Impact_of_the_Psychological_Contract_on_Relations_Within_Company_X

Impact of the Psychological Contract on Relations within Company X 1. Executive Summary 2. Problem analysis and solution 2.1. Description of the problem 2.2. Analysis of the problem 2.3. Solutions to the problem 3. Website information 3.1. The Chartered Institute of Personnel Development 3.2. Chief Executive Officer 4. Conclusion 5. References 1. Executive Summary This report discusses how the concept of the psychological contract pertains to the relationship between company X owners and their members. It helps to understand more about the “give and take” relation that characterises working for the company and is very useful in understanding why employees are difficult to motivate, or difficult to manage, especially when the company faces any challenges. Analysis of the psychological contract helps company managers to understand better how to bind their people's needs with those of the company. 2. Problem analysis and solution Company X is a family run business. For almost 30 years it has been successfully providing quality event catering and ice cream vans in London and sites around the UK. For the summer months the company hires a number of additional staff. The employer provides just a standard form contract stating hours worked, pay rate, some major job tasks and entitlements, leaving the details of the employee's duties to be clarified "on the job". The owners themselves are working very hard and are equally demanding towards the staff. They often ask staff to do extra work. Company interests often are put first allowing staff no time off to meet personal or family needs. In such an intense and stressful environment people quickly get tired and lose interest and motivation to perform well because the amount of work they have done is not adequate and sufficient to their expectations and wages they receive. Written contracts only reveal some of what employees do at work. The psychological contract is becoming a powerful concept in the work context and human behaviour. The psychological contract is shaped by individual factors such as work values or personality, describes important aspects of the relationship between the organisation and its members. These relations clearly go beyond what is usually agreed upon in a written work contract and extend into the area of values such as accountability and fairness, implying duties requiring the employees to be loyal and trustworthy. “A ‘healthy’ psychological contract is linked to outcomes such as positive employment relations, employee commitment, motivation and job satisfaction.” (Preston, 2010, p. 15) The psychological contract has been defined 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, 1973; p.92) Simply- the psychological contract is the fairness or balance between how the employee is treated by the employer, and what the employee puts into the job. In the study carried out by Heriot, Manning and Kidd (1997) has been investigated the specific obligations of the organisation and its employees as part of psychological contracts. Organisational obligations cover areas such as justice, recognition, fairness, communication, security, environment, etc. Doing the contracted hours, performing well and being honest emerged as the most important employee obligations. Employees may believe that if they work hard their company will, in return, want to retain them and reward them fairly. In the example employees were expecting that the company will appreciate their commitment, be more flexible in rewarding them for fulfilling additional duties and respecting their personal needs. Although the Psychological Contract is usually seen from the employee’s point of view, a full appreciation requires it to be understood from both sides. The employees have obligations towards the company. Owners can expect that employees will work hard, be honest and loyal to the company and be willing to go beyond one’s job description, especially in emergency. But at the same time owners did respect just their own interests and benefits. Employees felt that the benefits of employment were not evenly distributed between them and the employer. Employees believed that their organization failed to fulfil a promise and that the psychological contract was breached; they felt angry, let down, and were likely less committed and motivated in their jobs. As a result the working environment was quite unpleasant and people were often leaving the company. In the research of Maida Petersitzke, the author highlights the need for continuous communication between the organisation and its members about mutual obligations to avoid breach or violation of the psychological contract caused by a drift in the understanding of mutual obligations. It is important that the organisation offers clear behavioural standards that are defined as fulfilling expected contributions. This increases the chances that employees will adhere to these expectations. The company has to implement decision making procedures that are perceived as fair and maintain perceptions of interactional justice where people feel they are being treated with respect and consideration (Petersitzke, 2009, p. 36- 45). In order to avoid the above mentioned difficulties, the management of company X prior to hire should maximise interaction between company representatives and applicants, and send staff through a formal socialisation process. From the very first moments employer and employees should discuss what they each can offer in the prospective relationship to achieve high level business outputs and results. It is important that employees’ duties are discussed in detail because some of the initial statements may later be remembered as promises and give rise to expectations. Therefore it is very helpful to carefully document offers to reduce the risk of raising false expectations. Company management should keep promises they make, inform employees about changes and downturns in organisational performance, and if the breach of the psychological contract has happened- offer honest explanations as to why this breach has occurred and offer alternatives that reduce the losses. “A positive psychological contract is defined as existing when an employee reports that overall the organisation has kept its obligations in the past, that there is balance in the exchange between the employee and the organisation and that he or she trusts the organisation to keep its obligations in the future “ (Petersitzke, 2009, p. 58). 3. Website information The Chartered Institute of Personnel Development is Europe’s largest HR and development professional body, supporting and developing those responsible for the management and development of people within organisations. They have conducted researches to help management of the companies to understand how to connect their people's needs, expectations with the interests of the organization to increase employee commitment and performance (The Chartered Institute of Personnel Development, http://www.cipd.co.uk/subjects/empreltns/psycntrct/psycontr.htm, Accessed 27.12.2010.). Chief Executive Officer is the essential online industry resource for senior executives. Professionals from around the world use the site to follow up the latest developments in the business research and use their resources to make informed decisions. The site stresses an importance and benefits of implementing of the psychological contract within organisations (Chief Executive Officer, http://www.the-chiefexecutive.com/features/feature1603, Accessed 29.12.2010.). 4. Conclusion The results show that the concept of the psychological contract lies at the heart of relationships between the company and people working in it. It is the deal people make with their employer and colleagues at work; it is about their mutual expectations and their fulfilment. It is very important to have regular communication between management and staff. Understanding conditions of the psychological contract helps management to raise the business game and increase employee commitment and performance. By clarifying the deal employees will better know what is expected of them, and what they are likely to get in return. That reduces the risk of raising false expectations followed by disappointment. The concept also shows a direct link between the psychological contract and employee motivation and job satisfaction, and determines fairness in the way organizations are run and established. As a result, companies where people feel they are being treated with respect and consideration achieve much higher results. 5. References Herriot, P., Manning, W. E. G., Kidd, J. M. (1997). The content of the psychological contract. British Journal of Management, 8(2), 151- 162. Kotter, J. P. (1973). The psychological contract: managing the joining- up process. California Management Review, 15(3), 91- 99. Petersitzke, M. (2009). Supervisor psychological contract management. Gabler, 3.4, 58. Preston, D. (2010). An introduction to human resource management in business. The Open University, 1.3, 15. The Chartered Institute of Personnel Development, http://www.cipd.co.uk/subjects/empreltns/psycntrct/psycontr.htm, Accessed 27.12.2010. Chief Executive Officer, http://www.the-chiefexecutive.com/features/feature1603, Accessed 29.12.2010.