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Bangor Business School

Working Paper






Professor Sally Sambrook &

Delia Wainwright

Division of Business Studies

April, 2010

Bangor Business School

Bangor University

Hen Goleg

College Road


Gwynedd LL57 2DG United Kingdom Tel: +44 (0) 1248 382277 E-mail: business@bangor.ac.uk The Psychological Contract: Who’s contracting with whom?

Towards a conceptual model Abstract This paper provides a review of literature regarding the concept of the psychological contract, a complex concept within organisation behaviour. Having explored the key dimensions of the psychological contract within the extant literature, we identify a gap in knowledge associated with the parties involved.

That is, little research explores exactly who is contracting with whom. The paper highlights key issues such as the anthropomorphising of organisations and individual characteristics, such as profession and personality. Most research analyses the contract at either organisational (macro) or individual (micro) levels.

This paper makes a small contribution to advancing our understanding of this complex concept by providing a middle, integrated or meso-level conceptual model of the various potential contract-makers and how they might interact. This identifies the various parties involved: organisation principals and agents (such as managers and human resource practitioners), individuals and co-workers, and how these might vary over the life-cycle of employment, from both organisation and individual perspectives. It also notes the role of human resource practices.

The Psychological Contract: Who’s contracting with whom?

Towards a conceptual model

1. Introduction In this paper we provide a review of literature regarding the concept of the psychological contract, a complex concept within organisation behaviour. Our aim is to explore ‘who’ are the contracting parties and theorise who is contracting with whom within these complex human-organisation relationships. From our comprehensive review, we identify a gap in knowledge associated with the parties involved and ask the question: ‘Who is contracting with whom?’ This paper makes a small contribution to advancing our understanding of this missing element within the psychological contract literature by providing a conceptual model of the various potential contract-makers and their interactions. It identifies the various parties involved from both organisation and individual perspectives, noting the role of human resource practices..

The paper is structured as follows. First, we provide a brief overview of the psychological contract and a review of definitions to set the context. Second, the main section discusses the elements which are of particular relevance when addressing the question of who is contracting with whom. Here, we identify the contracting parties, including the anthropomorphising of organisations and the individual influencing characteristics of personality and profession, recognising their dynamic and context-specific nature. Although the two key parties are individual (micro) and organisation (macro), drawing upon the review, we propose a middle, integrated or meso-level conceptual model illustrating the various contractmakers and their interactions, and how these may vary over the life-cycle of employment. The paper ends with our conclusions and recommendations for research.

2. Brief overview of the Psychological Contract There is no clear consensus on the definition of the psychological contract (Guest and Conway 2002). ‘Historically, each researcher or writer has defined the psychological contract construct in some way that she or he feels is suitable, or has adopted one of the existing definitions, with little or no explicit consideration of competing views of the construct’ (Roehling 1996: 214).

The American organisational psychologist Chris Argyris (1960) first utilised the term psychological contract. Argyris made reference to a psychological work contract and he defined it in terms of there being an implicit relationship between the employees and their foreman. He believed that the psychological contract between the parties allowed for the expression and gratification of each others’ needs.

Levinson et al (1962: 21) defined psychological contracts as, ‘a series of mutual expectations of which the parties to the relationship may not themselves be dimly aware but which nonetheless govern the relationship to each other.’ Within their work there is an emphasis on needs and that leads to the development of relationships where each party behaves in ways that fulfils the needs of the other party. There are reciprocal elements to the relationship which will continue as long as the parties continue to meet each other’s need and there is an assumption of reciprocity. Purvis and Cropley (2003) argue that such an assumption of reciprocity between the two parties in the exchange relationship remains core to the definition of the psychological contract as laid out by the early writers.

The concept was then developed by the social psychologist Edgar Schein (1965) who defined the term as, ‘the unwritten set of expectations operating at all times between every member of an organisation and the various managers and others in that organisation... Each employee has expectations about such things as salary or pay rate, working hours, benefits and privileges that go with a job…the organisation also has more implicit, subtle expectations that the employee will enhance the image of the organisation, will be loyal, will keep organisational secrets and will do his or her best.’ Here, there is reference to the potential parties involved, including employees, managers and the organisation. Schein believed that the psychological contract whilst unwritten was a ‘powerful determiner’ of the way people behave within organisations. The psychological contract according to Schein has two levels: individual and organisational (Anderson and Schalk 1998).

Schein introduced the idea that various managers exist within an organisation and the diversity of relationships within an organisation could not simply be defined by labelling individuals as either the ‘employee’ or the employer’. This draws explicit attention to the need to identify actually ‘who’ is contracting with ‘whom’?

Argyris (1960) refers to an understanding between a group of workers and a single foreman whereas Schein’s definition focuses on the relationship between a group of employees with various managers not just one individual. Schein’s work is also more concerned with understanding the employment relationship from both the employees’ and employer’s perspectives. Agyris (1960), Levinson et al (1962) and Schein (1965) all used the term the psychological contract to describe an implicit agreement, of expectations, between the parties in the employment relationship.

Levinson’s focus was on the relationship between individual employees whereas Schein’s emphasis was on a group of employees. Such early work hints at the ambiguity associated with the contracting parties, and we suggest further research is needed to clarify this. Later, Kotter (1973: 92) defined the psychological contract as, ‘an implicit contract between an individual and [his] organisation which specifies what each expects to give and receive from each other in their relationship’. Kotter viewed this as changing over time as the company’s and the individuals’ expectations change. This suggests a dynamic dimension to considering who is contracting with whom. Expectations might change over time, but so also might the individual contracting parties, and further research is required to examine this.

There is widespread recognition within the literature that there are two distinct phases in the development of psychological contract theory: the early phase and the phase following Rousseau’s (1989) reconceptualisation of the psychological contract (Roehling 1996, Conway and Briner 2005). Rousseau’s work shifted the emphasis away from expectations towards the promissory nature of the psychological contract. ‘The term psychological contract refers to an individual’s beliefs regarding the terms and conditions of a reciprocal exchange agreement between that focal person and another party’ (Rousseau 1989: 123). Within Rousseau’s definition there is the belief that a promise has been made, a consideration offered in exchange for it and this binds the parties to some set of reciprocal obligations.

Rousseau shifted the concept of the psychological contract away from it being based on individual’s needs towards a concept based on individual perceptions of observable behaviour. Rousseau also clearly emphasised the employee perspective, arguing against organisations being anthropomorphised and holding their own contracts (although accepting that individuals as representatives of the organisation hold contracts). Later, Rousseau and McLean Parks (1993: 6) stated that, ‘promises are a commitment to a future course of action... [they] may be oral or in writing, behavioural or observed.’.

Within different definitions there has been differing emphasis on features of the contract including beliefs about obligations, expectations and mutuality. There is no complete agreement about which element to emphasise. Guest (1998: 651) argues ‘The psychological contract may be about perceptions, expectations, beliefs, promises and obligations.’ Anderson and Schalk (1998: 637) suggest that mutual obligations are of central issue in the relationship between the employer and the employee but argue that these obligations are, ‘for the most part implicit, covertly held and only infrequently discussed’. They further emphasise that there is an investment by both parties into the relationship with an expectation of a positive outcome for each party. These mutual obligations arise as a direct result of when individuals infer promises that give rise to beliefs between the employer and employee about the existence of reciprocal obligations (Rousseau 1989). Later, Rousseau and Greller (1994: 386) define the psychological contract simply as, ‘the actions employees believe are expected of them and what response they expect in return from the employer’. This definition could be considered limiting as it is only interested in the perceptions of one party to the employment relationship. Further research is required to examine organisational perceptions and expectations, but ‘who’ is the organisation?

Form of contract describes the way an employee interfaces with the employing organisation (Rousseau 1989) and can be classified as transactional or relational.

Transactional contracts are concerned with economic exchange and relational are more concerned with mutual trust involving some obligations (Robinson and Rousseau 1994, Robinson, Kraatz and Rousseau 1994). Transactional contracts are narrow in focus and may be tightly defined (CIPD 2005). Arnold (1996) identified that transactional contracts are more likely to be short term and they are also more likely to be publicly observable. As they are usually concerned with an economic exchange they are less likely to be reliant on the relationship between the employer and the employee, thus the ‘who’ is perhaps of little importance. In contrast, relational contracts are likely to be broader ranging and diffuse in nature (CIPD

2005) and are reliant on the relationship between the employer and the employee.

Here, identifying ‘who’ is contracting with ‘whom’ will be of greater importance, although we note that this has not been widely considered in existing literature, and provides a substantial item for a future research agenda. Arnold (1996) describes relational contracts as being intangible, indefinite, wide-ranging and subjective to the parties involved. This would suggest qualitative and interpretive research is needed to explore these complex and subjective relational contracts.

DelCampo (2007) points to the dichotomous nature of psychological contracts reiterating that they can have both transactional and relational elements. Herriot and Pemberton (1997: 45) highlight that, ‘while the content of psychological contracts is likely to be varied, the process of contracting may be similar wherever contracts are made.’ It is the process of who is contracting with whom that is of interest to us as there is limited research in this area. Rousseau and McLean Parks (1993) argue that transactional and relational contracts differ in five different dimensions: focus of the contract, time frame, stability, scope and tangibility. Janssens, Sels and Van den Brande (2003) and Sels, Janssens and Van Den Brande (2004) validated that there are six dimensions to the nature of the psychological contract, labelled: tangibility, scope, stability, time frame, exchange symmetry and contract level. Exchange symmetry refers to the degree to which the employee perceives the unequal employment relationship as acceptable and contract level refers to the degree to which the employee perceives their contract to be individually versus collectively based (ibid: 467). This hints at an imbalanced power dimension and further ambiguity regarding the contracting parties, which warrants further investigation.

3. Who is Contracting with Whom?

The key question of ‘who is contracting with whom’ can be explored in a number of ways. In order to establish the employee ‘who’ it is necessary to take into account a variety of factors. These include ‘who’ they are in terms of their professional background and work context. For example, this could include public, voluntary or private sector organisations, large or small. Individuals belong to a specific employee group but also to the broader ‘professional’ group, such as accountants, or nurses. In addition, ‘who’ these employees are at an individual (personality) level may influence ‘who’ they are in the employment relationship. Equally important is the need to consider the same questions in relation to ‘who’ is the organisation.

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