, to some of the aspects in a psychological contract according to rated level of importance. Upon analysing the answers on some of the more open-ended questions, it indicated that both generation ‘Y’ and ‘X’ preferred being self-employed. This trend could be explained by suggesting that because of the high value attributed to their own psychological expectations, they prefer being in charge of themselves, and in doing so eliminating the possibility of their employers neglecting or violating the psychological contract.

The results also showed that even though the 79 year old subject spent most of her working years interacting with employers who were mainly of an autocratic nature, she also attributed high value to job satisfaction, loyalty, and transparency and honesty. The reason for this could possibly be because regardless of what the subject has been exposed to in terms of the working relationship; she still valued these things in the broader sense of life, or the broader sense of society. These values or psychological needs could not be supressed by an employer or a manager. When asked what she liked about the job she was employed at for the longest period her answer also reflected that these psychological needs were being fulfilled within that workplace.

Comparing these three subjects also highlighted the importance of a psychological contract. The subjects showed little interest in staying loyal to an employer who would, within a set scenario, violate or neglect their psychological needs. This proved to be even more significant for the subject in the ‘Y-generation’ – because of the distinctive characteristics in this generation which include people with a much higher tendency to question their surroundings, situations and authority. The subject stated that she would resign from an employer or seek legal action if any of her needs were neglected unfairly or if she became unsatisfied with the working conditions.

In conclusion to the study above and the exploration of the psychological contract, the observation can be made that the psychological needs of people employed within an organisation is crucial for lower staff turnover, satisfying working conditions and the overall psychological well-being of employees. It becomes apparent that modern organisations have a better understanding of the psychological contract and why they dedicate training programmes to understand these needs and assign higher value to them. Modern organisations therefore have more visibility in terms of the iceberg model on these factors and they can be better managed, whereas the value of these operations was not as high 30 or 40 years ago. Companies and organisations needed to adapt in order to satisfy the new generation of workforce entering the workplace.

The importance of the psychological contract can also be noted in wider society, as these needs and expectations form part of society’s basic outlook of life and it dictates how they interact with others. By nurturing these values and expectations organisations’ employers are upholding the values of communities and society too. This would then ultimately determine the success of the company as well because if the community notices that a firm attributes high value to psychological needs their attitude towards that company will most likely be positive and will perceive the company as an attractive working environment which would attract better skilled workers. Therefore, the importance of the psychological contract should never be underestimated.

  

REFERENCE LIST

¯  Chapman, A. (2010). Psychological Contracts Theory. Available from: http://www.businessballs.com/psychological-contracts-theory.htm (Accessed on 15 May 2012).

¯  Alchemy for Managers, What is a psychological contract? (n.d.). Available from: http://www.alchemyformanagers.co.uk/topics/6ixdhhPwDvZFjsZc.html (Accessed on 15 May 2012)