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Essay Example in HR Management: Psychological Contracts

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Wesleyan University
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Today, organizations, organizational environment, and the people that work in these organizations have changed. With this change, employees in an organization have become the main resource that enables an organization to achieve its competitive advantage. As a result, the employee/employer relationship arises from the signing of a contract of employment. However, the rights and duties do not cover all the mutual expectations that the employer and the employee may have (Alcover, Rico, Turnley, & Bolino, 2017). When hiring, the candidate must highlight his useful assets for the employer and the recruiter must value the attractiveness of the company. This is the crucial moment when a tacit negotiation is over and beyond any contractual clause. It is at this precise moment that one can speak of the implementation of a psychological contract. Psychological contracts refer to the actual but unwritten expectations of an employee. These contacts represent the rewards, rights, obligations that an employee believes the employer owes him/her in return for honesty, loyalty, and hard work (Conway & Briner, 2009).

The psychological contract is a growingly relevant aspect of analyzing labor relations and human behavior in an organization or the society in general. As a result, organizational leadership has a noticeable effect on the psychological contract by understanding mutual roles and improving job performance expectations between the employer and the employee in the process of organizational justice (OLeary-Kelly et al., 2014). The idea of the psychological contract is to be in constant alignment with the growing development of the organization. This is the reason why the role and importance of the psychological contract, which characterizes the implicit and incomplete contract of work, have been discussed at length in the management science literature. Psychological contracts may be disrupted by a feeling of imbalance and inequity, mainly perceived by the employee, between the way in which the employee is paid (broadly defined in monetary terms and non-monetary) by the employer and what the employee brings to work and performance to the organization (Conway & Briner, 2009).

The psychological contract has therefore been used not only as a tool, or as a process, but also as an objective of management. While the formal employment contract does not describe all the details of the work to be done in the organization, the psychological contract helps employers to better complete our understanding of the employer-employee work engagement. The challenge of the psychological contract is to help employers understand why employees are sometimes "difficult to motivate" or "difficult to manage" at the various key points in the evolution of a business (Guest, 2016). It can be a permanent challenge in the organization, a cyclical episode seasonal activity, for example, or during a random stage or opportunistic surprise. The clarification of this psychological contract should help managers better understand how to align the needs of their staff within the organizational context.

However, when a skilled employee feels that the promises are not honored, this can lead to feelings of injustice, disappointment, and stress. The promises of security and remuneration are no longer sufficient to guarantee the commitment of the employee. Employee involvement is more dependent on the employer's ability to go beyond promises and to ensure a lasting relationship. The economic situation and the unstable environment in which organizations operate are probably not unrelated to the impossibility for the employer to keep its commitments. As a result, retention of skilled employees is very important. Many companies have not seized the opportunity to offer a fair wage to every employee. Today, an excellent employee risks leaving if he is promised better pay and higher benefits. Managers need to take into consideration the salary they pay to each, based on their performance. Many skilled employees might say that career development is more significant than a better salary, but a high salary with respectable benefits will always be very important, if not critical to retain and attract the best talent.

It is essential that employees receive the compensation they consider fair based on their performance. If this is not the case, any offer from elsewhere may be accepted. The goal is to conduct an in-depth research that unmistakably identifies the average market wage for a specific role and offer competitive compensation taking into account the workload specific to the business (Bamberger, Biron, & Meshoulam, 2014). Notably, salary is a competitive factor among skilled employees and job seekers. Companies can lose the most talented employees if better compensation is offered elsewhere. A good salary is important, but that is not all. It must be combined with frequent assessments of performance and work performance. It is not easy to tie staff performance to everyone's performance, especially in an organization that uses complex spreadsheets. However, to strengthen skilled employee retention, an automated and integrated system is essential. The absence of such a system means that the data will not provide as good an indication of employee performance and salary analysis. Without an efficient system, the salary increase decision will be subjective; it will not be tied enough to the value added of the employee.

Therefore, to avoid a leak of the best talent in a company, a pay solution is important. It will simplify the process for everyone involved by creating a stronger performance-based payment culture based on transparency and objectivity. The rewards will be perfectly aligned with the performance. Employees are always looking for opportunities to upgrade their current skills and acquire new ones. That means they probably joined the company because they thought they found a place that will give them the opportunity to develop and obtain ongoing training (Gambardella, Panico, & Valentini, 2015). Providing better training opportunities for staff provides more opportunities for employees to stay in the business and grow with it. In addition to training, career opportunities are very important. Therefore, to ensure employees stay with a company for an entire career, a company must offer employees the chance to access new positions during their career. Ambitious people should feel that they can complete their desired career path in your company, within an acceptable timeframe.

Compared to the past decade, nothing has changed much in employee retention strategies. However, in the past decades, the main strategy of ensuring employee detainment was to hire the right employees. This was because hiring qualified and interested employees for the position offered ensured that they stay in the business and adapt easily to the organization's culture. Such hiring reduced the turnover rate. As noted above, today, employee retention will also include offering good compensation, having a better pay, and offering opportunities for growth. This change is as a result of the knowledge economy which has directed attention towards human capital issues as a vital source of creating competitive advantage (Alcover, Rico, Turnley, & Bolino, 2017).

In conclusion, psychological contracts are a common human resource activity between the employer and employee. Psychological contracts have evolved as tools to reduce staff turnover while increasing employee retention in the workplace. However, it is upon employers to make sure that they fulfill the terms of the psychological contract to avoid employer-employee conflict. This conflict leads to low staff morale, low performance and mobility. Psychological contracts together with good remunerations and benefits reduce staff turnover.



Alcover, C. M., Rico, R., Turnley, W. H., & Bolino, M. C. (2017). Understanding the changingnature of psychological contracts in 21st century organizations: A multiple-foci exchangerelationships approach and proposed framework. Organizational Psychology Review,7(1), 4-35.

Bamberger, P. A., Biron, M., & Meshoulam, I. (2014). Human resource strategy: Formulation,implementation, and impact. Routledge.

Conway, N., & Briner, R. B. (2009). Understanding psychological contracts at work: A critical

evaluation of theory and research. Oxford: Oxford University Press.

Gambardella, A., Panico, C., & Valentini, G. (2015). Strategic incentives to human capital.Strategic Management Journal, 36(1), 37-52.

Guest, D. E. (2016). Trust and the role of the psychological contract in contemporaryemployment relations. In Building trust and constructive conflict management inorganizations (pp. 137-149). Springer International Publishing.

OLeary-Kelly, A. M., Henderson, K. E., Anand, V., & Ashforth, B. E. (2014). Psychologicalcontracts in a nontraditional industry: Exploring the implications for psychologicalcontract development. Group & Organization Management, 39(3), 326-360.


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