Importance of Psychological Contracts

A psychological contract is an unwritten implied contract that defines the relationship between an employer and an employee at the place of work. This includes the mutual expectations between an employee and an employer. Employers expect certain things to be done by the employees who in turn expect something of their employers on a good performance as well as the working conditions. Some examples of these expectations include promotions, rewards for exemplary performance, a workload that allows a healthy work-life balance, the loyalty of the employees to be rewarded by loyalty from the organisation, management that encourages feedback and couching, leaders that can be trusted and an inclusive work environment that promotes growth. An employment contract, on the other hand, refers to a contract that an employee signs upon employment that outlines the summary of the services that they are supposed to provide, reporting requirements, the terms of payment, the treatment of intellectual property, the terms of employment and dismissal as well as the terms on which both parties can choose to the end the contract and the period time before the contract elapses (Reid and Standryk, 2004). It is important to note that contracts of employment may be renewed or not. Given the definitions above, this task will explore the differences between the contracts of employment and the psychological contract as well as the importance of psychological contracts in the places of work today.

The first difference between the two contracts lies in how the contracts are made. The employment contacts are written, documenting the general duties and responsibilities of an employee unlike psychological contracts (Reid and Standryk, 2004). Psychological contracts are usually unwritten making them implied contracts which include perceived obligations of both the employer and the employee. In this respect, the employment contract will have specific words detailing the responsibilities of both the employer and employee while the psychological contract only entails the reasonable judgment of the employer and employee on their perceived roles and responsibilities. Due to this, most psychological contracts are subjective. The responsibilities and obligations of both parties as per these contacts depend on their willingness to carry them out unlike in the employment contract where the employee and employer must fulfil all the responsibilities as stipulated in the contract. Another difference between the two contracts is that psychological contracts are established verbally in informal discussions between employees and employers with no explicit responsibilities for both and hence are implicit. Employment contacts on the other hand explicitly outline the duties and responsibilities of each party (Andersson & Schalk 1998). In addition to this, it is easy to quantify the breach of the employment contract especially when one party does not do as stipulated by the contact as most of these contacts make provisions for resolution of the same unlike in psychological contracts. Breach of psychological contracts does not lead to resolutions. This breach instead leads to the loss of loyalty, emotional displeasure, lack of motivation, or bad reputation for the firm.  It is almost impossible to tackle the breach of these contracts as it is hard to measure the magnitude to which they have been broken unlike in the employment contracts where it is quite easy to point out targets that have not been achieved or salaries that have not been paid. Finally, psychological contracts are always evolving as the relationship between the concerned parties changes unlike in employment contracts which remain pretty much the same.

Psychological contacts are becoming very important to businesses today because, with more globalization and increased competition, there has been an increased need for employers to openly recognize the importance of their employees in businesses. This includes making them feel valued. This is why psychological contracts are beneficial (Guest & Conway 2002). First, upholding these contacts shows the employees that the management recognizes, values, and respects them. This enables the employees to feel that their role in the company is important which motivates then hence increased productivity. Fulfilment of psychological contacts by the management for instance by rewarding hardworking employees inspires positivity, good attitude, commitment, loyalty, and hard work among employees (Cappelli 1999). This motivates them to fulfil their promises too to the management by producing good results which leads to more benefits for the company such as efficiency in production, profitability as well as excellent employee retention. With increased competition and rival firms ready to offer better terms to exemplary employees, employee retention is very important for any business as well as the ability to offer good quality service and products. All these factors enhance the overall well-being of the company by enhancing the image of the firm which enables it to reap several benefits such as attracting skilled talented labour as everyone wants to work in such a company that keeps the company on an excellent performance.

Psychological contracts are also more codified and specific to different individuals as opposed to other contracts. This implies that there are different psychological contracts for each employee since all of them have unique skills and abilities, all of which when combined lead to the overall wellbeing of the company. The management of any company needs to recognize the diversity among its employees and psychological contracts facilitate this (Burke & Cooper, 2002). These contacts assist the employers to see the intrinsic value of each employee as an individual which enables them to know the strengths, what roles suit each individual and where to place each individual within the company for optimal performance which leads to the optimal performance of the company. In addition to this, these contacts enable the employers not to set unrealistic standards for some of their employees which can demoralize them leading to poor performance. Being seen as an individual by the employers also motivates people to be more productive as they feel valued.

Psychological contracts also fill in the gaps in companies. It is important to note that not all aspects of employees or employers can be captured or codified in the other contacts and hence psychological contracts take care of this. For instance, say John works for XYZ Limited and is paid 1200 Dollars per month. It is difficult to quantify other important aspects of John as an employee such as working well with difficult clients, the fact that he is a team player, assisting the members in his team, and staying in the company even during hard times (Burke & Cooper 2002).                                   These aspects can be captured in psychological contracts where the employee who can do all those things listed above gets a promotion.  In this respect, psychological contacts are used to spell out conditions that would be too difficult or almost impossible to be listed in normal contacts. These attract high-quality employees as well as encourage the employees to embody attributes such as being a good team player to be promoted. This is good for the overall well-being of the company.

Psychological contracts also improve communication within the workplace. This is because these contacts are not formal and hence the basis for their continued development is communication between the employees and the employers.  Communication positively affects the contacts for instance, employees know they are doing well and that their efforts are being recognized (Guest & Conway 2002). A gap in communication between the employer and employee could mean that the manager is not aware of the contribution of the employee to the organisation hence a lack of motivation which leads to a drop in productivity. In this era of technological advancements, communication and personal contact between the employees and employers is important as it increases cooperation, teamwork which is important for the overall well-being of the company.

In conclusion, the psychological contract is an unwritten implied contract that defines the relationship between an employer and an employee at the place of work. An employment contract, on the other hand, refers to a contract that an employee signs upon employment that outlines the summary of the services that they are supposed to provide, reporting requirements, the terms of payment, the treatment of intellectual property, the terms of employment and dismissal as well as the terms on which both parties can choose to the end the contract and the period time before the contract elapses. The differences between the two contacts include the fact that an employment contract is explicit while the psychological one is implicit. In addition to this, most psychological contracts are subjective and hence the responsibilities and obligations of both parties as per these contacts depend on their willingness to carry them out unlike in the employment contract where the employee and employer must fulfil all the responsibilities as it is stipulated in the contract (Andersson & Schalk 1998). The benefits of psychological contact have also been explored in this task. These include the fact that these contracts enhance communication and cohesion in the organisation, they can also be tailor-made for each employee to fit their differences as well as filling in the gaps by spelling out information that is hard to capture in the other contacts as well as the fact that the management makes the employees feel valued when it honours these contracts. This motivates employees prompting them to increase their productivity. With all the information above, psychological contracts are instrumental for all organisations to uphold due to the many benefits they attract to an organisation.

References

Andersson, N. & Schalk, R. (1998). The psychological contract in retrospect and prospect. Journal of Organisational Behavior, 19 (Special Issue). 637-648

Burke, R. & Cooper, C. (Eds.). (2000). The Organisation in Crisis. Oxford: Blackwell Publishers.

Cappelli, P., 1999. The new deal at work: managing the market-driven workforce. MA, Harvard Business Press.

Guest, D. & Conway, N. (2002). The Psychological Contract in the Public Sector. London: CIPD. 

Reid, R.B., and Standryk, L.E., 2004. The Written Employment Contract. Lancaster. Brooks & Welch LLP. Web

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