BUS 107 –

Organizational
Behavior
Week 3 – Managing
Sensemaking:
Psychological Contracts
Goals for today’s session
Understand what psychological contracts
mean
Identify different types of psychological
contracts
Explain how psychological contracts develop
Determine what happens when psychological
contracts are broken
Explain how to manage the psychological
contract
What are psychological
contracts?

What are my What do I

expectations of expect to
this unit? have to do?

Simply:

The expectations individuals have in relationships

– what each side is expected to do and provide
Exchange Frameworks

Performance Job security

Conditional Relationships:
If you treat me fairly I will go the extra mile
for you
If you fulfil your promises to me, I will fulfil
mine to you
 Formal Definition of the PC
Definition:
The psychological contract is an individual’s beliefs
regarding the reciprocal exchange between themself
and the organization. (Rousseau, 1989)

Beliefs? Obligations based on the perception that a

promise has been made
Reciprocal Exchange? What employee gives in order
to get in return
Organization? Management, HR policies and
practices
Example employee beliefs
Conditional promises in
the minds of employees
(if I do X then I get Y)
“If I work hard I’ll
get promoted by the
organization.”

“If I am caught
“If I perform well on this stealing then the
assignment I’ll get a better organization
assignment from the will fire me.”
organization next time
 PC: The exchange
Inducements Contributions

Pay Effort
Can be very Training Skills
general: Respect Flexibility
Promotion Creativity
Etc Etc

Promotion Effort

Or much more
specific: Training Skills
 What do we know so far?
Contents of psychological contracts
Employees promise to: Organizations promise to:
work hard pay commensurate with
uphold company reputation performance
show loyalty to the opportunities for training and
organization development
work extra hours when opportunities for promotion
required recognition for innovation or
develop new skills and new ideas
update old ones feedback on performance
be flexible, for example, by interesting tasks
taking on a colleague's work an attractive benefits
be courteous to clients and package
colleagues Opportunities to learn
come up with new ideas reasonable job security
Where does this idea stem from?
Social exchange theory (Blau, 1964)
unspecified obligations or “favors that create
diffuse future obligations (i.e. reciprocity),
not precisely specified ones, and to which
the nature of the return cannot be bargained
about but must be left to the discretion of
the one who makes it”

Definition implies two things must exist:

Reciprocity (Gouldner, 1960)
Trust

Why?
As a desire to stay out of social debt or as a
need for social power
A failure to reciprocate is often viewed as
ingratitude and unacceptable in terms of societal
norms (Gouldner, 1960)
The Types of Psychological Contracts
Transactional PC Relational PC

Focus • Economic • Social

Time frame • Limited • Long-term

Stability • Static • Dynamic

Scope • Narrow • Broad

Tangibility • Tangible • Intangible

So, how are Psychological Contracts
formed? Individual Level
Cognitive schemata or “perceptions of the way the
world should be.”

An individual’s schema of the employment

relationship develops very early and influences
how you interpret and construe the exchange
relationship with the employer

For example:
Employment relationship of family members;
socialization at school; significant personal events
How are Psychological Contracts
formed?: Personality
Neuroticism – Transactional contract

Extraversion – Relational Contract

Conscientiousness – Relational Contract

Equity sensitivity – Transactional Contract

How are Psychological Contracts
formed?: Organizational Factors
Implicit and Explicit Communication

Socialisation Tactics

HR practices

Experience of colleagues
How are Psychological Contracts
Formed? (an example)

Looking for an exciting job

with lots of autonomy, travel
with an attractive pay
package

What signals does this send to you?

Why are psychological contracts
so important?

Consider the way you feel

when someone breaks a
promise with you
Psychological Contract Breach
(Morrison & Robinson, 1997)

Reneging
Perceived Perceived Psychological
Unmet Breach of Contract
Promises Contract Violation
Incongruence
“an emotional
“the cognition that one’s and affective state
organization
Robinson, 1996 that or
may result from the belief that
has failed to meet one more
obligations
Robinson within
& Rousseau, one’spsychological
one’s
1994 organization has failed to
contract in a manneradequately maintain the
commensurate
 Robinson, Kraatz & Rousseau, 1994
psychological contract”
with one’s contributions”
How can psychological contracts go wrong?
Breach – when one perceives another as failing to fulfil
promises. Examples:

Pay – promised increases in pay were not forthcoming

Promotion – promised promotion doesn’t materialize in
expected time frame
Type of work – important features of the work were
misrepresented to the employee
Training – employee doesn’t receive promised training
Feedback – performance reviews inadequate or absent
compared to what was promised
 Attribution
Saliency Self esteem Outcome
Equity assessment
sensitivity Process
Reneging

Contract
Discrepancy Violation
Incongruence Breach

Comparison of
Vigilance contract maintenance
between employee &
org
Perceived Contract Breach: Consequences
Emotional response:

ANGER,
BETRAYAL,
DISAPPOINTMENT,
HURT
DEPRESSED
Perceived Contract Breach: Consequences
Attitudinal response:

Lower trust in current & cynicism toward

future employer

Lower commitment to organization

Lower job satisfaction

Higher Intentions to Leave

Perceived Contract Breach: Consequences
Behavioral response:

 In-role performance

 Organizational Citizenship Behavior

 Acts of retaliation (or revenge)

Effects of Breach (Conway & Briner, 2005)
25

20
explains outcome
% extent breach

15

10

0
Job sat Org comm't Job perf Going extra Quitting
mile

# studies 13 9 5 11 3
Managing the PC

Depends on the stage of the employment

relationship: pre-entry, selection, socialisation,
promotion, termination

What organizations can do

What line managers can do
What employees can do
Managing the PC
Stage Likely psychological contract activity

Pre-entry Formation.

Selection Formation. Negotiation.

Initial Re-formation. Initial understanding.
socialisation Clarifications.
Established Renegotiation. More explicit
in role understanding.
Promotion Repairing breach or deal fulfilment.
job change Renegotiation. Formation of new
Leaving or Breach un-repaired/unforgiving or fulfilment
staying or exceeded promises.
Managing the PC: what
organizations can do
Realistic job previews
Involvement programmes: encourage shared
perceptions and perspective-taking
Employee attitude surveys
Team meetings & focus groups: two-way
communication
Performance appraisals
Grievance procedures
Consistency in signals from representatives
Fair procedures – transparency, consistent
Managing the PC: Line managers
Clarifying organizational communications
Managing implicit understandings
Managing expectations about realistic creation
and delivery of promises
Building flexibility into the contract
Interactional justice
Building supportive relationships initially
Managing the PC: Employees
Clarify ambiguities – performance appraisals
Anticipate reactions to breach
Being realistic about what they and the
organization can deliver
Self-awareness of desired contributions and
rewards
Job crafting – informally changing job to
improve deal
For this week’s discussion
section:
READ
Clegg et al. (Chapter 3)
Hurtz, G. M., & Donovan, J. J. (2000). Personality and
job performance: The Big Five revisited. Journal of
Applied Psychology, 85(6), 869-879.Case Study: The
Relative Value of Frogs Versus Grass

Complete this personality inventory prior to

attending your discussion section!
http://www.outofservice.com/bigfive/ (print or bring e-
version of your results)
Thank you for
your attention

Kyle.Ingram@ucr.edu