Discuss the Key Factors Affecting Change in the Psychological Contract

Discuss the key factors affecting change in the Psychological Contract

The psychological contract can be defined as meaning that ‘an employee’s beliefs about the reciprocal obligations between that employee and his or her organization, where those obligations are based on perceived promises and are not necessarily recognized by agents of organization’ (Morrison & Robinson, 1997:239).The psychological contract is not a new concept in organizational psychology and it had been researched by several experts. However, in recent years, there have been multiple changes in this area and it still needs to be focused. In this essay, the internal factors and external factors that affecting change in the psychological contract will be explored.

The internal factors for the change in the psychological contract consist of the change of enterprise structures and mutual expectations between employers and employees. First of all, the enterprise structures are undergoing a transformation, especially in the agent theory appeared in one enterprise. Owners of an enterprise used to be as a manager in the past and make the contract to the staff directly, in that case, the rights and obligations were quite clear and the demands from managers were in congruence with those from the organization itself. As agent theory develops, there are plenty of agents for the organization and they may be offer different or competing contracts for their benefits, as a consequence, the expectations and promises given by the organization might have been arbitrarily changed by either agent (Guest, 1998).

Secondly, the shifting mutual expectations between employers and employees can be divided into two aspects. On one hand, People’s lives today are wealthier, more colorful, more varied, and far better informed and connected than ever. People are aware of more, they have more, and want more from life and working, they no longer stay dutifully working for the same employer for as long as the employer needs them. Excellent workers can far more easily find alternative employment than twenty years ago, and this trend naturally expands their expectation for employer (Businessballs, 2010). On the other hand, in order to adapt to the increasingly competitive market and pursue the profits, the employers have to make higher demand for their employees, this means that the increasing expectation for employee may affect the change in the psychological contract.

The economic environment and human resource management as the external factors will be analyzed. Firstly, with the shifting economic environment, there have been a lot of changes in labor markets and work practices, the employment has tended to become more flexible, uncertain and stiff, as a consequence, it is difficult to sustain the high levels of job security, when employees face those uncertainties such as downsizing, restructuring and the type of expectations employee hold about employment can be altered and the psychological contract can be shifted (Westwood, Sparrow & Leung, 2001). It is not surprising that the shifting economic environment plays a crucial role in affecting change in the psychological contract. Westwood, Sparrow & Leung (2001) took Hong Kong as an example, with the increasing global economy, there has been significant foreign direct investment and other kinds of engagement with the post-industrial economies. The rising trend means that the local labour may face increasing competition and the high skilled professionals will be demand. On one hand, some of these changes represent numerous opportunities for qualified workforce, on the other hand, it poses a threat for others. As a result, this trend may lead to employees conveying different and shifting expectations for employers and thus contribute to changes in the psychological contract.

Moreover, in the human resource management (HRM) area, we see a shifting tendency from direct systems of management such as personal supervision and traditional paternalism to more technical systems of management and more humanized management, and we have seen a growing professionalization of the role (Redman & Wilkinson, 2008).Westwood, Sparrow and Leung(2001) consider that as for the relationship between HRM climate and the psychological contract in a company, the study confirms that HRM policies and practices do have a strong determining effect on psychological contracts, They acknowledge that HRM systems include five areas: planning and the design of jobs, recruitment and selection, performance evaluation, salary and wages, and training and development. ‘Performance management and reward systems encourage the development of broad-based and/or multi-faceted skills, often within a competencies framework, that are not job specific and that provide deployment flexibilities for the employing organization’(Westwood, Sparrow and Leung,2001:622). In term of training and development, it can enhance employee’s morale, motivation and creativity, and acquire knowledge and skills. Training and development not only improve the quality of employee but also make more profits for their organization. Consequently, it has more positive effect for psychological contract. In the area of salary and wages, employees are treated fairly and the incentive mechanism can make employee more confident and pursue their value. In conclusion, it is important for us to study those factors in human resource management which are affecting change in the psychological contract.