The Role of Psychological Contract in Employee-Employer Relationship

This report discusses the concept of psychological contract and its importance in the employee-employer relationship. It explores how the psychological contract can set different needs and expectations for employees and how organizations can respond to changing employee expectations. The report also highlights the role of the psychological contract in improving human capital management and employee engagement.

Assignment
1

Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
CONCLUSION................................................................................................................................8
REFERENCES..............................................................................................................................10
2

INTRODUCTION
The psychological contract refers to the unwritten set of expectations of employment
relationship in context of formal, codified employee contract. It will be considered as important
concept that help for defining the relationship between employee and employer’s relationship.
This report will discuss about the brief concept of Psychological contract and how will
application within organization. It will discuss the different step up that needs and expectation of
each and every employees. Furthermore, this documentation will describe about the role of
psychological contract and how will respond to change the expectation of particular staff
members in organization.
MAIN BODY
Brief idea of Psychological contract
The Psychological contract can develop or evolve constantly based on the effective
communication, or lack of coordination between employers and employees. Usually, it plays
important role within organization which help for maintaining the promotional activities, salary
increases. At that time, it applicable psychological contract while managing an expectation is
consider as important part of employers and representing as key behaviour. This cannot do
accidentally give staff members in wrong perception of particular action. In some situation,
existing employees should manage their own expectations (Arasli, Arici and Çakmakoğlu Arici,
2019). For Example- it may arise difficult situation and adverse personal circumstances that
directly affecting on the business productivity and profitability but not completely managed in
proper manner.
Perceived breaches of Psychological contracts that can directly damage relationship of
employee as well as employer. In this way, it is leading disengagement, reduce productivity. In
context of Psychological contrast, fairness is important part which bound up equity theory among
employee. In order to the handle the complex situation and being treated fairly to sustain a
healthy psychological contract.
3

Psychological contract is important aspect for business, which plays an important role to
improve its human capital management in the workplace. It help for increases the productivity
and focus on better performance management. Generally, it applicable suitable skills, knowledge
of workforce to gain the competitive advantages. Psychological contract has been developed on
the basis of communication between two parties (Chiu, Hui and Bae, 2020). An effective
communication will make parties to understand each other, fulfil all essential expectations,
promises, obligations from that enterprise can manage people better ways to improve skills and
knowledge. On the other hand, Psychological contract can help organizations to engage with
people at workplace, establishing a better understanding and predict how people behave or align
people better to customer and strategic goals. In this way, it is understanding the perception of
both employers and employee at workplace by letting people know what they are expected from
others. Therefore, employee and employers can make legal agreement to know what they have to
do. Besides, psychological contract can drive or shape the extent of individuals, use them to
develop talent or skills which contribute and achieve desirable goal or objective.
How Psychological contract will set different needs and expectation from other employee
Psychological contract has become consider as important part of vocabulary and thinking
of human resource practitioners. Relationship between employee and employer in modern
enterprise resemble as under stress, characterised by poor communication, low level of trust.
Neither is getting multiple benefits, advantage from employment relationship but it has to be
given as top most priority for organizations. Getting staff member to turn up for their own in
easily and try to put more efforts or imagination. Employers should be looking to generate
passion as well as enthusiasm among employees. In this way, it help for making work a happier
experience of each and every employees (Kaya and Karatepe, 2020). Sometimes, it also fulfil all
need and expectation of employees. This can be achieved by creating a positive psychological
contract. As a result, it will be developing as good employment relationships.
In context of new economy, organizations cannot properly survive unless they have
enough knowledge and skill. It is very important thing that needs to be handle complex situation
4

in business activities. it help for people to drive enterprises to failure or success. Typically,
employee as resources have gained a significance as reflected in the annual report generations.
Capital flow become freely across borders and use modern technology, which may support in
business expansion. Furthermore, people who can bring more practical knowledge to
organization so that they can easily manage information in proper manner. it also utilised the
individualism which is representing as traditional collectivistic perspectives (Raj, 2020). It is
becoming consider as valuable aspects, looking their employment as challenge effectively apply
on the basis of unique knowledge at workplace. Sometimes, Psychological contract help for
defined the roles that have caused drastic changes in the expectation of employee within
organization.
The concept of Psychological contract should address relationship between employees
because it is very hard to define clearly in context of formal employee contract such as skills
development, motivation and relationship with co-workers and boss, their role may define as
ethical code by employee or organization will act. By using Psychological contract, organization
will change the policies, procedures according to the demand of labour, increases its flexibility of
workplace. They have been changed or altered the strength of Psychological contract, impacting
on the employee- employer relationship. Drastic change can be possible by psychological
contract in order to fulfil specific need or requirement (Schreuder, Schalk and Batistič, 2020).
Sometimes, it will be designed the overall structure and strategies which has directly impacts on
the growth of employees. Enterprises are being delayered into lean structure and remain
competitive. Additionally, Psychological contract will help to regular promotion and better
career prospects in return to loyalty, hard work which become increasingly rare. Another way, it
supports for emerging the workforce, which is made up of core staff members along with
consultant and other temporary employees.
Explore role of psychological contract
The Psychological contract is defined as abstract relationship between employees and
employers which driven by their perceptions of values. It may refer to perception of each and
5

every staff members towards organization in regards to how perform significant role of
Psychological contract within organization (Shaheen and Bari, 2019). If the employees feel that
they are contributing positively to the enterprises and then putting efforts which being recognised
by enterprise, hidden orientation become successful, value as worth that refer to how create value
added relationships.
Psychological contract plays important role in relationship of both employers and
employees. It must provide the job security and stability to relationship of staff members and
employers. It has dramatically altered in the past decades. Further stresses the change in nature
of loyalty and commitment with emphasis changing from long term career opportunities for
employees on the basis of their current performance (Schreuder, Schalk and Batistič, 2020).
Psychological contract can play important role for changing enterprise procedure while emerging
with transactional in nature and develop as become relational ways. Furthermore, Psychological
contract can be performed the different roles such as job security, regular pay increases,
recognition for current services, respect of experience, giving status or rewards. These are
different facilities and services provided by organization through Psychological contract. In this
way, it will support for establishing a strong relationship between employees and employers.
The New psychological Contract can perform role to offer as employers which providing fair pay
for each and every employees. It provides better opportunities in term of training as well as
development. As a result, employer can offer better job security and opportunities but needed to
change contact in regular basis (Yang, Chen and Mattila, 2020). It is mainly focused on the
highly skilled flexible staff members who have committed towards enterprises but highly
marketable outside the organization. In this contract, individual’s need to commit of different
key areas in which have both long term and short term views. It can utilise to perform continuous
learning, proactive change management, team working and other goal setting.
Psychological contract is basically referred as extra role behaviour in context of
employee performance. It has concluded that different dimension of role performing within
organization such as cooperative attitude, tolerance towards working condition or situation. It is
6

not only handle self-enhancement in positive deed but maintain loyalty to enterprises. It is
helping the employee in term of task execution so that they can achieve desirable goal and
objective.
Discuss how organizations can respond to the changing expectations of employee
When changing the expectation of employee so that organization can respond to create or
develop a new psychological contract according to the need or requirement of employees.
Change and Psychological contract
While the content of psychological contract may difficult, if it is not easy to define or
change immediately. The perceived terms often become very painful when breach of contract is
believed to have occurred (Yang, Chen and Mattila, 2020). At that time, it may be tried to
portray as highly emotional charged construct. In context of organizational change,
psychological contract can assume as increasingly important role in employee relationships. This
type of term related employment agreement is being managed, renegotiated and altered to fit into
particular changing circumstances. Within dynamic environment, it has continuously changing
the need or demand of employee so that organization is able to fill all of their promises of
existing employees. Much of concerned about focus on the changing nature of employment
relationship over past years. It has been decreasing the job security and associated with low level
of employee commitment. Sometimes, it claimed by employee which caused of organizational
restructuring.
Psychological contacts are not static. According to organizational practices, it respond to
change the environment conditions for employees. In this way, they are closely scan their
existing psychological contract in order to re-evaluate, renegotiate both their own and
employer’s obligation. The change of contract will bring more alteration for existing employees
and fulfil their expectations (Yang, Chen and Mattila, 2020). The impact of change on the
psychological contract is basically complicated by diversity of such contracts. It may exist within
organization since, employment condition change over time. Different generations of staff
members have different expectation regarding obligations and entitlements. In case, if
7

expectation exist, organizations are supporting the number of core contract terms and modified
the contract as per demand. Afterwards, they have provided job security, create a status which
become more extremely difficult to change without any violation.
Apart from that psychological contract may also affected by growing resentment among
different employees facing constant, mismanaged change. At certain level, It is considered as
concept of psychological contracting and cynicism which is something negative predication can
be made about the failure or success of enterprise change (Schreuder, Schalk and Batistič, 2020).
That’s why, it has been reinforced by likelihood that cynicism will be decreasing its
commitment, credibility for organization.
Some challenges associated with changing psychological contract, The role of manager
plays a critical way to redefine and regulate change in employee as well as employee
relationship. Therefore, in this time, organizational change, attitude and behaviour of manage as
considered. Psychological contract has been made up on the commitment, loyalty to enterprises.
So as it become easier for fulfilling the expectation of employee in term of job security. Such a
strong expectations do not exists within workforce experiencing. For Example- Manager appear
is not only to have become more vulnerable to loss of jobs but it become difficult to group whose
psychological contract become violated. As a result, it can represent as strong sense among
managers of violation of psychological contract.
8

CONCLUSION
From above discussion, it has concluded that psychological contract plays important role in
context to set of expectations and their effective employment relationship. In this report, it has
summarised about the the relationship between employee and employer’s within organization. It
helps for establishing a better coordination with staff members where everyone shows a personal
interest on the different enterprise task execution. This documentation has described about the
concept of Psychological contract and applicable for improving the current business condition or
situation in proper manner. It can be identified the needs and expectation of each and every
employees on the basis of psychological contract. However, it has been evaluating the significant
role of psychological contract and respond to change the expectation of employees.
9

REFERENCES
Book and Journals
Arasli, H., Arici, H.E. and Çakmakoğlu Arici, N., 2019. Workplace favouritism, psychological
contract violation and turnover intention: Moderating roles of authentic leadership and
job insecurity climate. German Journal of Human Resource Management. 33(3). pp.197-
222.
Chiu, W., Hui, R.T.Y. and Bae, J.S., 2020. Leader-member exchange and turnover intention
among collegiate student-athletes: the mediating role of psychological empowerment and
the moderating role of psychological contract breach in competitive team sport
environments. European Sport Management Quarterly. pp.1-27.
Kaya, B. and Karatepe, O.M., 2020. Attitudinal and behavioral outcomes of work-life balance
among hotel employees: The mediating role of psychological contract breach. Journal of
Hospitality and Tourism Management, 42, pp.199-209.
Raj, A.B., 2020. Impact of employee value proposition on employees’ intention to stay:
moderating role of psychological contract and social identity. South Asian Journal of
Business Studies.
Schreuder, F., Schalk, R. and Batistič, S., 2020, July. Examining team performance: the role of
psychological contracts and engagement among co-workers. In Evidence-based HRM: A
Global Forum for Empirical Scholarship. Emerald Publishing Limited.
Shaheen, S. and Bari, M.W., 2019. Organizational cronyism as an antecedent of ingratiation:
mediating role of relational psychological contract. Frontiers in psychology. 10. p.1609.
Yang, C., Chen, Y. and Mattila, A.S., 2020. Unfolding deconstructive effects of negative shocks
on psychological contract violation, organizational cynicism, and turnover
intention. International Journal of Hospitality Management. 89. p.102591.
10