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33,1 Reviewing the relationship
between human resource
practices and psychological
contract and their impact on
Received 14 April 2008
Revised 23 July 2008
employee attitude and behaviours
Accepted 31 August 2008
A conceptual model
Upasana Aggarwal and Shivganesh Bhargava
Shailesh J. Mehta School of Management, Indian Institute of Technology,
Bombay, India

Purpose The purpose of this paper is to review and synthesise literature on the role of human
resource practices (HRP) in shaping employee psychological contract (PC). Based on this review, a
conceptual framework for examining the relationship between HRP and PC and their impact on
employee attitudes as well as behaviour has been put forward for further examination.
Design/methodological/approach An extensive review of the literature, examining the role of
HRP in influencing PC of employees, between the periods 1972 to 2007 has been conducted. Adopting
the multi-level approach, the paper discusses the role of individual variable (PC) and organisational
variable (HRP) on employee attitudes and behaviours.
Findings The review brings to fore the following: the role of business and employment relationship
strategy on HRP; the relationship between HRP and organisation culture as well as employees
attitudes and behaviours; the relationship between HRP on and employees psychological contract;
and the moderating effect of those conceptions on employee attitudes and behaviours relationship.
Practical implications HRP and PC influence employee attitudes and behaviours as well as have
a bearing on organisational effectiveness. Suggestively, as a policy implication, firms need to craft and
effectively communicate their HR toolkit based on their employment relationship and business
Originality/value The main contribution of this paper is that it synthesises the research
examining the impact of HRP on PC. Adopting a meso theory, the paper integrates both organisational
and individual level variables and proposes a conceptual model.
Keywords Psychological contracts, Human resource management, Employee attitudes,
Employee behaviour
Paper type Conceptual paper

In response to changes in the nature of employment and work, a large body of
Journal of European Industrial literature focusing on exchange relationships between employees and their
Training organisation has emerged in the past two decades. Among the various employment
Vol. 33 No. 1, 2009
pp. 4-31
q Emerald Group Publishing Limited
The authors would like to thank Professor James C. Hayton for his valuable inputs and critical
DOI 10.1108/03090590910924351 comments given during the conceptualisation of this paper.
relationship constructs that have emerged, research on psychological contract has HRP and
blossomed. Psychological contract (PC) characterises the employee-employer psychological
relationship and emphasises organisations attainment of favourable outcomes by
understanding employees expectations. Simply put, psychological contract refers to contract
what an employee owes to the organisation and what can be expected from
organisation in return.
The need to be competitive has resulted in organisations introducing several 5
measures for financial control (Coyle-Shapiro and Kessler, 2000). Amongst various
changes introduced, benefits provided in the traditional exchange relationship such as
life long job security, guaranteed pay increases and assured career opportunities have
been withdrawn (Singh, 1998). In the employment scenario that has emerged, employees
no longer gain secure jobs in return for offering loyalty, but instead exchange flexibility
and hard work for simply having a job. These changes have resulted in altering the
traditional fabric of employee-employer relationship based on the edifice of trust, loyalty
commitment and long-term relationship (Herriot et al., 1997). Furthermore, whilst
organisations are cutting corners in order to survive this fiercely competitive
environment, they continue to need members who are supportive of organisational goals
(Angle and Perry, 1981). Positive employee behaviours that go beyond delineated role
requirements (Katz and Kahn, 1978) are considered essential for organisational survival
(Fukuyama, 1995). Clearly, the nature of employee-organisation relation has changed in
the past one decade and both parties are concerned about the direction in which it is
moving (Rousseau, 1995; Welch and Hood, 1992). PC has been put forward as an
explanatory framework for examining and understanding these changes in the dyadic
nature of the employment relationship (Shore and Tetrick, 1994).
Psychological contract presents an opportunity to examine the fundamental aspect
of organisational life, the employee-employer relationship. Interest in understanding
the psychological contracts of employee has blossomed due to its potential to describe,
understand and predict the consequences of changes occurring in the employment
relationship. PC as a construct offers an account of the reasons for difficulties in
employment relationship currently being experienced by organisations and its
implications on individual and organisational behaviour.
Psychological contracts are by definition perceptual and idiosyncratic. Therefore
even if the organisation offered the same deal to every employee, their reactions will
vary. PC of employees is formed as a result of interaction of various macro and micro
variables (Coyle-Shapiro and Neuman, 2004). Although an employee brings to the table
a set of possible future relationships (McFarlane et al., 1994; Robinson, 1996), they are
subject to change through an interactive influence of individual and organisational
factors that often begins during recruitment (Rousseau, 1990). Individual factors
examined in the literature that shape PC are personality and disposition (Raja et al.,
2004; Shapiro and Neuman, 2004; Ho et al., 2004).
Studies affirm the crucial role of organisational variables such as human resource
practices on influencing employee conception of psychological contract and
organisational outcomes (Kotter, 1973; Sims, 1994; Rousseau, 1990; Singh, 1998;
Sims, 1994; Lester and Kickul, 2001; Hiltrop, 1995; Baker, 1985; King, 2000; Vos et al.,
2003; Martin et al., 1998; Grant, 1999; Freese and Schalk, 1996; Guest, 1998; Rousseau,
1995). Further HR practices and psychological contract are related to the business
strategy of an organisation (Rousseau and Wade-Benzoni, 1994). Resultantly, based on
JEIT the business strategic decisions (defender, prospector, analyser and responsive)
33,1 organisations make related choices in HR practices that subsequently result in
psychological contract of employees. Simply put, business strategy and employment
strategy influence the HR practices which in turn determines psychological contract of
One of the most potent organisational factors influencing the psychological contract
6 of employees is human resource practices. Although there have been impressive
number of studies discussing the impact of specific HR practice (viz. training, rewards,
career management) on PC of employees, strangely however, there has been no effort to
systematically synthesise the links between these constructs various (HR practices and
the PC).
To better understand the influence of HR practices on employees conception of
employment relationship, the prime purpose of this paper is to review and synthesise
the role of various this organisational variable (HR practices) on psychological contract
of employees. The papers draws from and integrates different streams of literature
business strategy at contextual level, psychological contract at individual level, human
resource practices at organisational level and suggests a cohesive multi-level
framework. Paper begins with a discussion on the role of business strategy on the
employment strategy and on the choice of HR practices.
The paper begins with a discussion of business and employment strategy and its
implications on HR practices. This is followed by an overview of research trends in
human resource management and the role of human resource practice on the
psychological contract of employees. Literature on various human resource practices
that can contribute to psychological contract of employees is subsequently reviewed.
The methodology as well as an overview of the findings of the review is presented.
Adopting the much advocated meso approach (House et al., 1995; Kozlowski and Klein,
2000), paper conceptually illuminates the link between macro-variable human resource
practice and micro-variable psychological contract and concludes by proposing a
conceptual model.

Business and employment relationship strategy

Business strategy influences the employment strategy of the organisation. Broadly,
business strategies can be classified as -innovative prospector strategy, the quality
enhancer strategy and cost-defender strategy (Ostoff et al., 2000; Porter, 1980; Miles
and Snow, 1984). Based on these strategic goals, an organisation can have two types of
employment strategies (Hannah and Iverson, 2004). One based on a primarily hard
transactional, economic approach to management of employees, and the second based
on a more soft and relational approach. A transaction approach, usually adapted by
an organisation with cost-defender strategy, is primarily concerned with inducing
employees to make hard, quantifiable contributions. A transaction employment
strategy emphasises human resource practices that involve monitoring of employees
performance levels, quantifying the performance of employees in as objective way as
far as possible, and linking their performance appraisals and their compensation to
those quantified levels of performance. Alternatively, soft components, described as
being a part of social exchange (Blau, 1964), are non-monetisable in nature and hard to
measure and include practices such as job security and providing employees with
sufficient power and responsibility (Robinson, 1996).
Business and employment relationship strategy will have an impact organisations HRP and
choice of human resource practices. Organisations employing cost-defender strategy psychological
focus on operational excellence, efficient use of assets and production at relatively low
cost. A transaction employment strategy is most suitable for organisations employing contract
cost-defender strategy. HR practices suggested useful for fostering behaviours suitable
for organisations with such strategy include relatively fixed and stable job
descriptions, career paths that encourage specialisation and result oriented 7
performance appraisal system, compensation at par with market levels and
minimum levels of employee training and development (Schuler and Jackson, 1995).
In contrast, organisations employing innovative prospector strategy seek out new
markets and produce new and innovative good quality products at reasonable prices.
Flexibility and adaptability are key employee attributes required for a climate of
innovation to foster. If employers want their employees to provide both hard and soft
contributions, for example, they want employees to both work hard and to be loyal,
then they should ensure that they provide hard and soft inducements, as in case of
organisations fostering innovative or quality-enhancer strategy. One way that
organisations can implement this is by implementing high-performance work systems
(Hannah and Iverson, 2004, p. 346) which results in soft contributions in return from
their employees. HR practices that promote flexibility in the workforce and give
authority and control such as training, practices of promotion, use of contingent pay
and job enrichment are encouraged. Finally, firms employing quality enhancer
strategy focus on continuous improvement and producing high quality goods and
services and create a climate of service. HR practices that are consistent with such
strategy includes continuous training and developing high quality orientation in
employees through appropriate selection and reward system (Schneider et al., 1995).
Long-tenured employees are more capable of delivering value to customers, thereby
increasing customer loyalty and profitability (Reichheld, 1996). Therefore HR practices
such as job security that result in increasing organisational commitment should also be

HR practices and employee attitudes and behaviours an overview

One of the critical challenges facing work organisations today is to manage the
changing employment relationships. Human resource managements growing
importance to the organisation stems largely from environmental changes and
emerging organisational needs (Becker and Gerhart, 1996). HR practices have their
impact through two primary means. First, HR practices shape employee skills,
attitudes and behaviours that in turn influence organisational performance (Arthur,
1994; Huselid, 1995). Second, HR practices impact firm performance by creating
structural and operational efficiencies. HR system has been associated with lower
turnover rates (Guthrie, 2001), higher employee earnings in steel and apparel industries
(Bailey et al., 2001) and increased productivity and financial performance (Huselid,
1995). At employee level, strong HR system has been associated with increased job
satisfaction (Berg, 1999) and decreased employee fatigue (Godard, 2001) and
occupational injuries (Barling et al., 2003). Thus research establishes that human
resource policies influence organisational performance as well as employee attitudes
and has bearing on organisational effectiveness. Further, it is also believed that HR
practices can influence employee conception of employment relationship, by
JEIT influencing their perceptions of the nature and depth of their relationship with the
33,1 organisation. Employee conception of employment relationship (PC) in turn influences
work force attitudes and thus has bearing on organisational outcomes. Building on this
premise, in the following section we elaborate how HR practices can contribute to
shaping of employee perceptions of the exchange relationship.
It is believed that traditionally research on HR has been conducted through
8 gathering data from individuals and drawing organisational level inferences based on
individual level results. Certain other studies have adopted an organisation-level
approach and empirically tested the linkages between HR practices and firm
performance (Arthur, 1994; Huselid, 1995; Wood and de Menezes, 1998; Ichniowski
et al., 1997; MacDuffie, 1995) and then extrapolated the results of organisational
effectiveness on individual-level attitudes and behaviours. However it is important to
note that relationship at one level of aggregation does not necessarily reflect similar
trends at the other level (Allen et al., 2003). It is wrong to presume that if HR practices
have positive impact on individual-level outcomes, it will concomitantly result in
organisational effectiveness too. Literature has described such an assumption as
erroneous and an ecological fallacy (Robinson, 1950).
Although studies have examined the impact of HR practices on organisational
performance and employee attitudes and behaviours, extant literature is silent on its
impact on individual level phenomena. As argued by Ostroff et al. (2000):
It is impossible to fully understand how the HR system influences firm performance without
considering mechanisms through which the influence occurs (like climate, culture and
employee attributes) (p. 256).
In order to assess the mechanism responsible for the relationship between HR
practices and employee attitudes and behaviours (Delery and Doty, 1996), the paper
examines the relationship between HR and an individual construct psychological

Research on psychological contract an overview

Scholars have long realised that in order for employers to get desired contributions
from their employees, they must provide appropriate inducements (March and Simon,
1958; Schein, 1965). Satisfied and well adjusted employees, work willingly towards
organisational objectives and respond flexibly to organisational problems (Ostroff,
1992; Likert, 1961; Argyris, 1964). However it has never been easy for employers to
know what employees expect and which kinds of inducements will influence
employees to make desired contributions. Management of expectations is critical for
survival of any relationship. The importance of expectations in shaping psychological
contract has been substantially discussed in the literature in the works of Rousseau
(1990, 1995) along with a number of co-authors (Robinson et al., 1994; Rousseau and
Greller, 1994; Rousseau and McLean Parks, 1993). PC has been defined as employees
promissory expectations regarding the working relationship. Argyris (1960) can be
credited with coining and first utilising the concept and terminology of PC by using the
concept psychological contract framework to describe the relationship between
employees and foreman in a factory. Although early research viewed PC as
unconscious assumption regarding employment relationship (Argyris, 1960; Levinson
et al., 1962) recent work has focused attention on individuals beliefs regarding the
nature of an agreement resulting from promises exchanged between an individual and HRP and
an employer. Initiated by Rousseaus seminal work (Rousseau, 1990), PC over a period psychological
of time has acquired the status of a scientific construct which is used for understanding
the promissory expectations in a working relationship (Millward and Brewerton, 2000; contract
Guest, 1998).
PC is idiosyncratic in nature, which means that individuals vary in terms of the
relationship that they perceive with their organisation. The conceptualisation of the PC 9
is embedded in theories of social schemas (Ho, 1999; Morrison and Robinson, 1997;
Rousseau, 1995; Shore and Tetrick, 1994). A schema is defined as a cognitive structure
that represents organised knowledge about a given stimulus person or situation as
well as rules that direct information processing (Fiske and Taylor, 1984). Rousseau
(2001, p. 512) theorised that employees PC, over time takes the form of a mental model
or schemata, which like most other schemas, is relatively stable and durable. And like
other enduring schemas, an employees PC plays an important role in how employees
interpret and react to the world around them. PC provides employees with an image or
conception of their employment: as an exchange of promised inducements and
contributions. For example, the employer conveys an obligation, we would expect you
to have doubled the profit figures before you could be promoted. An employee will
view this obligation as a part of his or her psychological contract and will consider
promotion as an organisational inducement in return for his efforts. This conception
then serves as a reference point for the interpretation of organisational events.
PC has implications on employee attitudes and behaviours as well as organisational
performance. While the fulfilment of contracts is related to attitudes such as job
satisfaction (Robinson et al., 1994; Tekleab and Taylor, 2003; Pate et al., 2003; Guzzo
and Noonan, 1994), organisational commitment (Lester et al., 2002; Turnley and
Feldman, 2002), organisational citizenship behaviour (Turnley et al., 2003; Robinsons
and Morrison, 1995; Pate et al., 2003), organisational performance (Johnson and
OLeary-Kelly, 2003) and innovative behaviour (Ramamoorthy et al., 2005), the failure
of the organisation to live up to the promises made results in negative attitudes and
behaviours such as intention to quit (Lester and Kickul, 2001) and low citizenship
behaviour (Robinsons and Morrison, 1995; Robinson, 1996). Organisations failure to
honour their promised inducements (e.g. pay, promotion, interesting work) in return for
what employees contribute to the firm (e.g. skills, efforts, loyalty) may be construed as
lack of fairness (Guest, 1998; Herriot and Pamberton, 1995).
Organisations affect individual attitudes and behaviours (House et al., 1995). PC is
developed through an interactive process and is influenced and shaped by various
organisational processes (Rousseau, 1990; Tsui et al., 1997). Human resource practices
are proposed as one of the most potent factors determining the nature and state of
psychological contract (Guest, 1998; Rousseau and Greller, 1994). In fact, Pate (2005) in
her model identified human resource systems as a key workplace characteristic
operating at meso level. It is believed that HR practices send strong messages to
individuals regarding what the organisation expects of them and what they can expect
in return (Rousseau, 1995, p. 162) and are thus indicative of organisation intentions.
HR practices communicate promises and future intents in the name of the organisation
through hiring practices, reward practices and developmental activities. Individuals
commonly view these promises as forms of contracts, as enduring mental schemas and
act according to the commitments conveyed and behaviours cued (Rousseau, 1995).
JEIT Given the impact of human resource practices on employees perception of exchange
33,1 relationship, it was felt that an analysis of the literature trend is warranted. In the
following section, a review of HRP on fostering PC of employees is discussed. Such a
discussion would also set a stage for multi-level examination of PC-HRP.

10 In order to assess the body of literature on psychological contract (PC), an information
search was made on three computerised databases (Proquest, Emerald and EBSCO)
together covering the majority of the published literature in organisational and
management research. The key words used for this search were employment
relationship, psychological contract, promissory expectations, human resource
management and human resource practices. There were approximately 180 studies
referring to psychological contracts in the period 1972 to 2007. In the year 1994 two
journals Human Resource Management and Human Resource Management Journal
covered the topic of employment relationships and psychological contracts. There were
also special issues on the topic published in European Journal of Work and
Organisational Psychology (1996) and Journal of Organizational Behavior (1998, 2003).
In accordance with the objective to review conceptual and empirical research that
addresses the role and impact of HRM in fostering psychological contracts, we
focussed on theoretical and empirical studies based on their titles and abstract. Papers
that specifically addressed HR practices and psychological contract were chosen for
the review. Studies specifically focusing or referring to the role/impact of human
resource practices and psychological contract were approximately 40 in number and
majority of them were published between 1994 and 2004. A list of articles referred for
this review is provided in the Appendix (Table AI).

Overview of findings
Studies examining the impact of human resource on psychological contract of employees
suggest the critical role of HRP in influencing employee expectations. The basic tenet of
the papers reviewed is that organisations human resource practices (HRP) can change
the psychological contract status and influence work related outcomes. Guzzo and
Noonan (1994), whose work can be defined as the foundation for many studies
examining the relationship between HRM-PC, suggest that HRM policies and practices
are the events that employees in organisation interpret . . . much of the information
employees rely on to assess the extent to which their psychological contracts are fulfilled
comes from HR practices of the employer. How employees interpret and make sense of
HR practices affect their psychological contract with their employer, and, ultimately,
their commitment to that employer. Employee loyalty, acceptance of organisational goals
and values and willingness to stick with the firm reflects, to an appreciable degree, the
impact of HR practices (Guzzo and Noonan, 1994, p. 452).
Studies examining the employee-organisation relationship have been carried out in
myriad range of industries from textile, banks, ship industry to airlines and consumer
electronics. The sample population constituted of full-time working employee (Vos et al.,
2003; Pathak et al., 2005; Freese and Schalk, 1996; Singh, 1998; Grant, 1999), part-time
MBA students (Rousseau, 1990; Baker, 1985; Lester and Kickul, 2001) as well as alumni
(King, 2000; Kotter, 1973). Most of the studies have adopted the survey methodology
with only few studies (Kotter, 1973; Grant, 1999; Martin et al., 1998) combining survey
with grounded ethnographic as well as case research to make the description thick HRP and
(Geertz, 1975). Further studies are primarily cross-sectional in nature, the need to have psychological
longitudinal studies recognised (Grant, 1999, Martin et al., 1998). In terms of research
setting, most of the studies have been conducted in the US or the UK. contract
The studies vary with respect to the level of engagement (individual or
organisation) and nature (explicit or implicit) of the contract. Resultantly, the reviewed
studies reflect varying overtones of the concept of psychological contract. While 11
Rousseau (1990) gives emphasis on individuals (employees) perception regarding
mutual obligations and commitments, the advocates of a broad, multi-level approach to
the concept emphasise the need to consider the changing expectations and obligations
of both the organisation and the employee in framing PC (Guest and Conway, 2002;
Herriot and Pamberton, 1995). Further, while few studies believe that psychological
contract is explicit as well as implicit in nature (Baker, 1985; Lucero and Allen, 1994;
Singh, 1998; Rousseau, 1989; King, 2000; Lester and Kickul, 2001; Vos et al., 2003;
Rousseau, 1990; Freese and Schalk, 1996; Stiles et al., 1997; Hiltrop, 1995; Sims, 1994;
Grant, 1999) others studies consider PC to be implicit, unofficial and unwritten
promises (Kotter, 1973; Singh, 1998; Schein, 1980). Majority of the studies have adapted
Rousseaus (1989) conceptualisation of PC (e.g. King, 2000; Lester and Kickul, 2001; Vos
et al., 2003; Rousseau, 1990; Freese and Schalk, 1996; Stiles et al., 1997). Based on the
nature of promise and level of engagement, various definitions of PC used in the
reviewed studies can be categorised as PC as a set of implicit agreement, PC as implicit
as well as explicit agreement, and PC including two parties. The categorisation and
definitions of PC are provided in Table I.
Addressing the subjective nature of PC, studies have empirically examined the
differences in employees promissory expectations across various dimensions.
Literature suggests that employees vary in expectations, interpretation and

Studies that have used the

Category Definition conceptualisation

PC as implicit agreement A set of unwritten and unofficial Kotter (1973), Singh (1998),
expectations between an Schein (1980)
individual and his organisation
PC as implicit as well as Psychological contract is the sum Baker (1985), Lucero and Allen
explicit agreement total of all written and unwritten, (1994), Singh (1998), Rousseau
spoken and unspoken (1989), King (2000), Lester and
expectations of the employer and Kickul (2001), Vos et al. (2003),
the employee, held by the Rousseau (1990), Freese and
individual employee that specifies Schalk (1996), Stiles et al. (1997),
what the individual and the Hiltrop (1995), Sims (1994), Grant
organisation expect to give and (1999)
receive in the working
PC is implicit and explicit The perception of both the parties Guest and Conway (2002), Pathak
agreement held by both the to the employment et al. (2005)
parties relationship-organisation and
individual-of the reciprocal Table I.
promises and obligations implied Developments of
in that relationship definitions
JEIT assessment of PC. Two employees may read, interpret and react quite differently in
33,1 similar situation due to moderating affects of factors like gender (e.g. Singh, 1998;
King, 2000; Freese and Schalk, 1996), work status supervisory/non-supervisory, and
white/blue collared (e.g. Kotter, 1973; King, 2000; Guest and Conway, 2002),
employment category-full time and part time (e.g. Freese and Schalk, 1996),
hierarchical levels (e.g. Grant, 1999; Lester and Kickul, 2001; Freese and Schalk, 1996;
12 Winter and Jackson, 2006), occupational differences (e.g. Lester and Kickul, 2001),
employees age (Blancero et al., 2007; Herriot et al., 1997), length of service and size of
organisation (Herriot et al., 1997) were found to play an important role in influencing
employees expectations of psychological contract. The following paragraph illustrates
how the role of these factors on employees promissory expectations.
Singh (1998) proposed that past experiences of employees impact employee
attitudes at work. Employees who experience layoff are more likely to look out for
self-interests rather than for interests, goals, and objectives of their future employers.
In a study by Freese and Schalk (1996) gender differences with respect to personnel
development were found. Male employees were more dissatisfied with opportunities
for personnel development than female employees. Further, there were differences also
among various work-groups of the same gender. Female part-time employees differed
significantly from female full-time employees with respect to the experienced
opportunities for personnel development. Another study (Martin et al., 1998), found
differences in expectations or need of training as a function of their employment
category white vis-a`-vis blue collared. It was found that while blue collared
employees expectations of training was shaped by their desire to remain employable
with the current organisation, white-collared employees viewed training as a means of
making oneself more marketable outside the company. In a study by Blancero et al.
(2007) on the Hispanic population of the US, it was found that there was a significant
difference in perceived fairness due to age. There was a linear trend of fairness score by
age, i.e. as the Hispanic population got older they reported lower levels of fairness of
psychological contract. Similarly Winter and Jackson (2006) suggest the role of
hierarchical levels by illustrating that although managers and employees shared
similar responses to the state of PC, nonetheless, they attributed different causes to
these states. Managers tended to construct rational explanations and emphasis on
resource constraint, whilst employees constructed emotional explanations and
attributed this situation to an unfair, uncaring or distant management.
In terms of the theoretical foundations, the studies examining the impact of HRP on
PC are based on the conceptual foundation of social exchange theory (SET) (Blau, 1964),
equity (Adams, 1965), and expectancy theory (Vroom, 1964). SET maintains that
employment is an exchange of material and socio-emotional benefits and both employees
and employer enter into relationships with others to maximise their benefits (Blau, 1964).
Norm of reciprocity, which is the basic tenet of SET, rests on the caveats that when one
party benefits another, an obligation is generated (Gouldner, 1960, p. 174). Therefore
when organisations provide employees with what was promised and valued by
employees, latter reciprocate by forming positive attitudes and behaviours (in terms of
commitment, job satisfaction, no intent to leave the organisation and prosaically
behaviours) that aid an organisational to achieve its goals. Certain studies also draw
from expectancy (Vroom, 1964) that suggests that individuals expect that their
performance should result in outcomes which possesses a positive valence for the
employees. Based on equity theory (Adams, 1965) studies also suggest that perceived HRP and
inequity in work related employment promises results in alteration of attitudes and psychological
behaviours (e.g. Baker, 1985; Rousseau, 1990; Sims, 1994; Grant, 1999; Freese and Schalk,
1996; Kotter, 1973; King, 2000; Lester and Kickul, 2001; Stiles et al., 1997; Martin et al., contract
1998; Singh, 1998; Grant, 1999; Guest and Conway, 2002). Table II provides
categorisation of studies based on the foundational theories of the reviewed studies.
Impact of human resource practices on psychological contract
Guzzo and Noonan (1994) have defined HR practice as communication from employer
to employee. Studies suggest that organisational communication can play a critical role
in shaping as well as evaluating psychological contract of employees. Studies
(Robinson and Morrison, 2000; Herriot and Pamberton, 1995; Stiles et al., 1997;
Rousseau, 1995; Turnley and Feldman, 1999; Guest and Conway, 2002; Morrison and
Robinson, 1997) confirm the role of effective organisational communication in shaping
employee perceptions. Broadly, literature on PC suggests that organisational
communication should be carried out in three phases:
(1) Initial introduction, which commences with the process of recruitment.
(2) Ongoing interaction through formal means such as performance appraisal,
(3) Finally communication with employees over time in relation to the job and
personal issues such as workload, development, work-life balance and career
prospects will lead to a more explicit and potentially more effective
psychological contract.

It was found that effective job related and recruitment-based communication was
found to be associated with less perceived breach of psychological contract.
Guest and Conway (2002) draw an interesting parallel between culture the means of
communication using typology of Martin (1992). The authors suggest that an
organisation may choose the type of communication system based on its culture. For
instance, organisations holding a integrationist, differentiation and fragmented

Foundation theories Studies

Rousseaus (1995) social exchange theory Though implicit, but most studies examining the
An employees beliefs about the reciprocal PC-HRM relationship adapt a social exchange
employer and employee obligations being part of framework. However SET has been explicitly
their employment deals used in the study by Vos et al. (2003)
Adams (1965) equity theory Lester and Kickul (2001), Kotter (1973), Guzzo and
Employees evaluate the exchange relationship in Noonan (1994), Stiles et al. (1997), Martin et al.
terms of a ratio between effort spent (input) and (1998), Lucero and Allen (1994), Hiltrop (1995)
reward received (output) at work
Vrooms (1964) expectancy theory Baker (1985), Sims (1994), Grant (1999), Freese and
Individuals have a variety of goals and they Schalk (1996), Rousseau (1990), Kotter (1973),
expect a positive correlation between efforts and King (2000), Lester and Kickul (2001), Stiles et al.
performance. Favourable performance should (1997), Martin et al. (1998), Singh (1998), Guest and Table II.
result in outcomes which possesses a positive Conway (2002) Foundational theories of
valence for the employees reviewed studies
JEIT culture should encourage top-down communication . . . and laissez faire approach to
33,1 psychological contract respectively.
The literature elaborates how various HR policies from recruitment (Sims, 1994;
Rousseau and Greller, 1994), training (Sims, 1994), compensation (Rousseau and
Greller, 1994), benefits (Lucero and Allen, 1994) and employee handbooks
(Schmedemann and McLean Parks, 1994; Rousseau and Greller, 1994) can encourage
14 the interpretation and formation of positive psychological contact. Based on the review,
HRM practices can be broadly classified into hard or soft inducements. In the following
paragraphs we elaborate on how each of these practices has an impact prior to and
then throughout an employees tenure in the organisation on formation, elaboration
and interpretations of a psychological contact.

Recruitment and selection

Employees relationship with the organisation commences with the recruitment
process (Rousseau, 2001). The initial schemas that employees have when they begin
the recruitment process will influence how they react if their expectations are not met.
This stage of employee-organisation relationship can significantly influence
employees conception of employment relationship. Therefore if recruitment process
is managed well, it may significantly influence employees attitudes and behaviours
(Kotter, 1973). As an employee joins an organisation with a belief that the latter will
live up to the promises made to them, in case employers fail to do so, the employees
perceive their PC has been violated and may react in ways that may go against the
interests of the employer (Morrison and Robinson, 1997). Therefore the recruitment
process may be partly responsible for this mismatch. When expectations and
contributions of each party (employees and the organisation) match with what the
other party had expected, stronger employment relationships follow. On the other
hand, unmet expectations are associated with lower performance (Robinson, 1996).
However, the review suggests that recruiters often tend to present jobs in
favourable terms in order to increase the number of employees hired (Sims, 1994).
Studies (e.g. Sims, 1994; Freese and Schalk, 1996; Baker, 1985; Hiltrop, 1985; Guzzo and
Noonan, 1994) illustrate the importance of providing employees with realistic job
previews (RJP) during their entry stages. RJP is defined as a process intended to
provide new or potential organisation members with accurate expectations of job and
organisation (Meglino et al., 1998, p. 259). It is suggested that RJP can shape employee
perceptions about exchange agreements (Rousseau and Greller, 1994) and lead to initial
perception about the climate. Many studies have assessed the role of RJPs in
enhancing new employees adaptation to the job and the organisation. Employees who
do not agree with the perceived terms of exchange and who do not believe that the
climate will be a good fit, will be less likely to accept job if one is offered. RJP ensures
that new comers have accurate expectation from their new job and employer and thus
avoid experience of having unrealistic expectations. Sims (1994) notes four reasons for
providing RJP. First, a job candidate may self-select not to take a job if they consider
the job will not be personally satisfying. Second, knowing all aspects of job, if an
employee still selects it, they become committed to their decision. Third, RJP help lower
employee expectations, which will in turn reduce the gap between expectation and
reality. Fourth, employees cope better with situations that they expect than if they are
Learning and development HRP and
In the new employment era, employability replaces employment security (Singh, 1998; psychological
Coyle-Shapiro and Kessler, 2000). In such a scenario, when employees no longer expect
their employer to guarantee a job or provide an assured career path, training and contract
development opportunities have become an extremely important aspect of an
employment relationship, perhaps the best promise employers can give to their staff
(Kanter, 1994). The study by Martin et al. (1998) proved that training and development 15
have become a very valued part of employees psychological contract. Employees of
organisations which are perceived to violate their obligations with regards to
providing skills and career development are found to be less satisfied with their jobs
(Robinson and Rousseau, 1994).
Training and career development have emerged as a characteristic dimension of
both transactional and relational contract (Robinson et al., 1994; Lester and Kickul,
2001). Regardless of how long an employee may intend to stay with the organisation,
they place a premium on training and development opportunities. Organisations that
are responsive to such growth needs of their employees will attract better talent in
todays tight labour market. Thus training acts as inducements for employees to
maintain their commitment to the organisation.
The training programmes also help employers to define changing expectations and
current fit. Studies suggest that training also influences employee conception of
employment relationship. New work experiences, interesting assignments, expensive
skill based training in line with firms business objectives and a planned career, signal
an organisations intention to foster a long-term employment relationship. Systematic
training and development will enhance commitment by giving talented employees the
opportunity to develop their skills and to achieve positions of greater challenge and
responsibility, both within as well as outside the organisation. Employees
expectations from the employment can also significantly influence the type and kind
of training and career development that a firm provides. Employee looking at a long
tenure with the organisation will expect to be provided with training that meets both
personnel and professional needs. Process of training and development has to ensure
that employees become more employable, both externally and internally. However,
employees viewing relationship from short-term perspective will not expect firms
investment in terms of skill-based training.
Although training has emerged to be an important part of employees psychological
contract, however, empirical studies (Robinson and Rousseau, 1994) suggest that
employees often feel let down on the training and career development aspects. As
suggested by Martin et al. (1998), this could be perhaps because of increasing financial
pressures which results in firms lack of willingness to invest in resources that may
subsequently have to be released. Employers concern of a firm specific training needs
to be matched with individual needs for external employability if the psychological
contract is to be seen fair by employees.
HRM personnel must spend more time discussing with trainees and their
supervisors the objectives of training Suggestively, HRM professionals can influence
the attitudes not only by giving the required training to its employees, but also by
involving them in the need assessment phase and/or by giving them a realistic
preview-a synopsis of what benefits they can expect from the training programme and
how it fits their career plan (Sims, 1994).
JEIT Rewards management
33,1 Reward management is an important inducement of the exchange process between
employers and employees (Gerhart and Milkovich, 1992). Rewards have been
recognised as an important element of the psychological contract defining the
relationship between employers and employees (Lucero and Allen, 1994). Reward and
remuneration packages that are in congruence with employees expectations,
16 encourages them to serve beyond their job description, gain professional expertise,
and cultivate core competencies across functional groupings (Hiltrop, 1995).
Appropriate reward management system motivates employees to apply skills and
abilities and encourage them to work harder and improve work processes.
Compensation can be direct and financial in nature such as wages and bonuses or
indirect benefits such as health and life insurance, employee assistance plans and so on.
Studies on the compensation have identified pay and pay for performance as
important employer obligations (Rousseau, 1990; Robinson, 1996).The review suggests
that compensations and benefits that employers provide for employees can have a major
impact on their conception of employment relationships (Rousseau and Ho, 2000). The
type of compensation may signals the type of employment relationship. Based on two
dimensions, durations (short-term or long-term) and type of compensation (specific vs
unspecified), Rousseau and Ho (2000) matched compensation system to employee
psychological contract. Based on these two dimensions, the authors have identified four
types of relationships: short-term relationships with specific measures of performance,
short-term relationships with unspecified measures of performance, long-term
relationships with specified measures of performance, and finally long-term
relationships with unspecified measures of performance.
Organisations can design the compensation system based on the type of
employment relationship that they want to maintain. For instance, firms that want to
establish a long-term relationship with specified performance measures should come
up compensation structure which invests in employees in terms of firms specific
skill-based training, wherein an organisation will invest in the employee in terms of
expensive skill-based training, flexible benefit systems and blend of short-term and
long term incentives. Alternatively, organisations with long-term and unspecific
performance measures, will base their compensation on seniority and also
institutionalise rewards like tenure-based bonus, retirement bonus etc. for long-term
employees. Alternatively, organisations with short-term employment strategy will
encourage short-term rewards for performance such as sales commission or
non-financial rewards such a free tour to the countryside, a branded pen set or free
lunch for family at a restaurant on achievement of sales target.
Employees conception of their employment relationship will also influence their
expectations of the type of compensation. For instance an employee working on
short-term job with specified performance indicators would be more likely to expect
compensation based on short-term performance, like sales commission. While an
employee looking for a long-term relationship with the organisation will expect the
firm to invest in skill-based training, assured career and financial growth, and may
react negatively if this expectation is not met. Involving employees in benefits
planning and decision making is suggested to be an important tool for preventing
perceived violations of PC (Lucero and Allen, 1994). Thus the review illustrates how
benefits and compensation can influence employee conception of psychological
contract and can be used as a signalling mechanism to establish certain kinds of HRP and
employment relationships. psychological
Performance management
Performance appraisal (PA) process involves employers setting performance
standards and providing employees with feedback about their level of performance.
The contract making features of performance management include the understanding 17
of job role, the fair, timely and accurate evaluation of performance, the fair distribution
of pay and development opportunities and the provision of feedback to employees
(Rousseau and Greller, 1994). Among various HR practices, performance management
processes, in particular has been identified to play a key role in determining
employee-employer expectations (Lester and Kickul, 2001; Truss et al., 1997; King,
2000). In fact studies view that the biggest issue and the greatest contribution HR can
make in the changing employment scenario are in the area of evaluation and appraisal
(King, 2000).
The competitive environment has brought performance management to centre
stage, by specifying the new performance requirements of employees as the result of
strategic change, and the rewards they will receive upon their fulfilment (Truss et al.,
1997). PA can influence employment relationship in a number of ways. Lester and
Kickul (2001) suggest that organisations can enhance their ability to fulfil the PC
obligations by targeting highly valued PC areas during their job reviews. After
gathering information about employees most valued outcomes early in the process,
employees can specifically address what the candidate can expect in that area of
employment relationship. When an employer gives feedback to the employee about
his/her performance, it signals to the employee whether or not they are providing
contribution to the employment relationship. Based on the strategic needs an
organisation may choose between evaluation or development oriented appraisals
(Boswell and Boudreau, 2000). Appraisal discussions also provide employers the
chance to ask whether their employees are satisfied with the inducements provided and
remedy the situation if necessary. Appraisals therefore are used as a stage in the
contract making process to ensure that parties, the employees and employers are
fulfilling their psychological contracts towards each other.
Robinson and Rousseau (1994) note that a common problem with performance
appraisal system is the lack of a line of sight between positive PA and other human
resource practices. Appraisals must be followed up with appropriate compensation
and training strategy. For instance developmental appraisal aligned with long-term
and specific/unspecific performance measures, career management and skill-based
training will result in stronger employment relations. HR practices if not be congruence
send conflicting messages to the employees and may also result in raising issues of
fairness of inducements and perceived injustice in the employment relationship. Thus
appraisals have been identified as an opportunity to indicate employees about their
responsibilities towards the organisations as well as a signal for organisations to
influence employees about their conception about the employment relationship.

Organisational culture
Managing employee expectations is an important task in organisations. Much of the
responsibility is placed on human resource professionals to set the desired tone
JEIT through policies and procedures (King, 2000). HR policies such as compensation and
33,1 benefits systems, career paths, appraisal and training processes all send structural
signals about the contract. Interactions with recruiters, managers, co-workers and
mentors, called as human contract makers, can also contribute to the development of a
psychological contract (Rousseau, 1995). Besides the human and structural contract
makers, literature also illuminates the role of organisational culture in influencing
18 employees conception of employment relationship.
PC is based on individuals perceptions and is idiosyncratic in nature. Psychological
contract are exchange agreements between employees and employers. They represent
beliefs that individuals hold about promises made, accepted relied on between themselves
and the organisation. Perceptions of what the organisation is like, in terms of its routines,
practices, procedures and rewards come from individuals. However, when individuals in
the organisation agree to share their perceptions, organisation culture emerges. Culture is
described as a shared pattern of assumptions, values, beliefs and behaviours among
employees (Schein, 1985; Turner, 1990). Organisational culture is a summary or shared
perception that people attach to work setting (Schneider and Reichers, 1983).
HR practices can play an important role in orchestrating the culture of an
organisation. HR practices represent a set of salient and universal practices that can
create the foundation for particular form organisational climate to develop (Ostroff
et al., 2000; Schneider, 1990). HR practices like realistic job previews, developmental
appraisal which captures employee expectations and identification of training needs in
consultation with the employees, results in formation of progressive organisational
culture which talks with people, not at them. Importantly, the climate or culture
perceptions of organisation also shape individual inferences about what the
organisation is like. Furthermore, organisational culture leads to the construction of
a normative psychological contract, which is shared by the members of the
organisation (Rousseau, 1995).
Suggestively, there are linkages between HR practices, individual and
organisational as well as normative culture of an organisation. Human resource
practices influence individual employees perceptions regarding what the organisation
is like. HR practices can be instrumental in creating the culture of an organisation.
Organisational culture in turn influences individual as well as group level perceptions.
Perceptions at group level are referred as normative contracts.

Proposing a conceptual model

Psychological contract is an individual construct, subjective in nature. Research has
tended to emphasise that PC focuses on individual characteristics that affect individual
reactions and have implications on organisational performance. However, individuals in
organisations do not exit in vacuum. They are nested within departments, occupational
groups and organisations. Extant literature on PC neglects a systematic integration of
the contextual and organisational factors that may significantly constrain or alter the
effects of individual differences that lead to collective responses (Kozlowski and Klein,
2000). As pointed out by Tetrick (2004), research on the construct (PC), to date, has not
explicitly examined the potential effects of these dependencies.
Similarly, research on HR practices has established how organisational practices
can have an impact on organisational performance. The macro perspective adopted for
examining the relationship between HR perspective and organisational outcomes, but
has neglected how individual behaviour and perceptions may affect and result in HRP and
interactions that may give raise to higher-level phenomena (Ostroff et al., 2000). After psychological
all, macro factors such as human resource practices also emerge from individual-level
constructs. Similarly, as discussed, research on psychological contract has not contract
systematically examined the role of contextual factors that can significantly constrain
the effects of individual differences that lead to collective responses.
Absence of an integrative approach examining the relationship between the 19
individual construct PC and organisational construct, HR Practices, is not surprising,
given that past three decades of research on organisational phenomena is characterised
by a split along the two extremes in macro-micro continuum (Staw and Sutton, 1992;
Schneider et al., 1995). On the one hand, there is micro focus which aims to understand
individual level issues such as motivation, performance and attitudes, often studied
without regard to individual organisational context in which these processes occur. On
the other hand, macro perspective aims at understanding organisational level
phenomena such as structure, strategy, culture and effectiveness and the linkages
among these factors with little regard given to the human processes in organisation.
The macro perspective assumes that given a particular set of situational constraints
and demographics, there are substantial regularities in social behaviour and that
people will behave alike. Similarly, although extant literature on psychological
contract has examined the relationship of a macro-level variable like human resource
practices on the micro-level variable PC of employees, however there has been no effort
to examine the links between these constructs at a meso level.
Lately however, there has been growing consensus among scholars that neither
individual-level nor macro perspective alone can account for organisational behaviour.
Micro-level phenomena are embedded in macro contexts and macro level phenomena are
often emerge through the interaction and dynamics of lower-level elements. Literature on
human resource practices as well as emerging literature on psychological contract of
employees, expressly acknowledge the need to adopt an integrative approach to
understanding the social exchanges in employment relationship. House et al. (1995)
suggest need for a meso theory that captures both the macro as well as micro-level
variables. The basic premise of meso theory is that organisational behaviour is a result of
both person and situation and thus study of organisational or group-level processes
should be simultaneously conducted (Kozlowski and Klein, 2000).
In the light of the above discussion and in response to the literature call for adopting
a multilevel approach to better understand the organisational phenomena (Tetrick,
2004; Kozlowski and Klein, 2000), we propose a meso approach to understanding
linkages between HR practices, PC and employee attitudes and behaviours. Figure 1
places the individual level construct psychological contract and organisational
construct human resource practices within a conceptual framework that derives our
discussion of the linkages between HR practices, PC, employee attitudes and
behaviours as well as firm performance.
Starting with upper left of Figure 1:
Organisational strategy influences employment strategy and both in turn have
an impact on HR practices that an organisation chooses to implement.
HR practices are the means through which organisation signals its intentions
about the exchange relationship and results in formation of psychological


Figure 1.
A model of relationship
between HR practices and
psychological contract and
their impact on employee
attitudes and behaviours

. Employees conception of employment relationship or PC can influence the HR

practices of a firm.
HR practices also shape culture of an organisation that if shared across of
employees of the same organisation, results in normative contracts.
Organisational culture also shapes and is shaped by psychological contract of
Further, as established in the literature, both, HR practices as well as PC
influence attitudes and behaviours of employees and influence organisational

To summarise, HR practices influence PC at individual level as well as culture and

normative contracts at organisational level. The dashed arrows in Figure 1 indicate the
multi-level nature of these constructs, symbolising how organisational-level constructs
are emerging from individual-level constructs. It is important to mention that the
conceptual model that is emerging from the literature review is in congruence with one
suggested by Ostroff et al. (2000). While these authors have examined the multi-level
approach linking HR systems and firm performance, our study has addresses
multi-level relationships in the domain of employee-employer relationship.

Managerial implications
Rousseau (1995) described the process by which organisational policies and practices
influence employees psychological contracts as contract making. In the contract
making process, when employees believe that their employers have promised to
provide them with some inducements, that belief becomes a part of employees PC
(Rousseau, 2001). It is important to note that perceptual interpretations of HR practices
are likely to remain stable, and employees are unlikely to consider them actively
regularly unless change in practices is made. Thus employers should be aware of the
impact of their human resource policies on employees expectations and on their
intended contributions. As a policy implication for the organisation, since HR practices
can influence employee conception of employment relationship which in turn
influences organisational performance, firms need to judiciously craft their HR toolkits HRP and
based on their employment relationship strategies and business strategies. The review psychological
also suggests that involvement of employees in performance appraisal, training need
identification and compensation strategy can go a long way in fostering strong contract
employment relationship.
Further, it is to be noted that a strong HR system results in shared perceptions and
contract expectations as a result of clear and direct signals to employees about norms, 21
expectations and what organisations is like. A weak HR system on the other hand results
in idiosyncratic perceptions of climate and contracts within an organisation, which will
produce wide variability in perceptions of climate and contracts within the organisations
(Ostroff et al., 2000). This will subsequently result in wide variability in attitudes and
human capital development within an organisation, diminishing the relationship to
organisational performance. Another implication for policy makers is that based on
business and employment strategies, organisations should focus on effectively
communicating to employees what they can reasonably expect in terms of
organisational inducements. This communication should be initiated during the
recruitment process and continue once the individual joins the organisation. Establishing
a norm of communication will help in two ways. First, when expectations and
contributions of employees match what organisations desire, it will result in a good
person-organisation fit and stronger employment relationships would follow. Secondly,
it will also allow the employer to provide explanations when its ability to fulfil PC
obligations is negatively impacted by factors that are beyond its control (Morrison and
Robinson, 1997; Rousseau, 1995). Culture of an organisation is a strong medium of
communication and if managed well it can effectively, therefore human resource
personnel should endeavour to build a progressive culture which effectively
communicate the employees how the organisation is trying to meet their multiple needs.
The focus of this paper was to examine the relationship between HR and PC and
their impact on employee attitudes and behaviours. Organisational culture has
emerged to be an important macro factor that has a relationship with micro-level PC as
well as HR practices. Although, the crucial role of organisational culture was
discernible from the review, however further discussion on the same was beyond the
scope of this paper. In order to advance our understanding in this area, further research
should also be conducted on examining the linkages between organisational culture,
HR, PC as well as employee attitudes. Impact of other organisational factors such as
structure and strategy on exchange relationship also need to be assessed. Furthermore,
empirical studies should be conducted to validate the linkages proposed. We also
suggest the need of longitudinal studies to test the causal linkages proposed in this
model. Further most of the studies reviewed have been conducted either in the US or
the UK. A deeper study of the construct across population and over time will be
required to gain greater validity and help in theory building.

The nature of employment relationship has been the subject of considerable debate in
the literature. Researches till date have either focussed on individual level of analysis,
while making inferences about macro-effects of employment relationship or have not
given attention to employment relationship and its implications on individuals. This
review integrates together the literature on PC and HR practices and elucidates the role
JEIT of organisation level construct human resource practices in shaping individual level
33,1 construct such as psychological contract. Bringing out the multi-level nature of
constructs, the paper views the impact of both the micro-variable and macro-variables
on employee attitudes and behaviours.
From the review it is clearly emerging that HRM practices are viewed by employees
as a personalised commitment to them by the organisation, which is then
22 reciprocated back by the employees through positive attitudes and behaviours (Tsui
et al., 1997). Based on the motivational processes of Social exchange and norm of
reciprocity, the relationship among HRP, employee conception of employment
relationship and organisational outcomes has been suggested. Positive, beneficial
actions directed at employees by the organisation and/or its representatives contribute
to the establishment of high-quality exchange relationships that create obligations for
employees to reciprocate in positive beneficial ways (Settoon et al., 1996). Central to the
discussion of the paper is the argument that HR systems have impact on individual
and collective attitudes and behaviours of employees, largely by moderating individual
conception of their employment relationship. To conclude, the human resource policies
in congruence with business and employment strategies influence employee
psychological contract that has bearing on firm performance.

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Appendix HRP and
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1993 Newcomers information seeking: exploring types, modes, sources and outcomes, by
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1994 Changing obligations and the psychological contract: a longitudinal study by Robinson,
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1995 The changing psychological contract: The human resource challenge of the 1990s by
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Table AI. pp. 32-47
About the authors HRP and
Upasana Aggarwal is a doctoral student at Indian Institute of Technology (IIT), Bombay, India.
She is working in the area of employment relationship with specific focus on psychological psychological
contract and employee engagement. Other research interests include employee engagement, contract
psychological ownership and organisation culture.
Shivganesh Bhargava is Professor of Organisational Behavior and Human Resource
Management at Indian Institute of Management, Bombay. His major international research
publications are in the Journal of Experimental Social Psychology, Journal of Social Psychology, 31
and International Journal of Human Resource Management and Development and book from
Response (Sage) Publications. Research, teaching, and consulting/training interest areas are
competency assessment and talent development including giftedness, performance management,
entrepreneurship development including creativity and innovation, emotional intelligence, value
based leadership, organisational health, management of family and career, human resource
planning including outsourcing and call centres, managing knowledge managers, management
of human service organisations: NGOs, and reward management. Shivganesh Bhargava is the
corresponding author and can be contacted at:

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