IntroductionIn the era of globalization, restructuring anddownsizing, psychological contracts arebecoming ever more indispensable in contemporary employment relations.
In thisever-changing situation, the traditional long-term job security contract in exchangefor hard work and loyalty may no longer be valid (Sims, 1994). Very importantissue is the violation of the psychological contract whose probability hasincreased in recent times due to sudden changes. The lack of a stable contractand instead the constant change of it can lead to the possibility ofmisunderstanding the agreement by employees and employers, thus perceiving anon-effective violation of the contract. Given this perception of violation ofthe contract of labor it is relevant to understand this phenomenon. Aim of thisessay is to understand the meaning of psychological contract and implicationsof its potential violations. The importance of ethical approaches to HRM andits way to maintain a positive psychological contract will also be addressedthrough the deepening of HRM related issues.1. Psychological contractThe relationship between employers and employees isdefined by two different types of employment contract: the psychologicalcontract and the legal contract.
The employment contract (technical-legalcontract) can not contain all the elements that characterize a workrelationship. It is incomplete and implicit, especially as regards themanagement of the company-employee relationship. For this reason it isimportant to manage in the best way what has been defined the psychologicalcontract. The psychological contract has been defined by Rosseau(1989) as ‘an individual’s beliefs regarding the terms and conditions of areciprocal exchange agreement between the focal person and another party’ (p.123). This type of contract differs from the formal employment contract becauseit is referred to “a set of unwritten reciprocal expectations between anindividual employee and the organization.” (Schein, 1980) (expectations ofsupport and stimulation of individual skills and professional potential).
Thepsychological contract is about “the perceptions of employee and employer, ofwhat their mutual obligations are towards each other” (CIPD, 2012), includinginformal arrangements, mutual beliefs and perceptions between the two parties. The psychological contract, unlike the legal contract,has a much more fluid nature and evolves over time in relation to social andcultural changes. Furthermore the content of the psychological contract evolvesconstantly based on communication, or the lack thereof, between the two partiesof the contract, employee and employer.
Such contracts are deemed to bevoluntary, subjective, informal and dynamic (Hiltrop 1996), with elements beingadded and deleted over time as employee and employer expectations change(Robinson et al. 1994; Herriot 1995). Promises over promotion or salaryincreases, for example, may form part of the psychological contract. Takentogether, the psychological contract and the employment contract define theemployer-employee relationship. 1.1. Psychological Contract Breach and TrustIn addition to differing from the legal contract forall the points explained above, the psychological contract differs from thelegal one for a really important aspect: procedures followed in the event of a breach of contract.
Unlike theviolation of a legal contract, in which the aggrieved party may seekenforcement in court, such recourse is not offered in case of violation of apsychological contract; in this case the aggrieved party may choose only towithhold contributions or to withdraw from the relationship (Spindler 1994).Psychological contract breach is a subjective experience, referring to one’sperception that another has failed to fulfill adequately the promisedobligations of the psychological contract (Rousseau, 1989). Being a subjectiveexperience, relevant is the perception of a psychological contract breach whichis based on an individual’s perception of employer’s actions or inactionswithin a particular social context. Thus the experience of psychologicalcontract breach should depend on social and psychological factors specific tothe employment relationship in which it occurs (Morrison and Robinson, 1997).
One such factor of a particular importance is thetrust in one’s employer. Trust is the basis of relationships and contracts,influencing each party’s behavior towards the other and one’s owninterpretation of social behaviors within a relationship. Trust is thus likelyto play a significant role in this situation: Trust in one’s employer mayinfluence an employee’s recognition of a breach, his or her interpretation ofthat perceived breach if it is recognized, and his or her reaction to thatperceived breach (Roderick M. Kramer, 2006). https://global.oup.com/academic/product/organizational-trust-9780199288496?cc=gb=en breaches of the psychological contract canseverely damage the relationship between employer and employee, leading todisengagement, reduced productivity and in some cases workplace deviance. 1.
2 Fairnessand justice of PCFairness is a significant part of the psychologicalcontract, bound up in equity theory – employees need to perceive that they arebeing treated fairly to sustain a healthy psychological contract. In the nextparagraph will be addressed issues of inequity cases.The psychologist Adams was a pioneer in applying theprinciple of fairness in the workplace. Adams (1965) maintains that employeesprefer conditions of equity in relations with the working environment, and ifthere are injustices, tension is created which consequently is de-motivatingfor the worker. With fairness Adams means: – there is fairness when, theperception of the individual on the relationship between what he brings in the exchangeand what happens in the exchange coincides with the analogous relationship inanother person taken as an object of comparison (1965). According to thetheory, in order to ensure a strong and productive relationship with theemployee and consequently to maintain a positive psychological contract it isnecessary to find a fair balance between the inputs of an employee (hard work,skill level, acceptance, enthusiasm and so on) and the outputs of an employee (salary, benefits, intangible assets such as recognition and so on).
The respectof the equity will lead to a series of benefits such as happy and motivatedemployees. Organisational justice theory (Greenberg, 1987)focuses on perceptions of fairness in organisations, by categorising employees’views and feelings about their treatment and that of others within anorganisation. Literature identifies three different types of organizationaljustice theory (Greenberg, 1987; Folger and Cropanzano, 1998). The distributivejustice which has at its base the perceptions about the outcomes of decisionstaken (Homans, 1961, Leventhal, 1976). Procedural and interational justice,often treated as one in the literature, are based on perceptions about theprocesses used to arrive at, and to implement, these decisions (eg Cropanzanoand Greenberg, 1997).
Procedural justice focuses on employees’ perceptions ofthe fairness of procedures used to make decisions (Thibaut and Walker, 1975).On the other hand, interactional justice focuses on employees’ perceptions of thefairness of the interpersonal treatment received during implementation (Biesand Moag, 1986). These perceptions can influence attitudes and behaviour forgood or ill, in turn having a positive or negative impact on employeesperformance and the organization’s success and consequently on the respect ofpsychological contract (Baldwin, 2006). Having well-designed systems oforganizational justice lead to positive aspects for both parties, theindividual, who will be satisfied for having been treated fairly and theorganization which will keep control over potential challenges and threats fromits staff. file:///C:/Users/utente/Desktop/mp73.pdf2.
HRM related issues Often the notion of justice become more relevant andtangible when perceived injustices occur, such as unequal pay for men and womandoing the same job, performance reviewsbeing conducted by someone with whom the employee has had little previous contact,the use of personality inventories to select new staff, arbitrary dismissals. Inthis paragraph will be addressed two HRM related issues and the way that anethical approach to these practices can help maintain a positive psychologicalcontract.2.1DiscriminationWhen employees perceive that they are not beingtreated fairly, equity value of psychological contract is violated bydiscrimination. Legal scholars theoretically concur thatdiscrimination involves the disparate treatment of similarly situatedindividuals because of their sex, race, color, national origin, religion orsome other protected characteristic (Belz 1991; Blumrosen 1993, p. 50). Discriminationin the workplace violates the principle of fairness that should be guaranteedto all employees, obviously this is illegal but in practice it is verydifficult to identify the boundary between what is fair and what is not. If aparticular behavior or practice is considered discriminatory it is subject bothto the dispute and to the change (Burstein 1990, 473).
Employees must be informedabout their rights under the EEOC laws by their employers who must ensure thatall employees are free from retaliation if they submit a discrimination complaint.There are different forms of discrimination:· Nepotism concerning the practice of hiring familymembers regardless of their qualifications. when the hired employee isqualified to perform the job for which he is hired this practice can be lessharmful, despite the employee advantage , unlike the opposite case which couldbe counterproductive influencing the company’s profitability.
· Cronyism is the act of hiring friends regardless ofqualifications. This creates workplace conflicts and can result in the loss ofqualified personnel. · Direct discrimination occurs when someone isdiscriminated because of a protected characteristics such as age disability,gender, sexual orientation. · Indirect discrimination occurs when an employer’spolicy applies to all by not taking into account the different protected characteristicsof some subject, disadvantaging them (a same heightlimit for both male and female). 2.1.
1Contemporary ‘real world’ example and ethical approachExample of a direct discrimination is the gender paygap. A contemporary ‘real world’ example of this tipe of discrimination is the45.5% median gender pay gap reported by EasyJet. Women employees of the airlinecompany receive almost half of the male employees salary. Nearly 90% of staffin the EasyJet highest pay quartile are men (a pilot average salary is £92,400), while 65% of the lowest bracket are women (cabin crew andadministrative and management staff earned on average £24,800 and £53,700).EasyJet has committed itself to eliminating this gapby setting itself the target of increasing the number of female pilots by 2020 (Gordon,2017).The anchoring to ethic values, such as fairness, equalopportunities, trust and correctness in order to avoid discrimination, helpsmaintain a positive psychological contract and becomes a guarantee of a correctand transparent behavior (which is already very much these days), but also thesolid base on which to build an involving and motivating organizational contextand a sustainable competitive advantage.
Employers through guidance to theirstaff about which ethical standards they should respect in their work cancreate and sustain an ethical culture and avoid misbehavior. Furthermore therespect of high standards of ethical values from both parties helps to respectwhat is agreed within the psychological contracts maintaining a ‘happy’ and’satisfied’ workforce and it contributes having positive workplace relationsthrough improving the morale and perceptions of equity among employees anddemonstrating the company’s role in supporting social justice issues.https://www.ft.com/gender-pay-gaphttp://smallbusiness.chron.com/types-favoritism-workplace-11537.html2.
2 Remunerationand Reward StrategyRelationships at work are also influenced by anotherimportant key factor that is the remuneration system. Compensation systems arethe basis on which organizations reward employees for their individualcontribution, skills and performance.The two main categories of pay systems are the basicrate system with a fixed hourly, weekly or monthly rate pay without anyadditional payment related to results or benefits; and systems with pay, orpart of it, related to performance or profits, it can also be based on the useof additional skills or expertise. This type of system stimulates workers whowill be induced to give their best in order to increase the salary. The choiceof an organization’s pay system is often decided by negotiation betweenmanagement and employee representatives. Many workers in the United Kingdom are paid by thesimplest system to use that is the basic rate. Workers receive a fixed rate perhour, week or month which by law can not be less than a minimum national wageestablished by the “National Minimum Wage Act 1998” and renamed (and increased)lather in 2006 as “National Living salary”. The hourly rate changes inrelation to the age and if the worker is an apprentice.
Rates are changed everyApril and as showed the GOV.UK website from April 2017 the minimum wage perhour for 25+ aged workers is £7.50.https://www.
2.1Contemporary ‘real world’ example and ethical approachA “Financial Time” 8th December article reports that260 employers have been “named and shamed” by the Government for failingto meet minimum wage rules, due to staff of £ 1.7 million in back pay. Amongthese 260 underpaying employers there are two of the biggest brands in UKdiscount retailing.
The first one well known company is Primark Stores Limited,failed to pay £231,973.12 to 9,735 workers and Sports Direct failed to pay£167,036.24 to 383 workers. The most common reasons for this remuneration issuehighlighted by the BEIS are failing to pay workers travelling between jobs, notpaying overtime and deducting money for uniforms (Financial Times, 2017).Pay is not the only factor thatcould produce improved performance. The workers fair pay for the work they dois essential but there are also other non-monetary ethical factors that arerelevant as well, having a considerable effect on the efficiency of anyorganization, on the morale and productivity of the workforce and which canhelp to maintain positive psychological contracts.Reward system, the employeecompensation for his or her service for an organisation, is an example of waysto help maintain a positive psychological contract.
This goes beyond the meremoney rewards with non monetary compensation really important in order to havea good workplace, such as favourable interpersonal relationship inside theorganization, the challenge and sense of achievement, preferable growthopportunities but also motivation is another function of reward. Reallyimportant in the HRM approaches and strategies is an effectively total rewardstrategy the use of ‘incentive’ payments in order to motivate employees.Introducing total reward strategy probably improves not only employees’ workefficiencies, job satisfaction and job performances but their psychologicalcontract and organizational citizenship behaviours (Z Jiang, ?2009). Thanks to this effective management method thepersonnel can keep positive attitude towards the organizations, might beingless stressful or fairly treated or some else. Schemes based on individualperformance, such as weekly or monthly production bonuses or sales commissions,profit sharing and share-sharing plans can contribute to generating a long-terminterest in workers for the success of the organization.
Other important factorsare intrinsic safety at work the reward systems clearity and simplicity so thatworkers can easily know how they are affected.In addition to the labor-related factors mentionedabove, all additional payments, non-contributory pension schemes and non-casualbenefits such as cars, life insurance and childcare (eg childcare / crèches inthe workplace) may play a role. The results, came out from incentives, ofproductivity and efficiency increases can be shared between employer andworkers for mutual benefit.http://www.ccsenet.org/journal/index.php/ijbm/article/viewFile/4235/3672https://www.ft.
com/search?q=National+Minimum+Wage+ Conclusion A strong anchor to ethical values is of fundamentalimportance in business today. Without it, in fact, tend to prevail behaviorswhich privilege objectives to be pursued at any cost, even at the cost ofviolating the community’s laws, while, if the corporate culture is firmly builton the ethical values of integrity, management correctness and transparency information,the company is protected from the dangers of anomie and opened to the values oflegality. Today’s society, to which companies belong, expects a certain levelof behavior from these. Stakeholders want to be associated with responsible organizations.
Being treated fairly, honestly and consistently is of value to a business’scustomers, suppliers, investors and employees. It builds trust. (O’Donohue, Nelson, 2009)https://link.springer.com/content/pdf/10.1007%2Fs10551-009-0040-1.pdfhttp://www.ibe.org.uk/frequently-asked-questions/3#faq273