Psychological Contract
The psychological contract refers to the employees’ beliefs about the mutual obligations between the employees and his or her organization (1989 ;2003). These beliefs are based on the perception that employer promises have been made about such matters as competitive wages, promotional obligations, such as the giving of their energy, time, and skills ( 1998 ;2003). Psychological contract is conceptually different form a formal contract in that it considers an individual’s beliefs of the terms and conditions of an agreement between the individual and the employer (1973 ;2003). While an employee’s formal employment contract always is based on a written document, the types of promises contained in an employee’s psychological contract typically are communicated in ways that do not involve written documentation. An employee’s understanding of the psychological contract may be influenced by oral discussions with managers, recruiters or other organizational representatives and interpreted from specific organizational practices and procedures (1989; 1994; ;1994;2003). Because of the persistent norms of reciprocity that are part of any exchange agreement between an individual and his or her organization, an individual often expects, seeks out, and creates a psychological contract as a means for understanding and representing the employment relationship with the employer ( 1994;2003).
Transactional and Relational Components of Psychological Contract
There are two major components of the psychological contract: transactional and relational, which emphasize different types of exchange relationships between the employee and the employer (1997). In a transactional exchange, organizations promise to provide specific monetary remuneration for employee contributions. Therefore, a short-term agreement between the two parties results because the exchange is defined by economic terms, a close-ended time frame has been established, and the scope of the obligation is very narrow. In contrast, the relational component emphasizes a socioemotive interaction between parties. Relational elements revolve around trust, respect, and commitment developing over time. A relational exchange exists when both parties expect that this relationship will continue on into the future; in other words, it is open-ended, dynamic, and pervasive.
Psychological Contract in the New Economy
The relationship between the employee and the employer in the traditional economy was characterized by long-term commitments where growth and compensation came from expanding domestic markets (2001). This psychological contract promoted lifetime employment and loyalty between employee and employer. The new economy is heavily influenced by global economies and demanding international competition. This globalization has rendered regional labor expandable and interchangeable. While employees in the past could rely on their employer to provide stable wages, the new economy has given rise to uncertainty in areas such as job security, task assignment, and organizational stability ( 2001).
Modern organizations are undergoing resizing. This is done in a variety of ways such as mergers and acquisitions, restructuring, outsourcing and layoffs. Resizing has changed the employment landscape. The biggest impact that these resizing strategies have on the changing psychological contract is that they undermine perceptions of long-term job security. Because job security does not appear to be a core principle of the new employment relationship, employees now are focusing more attention on other inducements, such as autonomy, continuous training, and added responsibilities. In general, today’s employees want to be more empowered and expect to retain their marketability in case their current employment relationship is severed.
Psychological Contract Breach
According to and (1997) psychological contract breach is the cognition that one’s organization has failed to fulfill one or more obligation comprising the psychological contract. This type of breach can cause the employee to have intense attitudinal and behavioral reactions toward the employer. When breaches or violations occur within an employee’s psychological contract, a variety of unfulfilled promises can deprive the employee of desired outcomes and benefits ( 1995).
The new economy is characterized by globalization, restructuring, and downsizing. Organizations are under pressure to make rapid and constant changes. As a result, employment relationships and the psychological contracts that underlie them have been altered. In the new economy, the traditional contract of long-term job security in return for hard work and loyalty has become obsolete, and employees and employers alike are now considering their mutual obligations. Because of the changes in the business environment, the likelihood of breach of psychological contract has increased.
Implications for Human Resource Development
Traditional psychological contracts existed in organizations where there was stability, predictability and growth. Before, organizations saw their work force as permanent and tried to build commitment and loyalty among their employees by making financial investments in training and by providing guaranteed long-term employment. Employees were loyal to the organization and expected steady advancement up the corporate ladder. There have been tremendous changes in the business environment and employment brought about by change and uncertainty. Organizations are reorganizing, downsizing, merging and acquiring. Change and uncertainty threaten job security and steady career path. Flexibility is valued. Employees are recruited, hired and retained for their particular skills for the short run as organizations focus less and less on long-term performance. Employees are starting to realize that they need to constantly update their knowledge, skills and abilities. They are taking responsibility for their own careers. Lifelong learning is becoming more and more important in order to avoid obsolescence ( 1994).
Because the nature of employment is now changing from lifelong to short-term, the psychological contract has also moved from relational to transactional. Relational contracts occur where the development of company-specific skills is traded for long-term career development, training and development, and job security. Relational contracts are characterized by high degrees of mutual interdependence. In contrast, transactional contracts are characterized by short-term tenures and a narrow emphasis on financial exchange, in terms of both performance output by the employee and the financial reward given in exchange by the employer (Rousseau 1996 cited in Gratton et al 1999).
Since the employee-employer relationship of today is only short-term, many employees are more concern in acquiring portable skills and training for a job has been replaced by transferable competencies. Training and development is now the responsibility of the individual. Employees are trying to acquire, knowledge, skills and expertise that will make them marketable in case their relationship with the organization ends.
The new market and organizational conditions have broken down the ‘old deal’ of job security, secure pay and career development in return for loyalty, commitment and contribution. Instead, workers are being offered a ‘new deal’ involving less security but the chance to make themselves more employable in the future. Most organizations are now talking not of opportunities for advancement and progression but of opportunities to improve marketability and employability. Today, training and development is not only provided to help employees perform their current jobs. HRD today deals with increasing the employees’ knowledge, skills, and abilities to make them more employable.
One of the greatest concerns of modern organizations is skill obsolescence. Employees are often embracing lifelong learning because they believe in ‘self-based’ career security. They expect employers to share the responsibility for continuing education. Employers try to improve the skills of the employees. They invest in training in order to attract and retain their valued employees. Development programs may produce more committed employees and higher performance, even of they provide the worker with skills needed by other firms. Employers expect commitment form their employees. The employees on the other hand expect the employers to provide opportunities for training, development and learning. Investing in employee training, development and learning can help employers earn commitment. The new psychological contract between the employee and the employer is ‘increased employability in return for hard work and commitment (2001).
Human Resource Development at Standard Chartered Bank
Training, Development and Learning at SCB
To build Standard Chartered Bank’s capability to attract and develop people it has developed its talent management system. In 2006, the company has focused on identifying and developing talent as a junior level to build the skills that it needs for the future. The company has increased the number of less experienced high-potential employees. The company also held one-day career development workshops for high-potential employees. The company is also providing international experience at all levels. Learning opportunities are available at all times inside and outside of the bank. The employees are valued as the most important asset of the company ( 2006).
The company’s International Graduates program aims to train and develop employees to enhance their skills and talents and progress in their chosen area. The program includes job rotations, ongoing performance coaching, residential workshops and support services like master classes and e-learning. The company’s approach to training and development is exposing the employees to challenging work assignments and responsibilities (2007).
Standard Chartered commits itself to employee development and career growth. The company created a self-learning culture in which employees can choose from a wide range initiatives to develop their knowledge and skills. Employees are encouraged to discuss their development plans with their line managers. The Leaning structure at Standard Chartered are based on the following areas:
- Induction – the induction training helps employees to be successful at Standard Chartered
- Technical Learning – every business division has function-specific programs to build the knowledge and skills needed to excel in different roles
- Management Development – Standard Chartered has a range or learning programs to develop business and people management skills
- Leadership and Executive Development – learning opportunities are provided to leaders through support that include coaching
- Professional Development – Employee knowledge and skills are enhanced by combining classroom and e-learning programs (2007; ).
The strategic intentions of the organization are reflected through the Human Resource Development pathway. The organization believes that its human resources is its number one strategic advantage. It also believes that by maximizing the strengths of its employees, it will achieve its business objectives and growth. The company encourage employees to take responsibility for their on development. The company creates a culture where everyone is given opportunities to learn and grow ( 2007).
New Psychological Contract: Issue in HRD
According to (2002) the psychological contract between employers and workers has changed. Traditionally, employees exchanged loyalty for job security. Today, employees, instead exchange performance for the sort of training, learning, and development that will allow them to remain marketable. HRD activities must not only serve the organization’s needs but also be designed so that the employees’ long-run interests are served so the employee is encouraged to grow and realize her or his potential.
Recommendations
1. Three-Way Partnership
Training and development is an important element of the enhancement of motivation and performance. Learning and development must be a committed three-way partnership among the employee, the managers and the HRD department. The organization is responsible for career development. Career development according to (2002) is an ongoing, formalized effort by an organization that focuses on developing and enriching the organization’s human resources in light of both the employees’ and the organization’s needs. The employee, on the other hand is responsible for planning his or her career. According to (2002) career planning is the process by which an individual formulates career goals and develops a plan for reaching those goals. Career development looks at individual careers from the view point of the organization, whereas career planning looks at careers through the eyes of individual employees. The HRD personnel are generally responsible for ensuring that information is kept current as new jobs are created and old ones are phased out. Working closely with both employees and their managers, HRD personnel should see that accurate information is conveyed and that interrelationships among different career paths are understood.
2. Realistic Career Paths
Traditional career paths have emphasized upward mobility in a single occupation. The career path must be based on real-world experiences and individualized preferences. Because of the new psychological contract between the employee and employer, workers are given more responsibility in deciding their career paths. They can choose the skills and knowledge that they want to acquire in order to fulfill their current roles and make them marketable in the future. The characteristics of realistic career paths are:
- They include lateral and downward possibilities, as well as upward possibilities, and are not tied to traditional rates of progress
- They are tentative and responsive to changes on organizational needs
- They are flexible enough to take into account the qualities of individuals
- Each jobs along the paths are specified in terms of acquired skills, knowledge, and other specific attributes ( 1999 ; 2002)
3. Career Counseling
Career counseling is the activity that integrates the different steps in the career planning process. Career counseling should be done by the immediate manager of the employee. The immediate manager generally has the advantage of a realistic appraisal of organizational opportunities.
4. Career Self-Management
The new psychological contract gives emphasis on career self-management. Career self-management is the ability to keep pace with the speed at which change occurs within the organization and the industry and to prepare for the future. Career self-management emphasizes the need of individual employees to keep learning because jobs that are held today may evolve into something different, or simply disappear entirely. Career self-management involves identifying and obtaining new knowledge, skills and abilities and other competencies that allow the employee to move to new position (2002). Career self-management should help employees learn to continuously gather feed back and information about their careers and encourage them to prepare for mobility. The emergence of the new psychological contract made knowledge, skills, abilities and behaviors acquirement associated with a specific job only but rather toward long-term personal effectiveness.
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