MANAGING THE PSYCHOLOGICAL CONTRACT
Definition
Psychological contract: An employees perception of his or
her exchange relationship with an organization: outcomes
the organization has promised to provide and contributions
the employee is obligated to make.
Perceptual in nature:
Subject to errors and biases
Idiosyncratic
Perceived relationship:
Employees & organization
Reciprocal promises & obligations
Psychological
Contracts 'iceberg'
diagram is a helpful
way to illustrate
some of the crucial
aspects and
influences within
Psychological
Contracts theory.
DETERMINANTS
LOYALTY
- When both parties honor the psychological
contract, a bond of loyalty is formed between the
Advantages two.
EMPATHY
- In this kind of working relationship, the ability to
understand one another as human beings can
make a big difference.
OPEN COMMUNICATION
- When trust has been established through the
psychological contract, it makes easier for both
parties to exhibit openness and honesty.
SATISFACTION
- When the terms of the psychological contract are
There is no agreement, written of
psychological contract; hence it is
doubtful whether it can be
considered a contract at all.
Disadvantages
Organizations consist of many
different individuals have specific
expectations about their rights and
obligations those individuals and
groups.
Violation of the psychological
contract carries a clear view of a
broken promise.
It may be redundant and
PSYCHOLOGICAL
CONTRACTS- EXAMPLES
PRET A MANGER
Important aspect of relationship
between company and its
people
Do not promise incredible
rewards but reasonable pay and
lively environment
High emphasis on above
average training and
development
PSYCHOLOGICAL
CONTRACTS- EXAMPLES
ERNST & YOUNG
High attention to people growth
and satisfaction
Continuous learning
opportunities
Expects its people to develop
their careers
Rewards according to individual
contribution
PSYCHOLOGICAL
CONTRACTS- EXAMPLES
MINING COMPANY
A shift from supply led to
customer led
Strategy- To stay best is
through developing diverse
talent
Makes no reference to financial
rewards
Provide jobs that offer
opportunity to add increasing
THE
DIFFERENCE
PRET A MANGER- Reasonably
hard working
ERNST & YOUNG- Succeeding
for clients
MINING COMPANY- Focusing on
delivery experience
A DIFFERENT PSYCHOLOGICAL
CONTRACT
JOHN LEWIS CASE
The psychological contract can be used as a
powerful vehicle to drive behaviour and, more
importantly, business performance.
The notion that the psychological contract can
influence behaviour was proposed by Schein.
Though it remains unwritten the
psychological contract is a powerful
determiner of behaviour in
organizations.
-Schein
John Lewisisachainof
upmarketdepartmentstoresoperating
throughouttheUnitedKingdom.The
firstJohnLewis storewasopenedin1864
inOxfordStreet,London.
PSYCHOLOGICAL
CONTRACT AT
JohnLewisisOneofthebestknownUK
JOHN LEWIS
retailorganizations.
AspecialfeatureofJohnLewisisthat
insteadofbeingownedbyshareholdersit
isapartnershipownedbyallitslong-
serviceemployees.
JohnLewisisuniqueinoperatinga
psychologicalcontractwhereall63,000
permanentemployeesarethemselves
ownersofthebusiness.
Commitment of partners to the
As it says on
the John Lewis business at John Lewis is a unique
website source of competitive advantage which
has fuelled 75 years of profitable
growth and a reputation amongst
customers and supporters unparalleled
in UK retail industry.
What John Lewis expects from What partners can expect from
partners John Lewis
Exceptional quality of customer Competitive pay, bonus based on
service
John business success and discounts for
Lewiss staff purchases
implied
psychologi
cal
Collective Responsibility-treat Work as a co-owner of the business-
contract
colleagues fairly and with respect with staff committees involved in key
decisions
Propose new ideas and use skills and Fair and equal opportunities , and
knowledge to assist the organization wherever practicable promote from
within
Honesty and integrity towards Loyalty holliday and leisure facilities in
colleagues and customers Lake District, Poole Harbour, and so
on.
The implication of the partners owning John Lewis is that
the psychological contract is not between employees and
the business, rather their psychological contract is between
each individual partner and all the other partners.
This therefore creates an altogether different quality of
relationship than the one between an employee and their
employer.
It is manifested by the organizations expectation of
collective responsibility, treating colleagues with
respect and behaving as a co-owner.
Partners(equivalent to
employees) are expected to
focus specifically on serving
Another customers and they can
feature of expect to share in the success
John Lewiss
psychological
of the business which arises
contract from this.
There is a clear commitment to
provide a payback to
employees when their focus
on the customer bears fruit.
Strong belief among managers in John Lewis that
the employee care and the sharing of profit
with employees as a result of their contribution
to customer service make a real difference to
business performance.
John Lewis psychological contract is quite special
and differs significantly from those in the vast
majority of profit and not-for-profit organizations.
Hence, John Lewis makes a convincing case
about the importance of the psychological
contract for influencing and driving business
behavior and performance.
Individual beliefs, shaped by the organization,
regarding terms of an exchange agreement between
individuals and their organisations
-Denise Rousseau
Refers to individual employees expectations of
the organisation and also what they believe the
organizations expectations are of them.
Rousseaus definition has now been widely
adopted by the majority of researchers into the
cause and effect relationship between
Redefined psychological contract,its violation and the
view of impact of this on attitudes to work and
Psychological organization behviour
contract His definition implies that there may be two
entirely different contracts in operation when
two people are involved in a work relationship.
One set of beliefs about the exchange agreement
between them in the employees head (person
one) and another set of beliefs about the
exchanges agreement between them in the
managers head (person two)
These beliefs need not be the same
Can be measures, analysed and interpreted
Scheins
view and three
stages
Early work life Development Maturity
Changes to
Psychological
contract
Business pressure
Liberalisation of markets
Push for innovation
Changes in technology
Changes in global economy
SHIFTS IN THE PREVAILING PSYCHOLOGICAL
CONTRACT OVER TIME
Psychological contract has evolved over three
distinct stages:
1. EMERGING PHASE
2. BUREAUCRATIC PHASE
CHANGES LEADING
TO SHIFT..
Bureaucratic style rapidly becoming
history.
Psychological contracts are in a
constant flux.
Mechanisation, automation and IT on
the rise.
Career path changing and opportunities
increasing.
CHANGES IN THE PSYCHOLOGICAL CONTRACT
OLD BUREAUCRATIC CONTRACT NEW ADHOCRACY CONTRACT
Organisation is Parent to employee Child Organisation and Employee are both Adult
Organisation defines employee worth and Employee defines their own worth and
identity identity
Those who stay are good and loyal. Others Regular flow of people in and out of the
are disloyal organization is healthy
Employees who do as they are told will work Long term employment is unlikely- expect
until they retire and prepare for multiple employments
Promotion is the primary route for growth Growth is through personal accomplishment
Research has suggested that employees
TYPES OF today seek one of the following three
PSYCHOLOGICA types of psychological contracts with
L CONTRACTS their employers:
Traditional
Disengaged
Independent
Research also showed that-
Organizations are now more
successful in delivering against the
expectations of employees.
People in their 20s seek to experiment
CONCLUSION
while those in their 50s seek security
and stability.
Changes arising from new technology
and competition leads to contracts
with emphasis on greater individual
output.
Shift in psychological contracts from
bureaucratic to adhocracy.
Individuals and organizations being
treated as adults.
Thanks!
Any questions ?
Group 4
