Trust and the Psychological Contract - Literature review Example

Name Management literature review Course Date Management literature review Define trust and the psychological contract. Explain the critical nature of the psychological contract between the organization and its employees. Identify how managers may reinforce or break the psychological contract in their interactions with their subordinates. Does a clearly understood psychological contract result in higher team performance levels? Introduction Trust is an essential factor in any relationship and hence it is an important aspect in organizational relationship between the employees and the employer. Trust plays a big role in psychological contract because presence of trust between employee and the employer results in an honorable psychological contract. Basically, psychological contract refers to series of mutual expectations and needs arising from an organization which forms the individual relationship between the employee and the organization (Rousseau, 1995). Therefore, a psychological contract elaborates the positive benefit which both parties will gain, if each does his or her part and thus the relationship will be mutually beneficial. Failure of one party to carry out its obligation results to breach of the psychological contract and this can result to reduced team performance while upholding the promises/obligations in the psychological contract can result to high team performance because team members essentially feel motivated to perform (Bolino, 2008). Trust Theorist Aristotle hypothesized that relationships whose foundation is trust are more honest and trust helps in development of human beings. Trust can therefore be defined as the ability and willingness to meet individuals and relate freely with such individuals without any mistrust or suspicion (Aristotle, 2004). In an organization, trust forms the basis of an individual’s personality and performance within an organization setup and trust is divided into three classes, namely: simple, blind and authentic trust. In simple trust there is no suspicion whatsoever, no scrutiny or justification while in blind trust is where an individual has been betrayed but refuses to acknowledge the betrayal while authentic trust entails an individual being aware of the risks involved in trusting and willing to confront distrust and overcome it. It is the authentic trust which leads to productive organizational relationships (Coyle-Shapiro, & Neuman, 2004). Psychological contract The definition of psychological contract first originated in the work of organizational and behavioral theorists, Chris Argyris and Edgar Schein in 1960’s and from then, numerous theorists have come up with various definitions of psychological contract. Psychological contract is an implicit understanding of the mutual responsibilities that an employee and his/her employing company own to one another. Psychological contract is comparable to the formal, legal employment contract that indicates the formal obligations of employer and employee within the employment relationship (Herriot, 1997). Shields (2007) explains that psychological contract fills in the gap that the formal legal employment contract to make up a more inclusive account of the entire range of mutual responsibilities between employer and employee. Rousseau (1995) on the other hand describes psychological contract as individual beliefs that the organization shapes, in regard to the terms of an exchange arrangement between the employee and their organization. These beliefs can result from factors like explicit promises made between an employee and his/her manager, interpretations of past exchange patterns as well as observations of others’ experiences. Transaction theory supports this argument because it upholds exchange arrangement between parties. For instance in an organization, employees may expect certain treatment from the organizational management in exchange for their job commitment (Shields, 2007). The critical nature of the psychological contract between the organization and its employees The concept of a psychological contract involves the pattern of unwritten and implied beliefs that the employee and organization holds regarding what each one is supposed to offer, and the responsibility of each, in the exchange relations between them (Van, 2007). Formation of a psychological contract occurs when an employee holds an opinion that contributions he/she makes to the organization oblige the organization to reciprocity and the responsibility of the reciprocity belief makes up the contract. Suazo (2009) further explains that various individuals have divergent views of the psychological contract, even in the same organization; and the components of the psychological contract are specific for a given time period, and to an individual, and also to the aspects, and especially the proficiency level, of an employment position. Available literature indicates that the contents of a psychological contract change because of the changes that occur within an organization. Van (2007) proposed that intended changes within an organization have an effect on the perceptions of the employees of the employment relationship. Van (2007) further emphasized that organizational workers normally occasionally review their psychological contract with the organization, to adapt to the continuing organizational changes. This is further supported by Riga (2010) who suggested that if organizational employees perceive that unfairness within the organization results from dismissals, changes within human resource policies and such can make organizational workers re-evaluate the content of their psychological contract. They further suggested that when an organization undergoes changes, the existing psychological contract is substituted by a new psychological contract. Additionally, of an organization is implementing key changes, the content of promises offered by the employees and the organization become less clear and hence psychological contract change cannot be avoided. This implies that changes within an organization result to change in psychological contract (Riga, 2010). The basis of a psychological contract is mutual trust and fairness and thus violating it can result to; reduced employee dedication, decreased productivity, as well as increased employee turnover because organization workers view that the organization does not appreciate or value their contributions and are not concerned about their welfare (Suazo, 2009). Organizational employees analyze the organizational HR practices to examine the level to which their psychological contracts are executed. There is a direct relationship between the psychological contract and employee engagement. Coyle-Shapiro & Kessler (2000) found out that an organizational worker whose expectations have not been met, for instance an employee who feels he/she deserved a promotion after working for a long time in the organization but does not get the promotion, is not likely to be engaged to the job. Similarly, if organizational employees receive organizational resources, like hardship allowance, they have a likelihood of increasing their level of engagement on the job (Coyle-Shapiro & Kessler, 2000). How managers may reinforce or break the psychological contract in their interactions with their subordinates Cropanzano & Mitchell (2005) explain that the more the managers in an organization support their subordinates, the more the organizational employees will recognize a fulfillment of their psychological contract and similarly if the managers do not support their subordinates, the organizational employees will perceive the psychological contract as not fulfilled. Motivation theory supports this argument which was further supported by Robbins et al (2008) who argued that when the managers within an organization provides the subordinates with opportunities such a furthering their education, training, conditioning, motivation and all forms of support that encourage and motivate them, the subordinates feel that their leaders who are the managers appreciate them and generally the organization values them. As a result, the organization workers perceive a high fulfillment of the psychological contract (Robbins et al, 2008). Likewise, breaching a psychological contract for subordinates and employees who perceived that the organization and management supported them can result to feelings of betrayal among the workers since the organizational support was not in accordance with the psychological contract the employees had with the organization (Munoz-Bullon & Sanchez-Bueno, 2010). According to Van (2007) breaching of psychological contract causes reduced trust between the organization/management and the employees. Managers are supposed to offer their subordinates with enough resources to make sure that the subordinate are effective in their work. Organizations have the obligation of offering resources to employees while on the other hand the subordinates/employees have an obligation of working and earning their payment (Suazo, 2009). Parzefall & Coyle-Shapiro (2011) emphasized this by arguing that when an organizational management nurtures teamwork and supports the subordinates through offering the required resources, the subordinate/employees perceive a content reciprocal relationship with the managers/organization. A study conducted by Bolino (2008) found out that if an organization does not meet the expectations of its employees whereby such employees feel that their contract has been breached; such employees are unlikely to be cognitively engaged in their work. If an organization fulfills their employees’ psychological contract, employees are likely to be engaged. If the managers do not treat their subordinates appropriately and the subordinates feel that there are discrepancies in regard to the promises that the management initially made to them, such workers might feel cheated and thus look for better alternatives outside the organization (Bolino, 2008). Eisenberger (2004) explains that similarly if organizational managers treat their subordinates appropriately, organizational employees feel that they are appreciated, and the psychological contract is fulfilled and thus this results to a positive spiral whereby subordinate/employees reciprocate by putting more efforts in their work and thus increased organizational productivity (Eisenberger, 2004). Motivational theory suggests that motivated employees are more productive and thus if managers treat their subordinates appropriately and encourages teamwork among them, the organizational workers are likely to work as a team, will have positive attitude towards the organization, will be more satisfied and there will be less conflicts among employees and also there will be reduced conflicts between the subordinates/employees and the organizational management. The managers should also mentor their subordinates as this also results to high fulfillment of the psychological contract among the employees (Eisenberger, 2004). Clearly understood psychological contract result in higher team performance levels Transactional theory supports the argument that communication is the basis of human social relationships. Therefore, it is recommendable for all organizational stakeholders to understand psychological contract visibly and this can only be achieved through clear communication between the employer and the employees (Guest & Conway, 2002). There should be clear expectations from both the employee and the employer where organizational employees should have a clear understanding of what they expect from their employer and what they are supposed to do in response to their compensations. For instance, if the organizational employees understand their obligations well they will be able to work effectively and thus higher team performance. Rousseau (1990) describes transactional psychological contract as a contract comprising of “economic” responsibilities. This consists of employees’ readiness to work even overtime or during the weekends, to give high levels of performance for contingent pay. Riga (2010) explains that employee engagement is the commitment and involvement level of organizational workers. In order for an employee to be engaged, he or she need to understand the business context of the organization and thus will end up working with coworkers to improve organizational performance in the job and this benefits the organization in the long run. Van (2007) supports this by arguing that to ensure the organization employees understand the psychological contract clearly, the organization should ensure that it has developed and nurtured employee engagement within the organization. An engaging atmosphere will end up building loyalty for the workers, fulfilling their individual and practical requirement, and thus encouraging them to be not only be more productive but also motivated, which leads to high performance (Van, 2007). Conclusion Psychological contract involves unwritten and implied beliefs that the employee and organization holds regarding what each one is supposed to offer, and the responsibility of each, in the exchange relations between therefore a psychological contract is formed when an employee holds an opinion that contributions he/she makes to the organization oblige the organization to reciprocity and the responsibility of the reciprocity belief makes up the contract. Since there is a symbiotic relationship between the employee and the organization, where employees make efforts to fulfill organizational needs if the organization meets their needs too, a clearly understood psychological contract automatically results to high team performance. 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Van, M, (2007), A multi-level mediation model of the relationships between team autonomy, individual task design and psychological well-being, Journal of Occupational & Organizational Psychology, 80, 647-664. Read More