Human Resource Management (MGT302)

Dr Silvia Pirrioni

Tuesday, May 2

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Learning outcomes, 2nd May 2023

• Outline the difference between the psychological and the legal

contract of employment
• Describe the factors that influence the psychological contract
• Outline how individuals react to breaches of the psychological
contract
• Describe why and how the psychological contract is changing
• Discuss implications for HRM

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The psychological contract
• Different from the legal contract of employment
Legal contract: transactional; formal, written agreement stating mutual
obligations
• Psychological contract is perceptual, unwritten and intangible
• It describes the perceptions of the relationship between employers
and workers
• it refers to subjective expectations, beliefs and obligations as
perceived by the employer and the workers
• It describes employees’ perceptions of what they commit to the
relationship and what they expect in return

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The psychological contract
• It is built on daily actions and statements
• It is based on employees’ sense of fairness and trust, and the belief
that the employer is honouring the 'deal' between them
• It varies over time and across individuals
• It influences how people behave from day to day
Positive perceptions: extra-role behaviours, increased performance, increased
commitment
Negative perceptions: decreased performance, less extra-role behaviours,
increased turnover intentions

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The psychological contract
It is inferential and imprecise:
• Perceptions may be inferred from actions (even towards other
employees), or from what has happened in the past.
• It is often centred around the relationship with the line manager
Example: an employee observing a manager in a different department granting
a flexible working request may expect similar treatment from their own
manager.
Statements made by the employer to the individual, for example, during the
recruitment or in performance appraisals – or publicly, for example in the
statement of company’s values will influence employees expectations

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The psychological contract
The psychological contract may cover the following aspects of the
employment relationship:
• job security
• career prospects
• training and development (i.e. employability)
• perceived fairness of pay and benefits
• manager support

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The psychological contract
Influence on employee behaviour:
• If employees perceived it as balanced in terms of what they
contribute and what they get in return, they are likely to perform
better, demonstrate more extra-role behaviours, higher levels of
commitment = engaged
• If employees perceive a breach to the psychological contract, they
attempt to restore balance, either by seeking alternative ways to
meet their expectations or lowering their expectations of the bargain.
Example: employees previously experiencing a ’relational’ psychological
contract (working additional hours in exchange for enhanced career
opportunities) may withdraw their extra-role behaviours and transition to a
basic ‘transactional’ deal.
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 How is it changing?

The old The new

• Job Security • Uncertainty
• Stability • Fewer benefits
• Predictability • Increased workload and
• Promotion responsibilities
• Wage increases • Employees values: work-life
balance, autonomy, learning,
• Lifetime employment flexibility, meaning, ethics,
➢Employees loyalty participation, independence,
responsibility
➢Employees commitment
• Employability
➢Organizational knowledge
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Challenges for HRM

• How can you attract and retain talent?

• How can you foster employees’ loyalty and commitment?
• How can you meet career expectations in flatter organizations?
• How can you encourage employees to take responsibility for their
own development?

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Implications for HRM
➢From career, status and promotion to personal reputation, teamwork
and challenging assignments
➢Career development for boundaryless careers
➢Build organizational pride and personal value
➢Reward contributions not status

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Implications for HRM
• Employer brand: recruitment and retention
• Communications: an effective two-way dialogue between employer
and employees, giving expression to employee 'voice'
• Learning and career development: offer employability
• Management style: from ‘top down’ to ‘bottom up’ management
style
• Managing expectations: RJP
• Measuring employee attitudes: monitor employee attitudes on a
regular basis as a means of identifying where action may be needed
in order to improve performance.

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 Think about the expectations that
exist between you and your current
(or previous) employer. Outline
your psychological contract.
The
psychological
contract How do you feel about the changes
that Hiltrop is suggesting?

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References
• CIPD, 2019, The Psychological Contract (available on Moodle)
• Hiltrop, J. (1995). The changing psychological contract: the human
resource challenge of the 1990s. European Management Journal, 13,
3, pp.286-294.

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