1.12 Managing the psychological contract
Between a company and an employee there are three kinds of contracts.
1\. The formal contract
Setting out the formal right and obligations of the employee often within the local legislation. Includes things like salary, holiday, work hours, place of work, title,…
2\. The informal contract
More or less explicit like work objectives and if you should stay until a job is done even if this is longer than working hours.
3\. The psychological contract
This includes the expectations set forth by the above contracts as well as the wider picture, unspoken expectations. These might be taken for granted, only seen when they are broken or hard to discuss.
What employees see as more and more important is that they have to believe that they are treated fairly. There are several parts here.
1\. Distributive fairness
Or fairness of outcomes like rate of pay, appraisal score, promoting decision. These outcomes are mostly linked to a comparison group for us.
2\. Procedural fairness
This looks as processes, like the process of making a pay decision, or the appraisal system as such.
3\. Interactional fairness
How are you treated in your interactions with others? The extend to which we are treated with respect and accorded dignity.
If mixtures of these are believed to be unfair then retaliatory action might be taken by the employee.
The same way, a perception of fairness increases commitment.
There are some universal points that are important if you look at fairness:
\- Choice
\- Voice
\- Explanation
\- Good interpersonal treatment
Another important thing is the commitment that the employee needs to have to the company. Continuance commitment (leading to greater willingness to stay but possibly less performance) would be commitment due to lack of alternatives or high costs of leaving (e.g. stock options) or there is affective commitment (leading to higher performance) because they identify with (parts) of the company and its goals.
Affective commitment can be managed by communicating job security, high fairness, interesting and challenging jobs, good value fit, making contributions important.
(Book 12 page 21 more info)
Measuring this is hard but happening more often. See page 22 book 12 for example questions (strongly agree to disagree).
The implications of this are are split up in categories:
Human resource flow:
\- Recruitment and selection to fit company and making it fair to maintain good attitude towards company even for those who are not accepted. This means selection processes need to be perceived as fair.
\- Internal staffing and promotion needs to happen with decision makers who are trusted not to have favourites, clear and open decision criteria, your option to talk, an explanation, respectful treatment.
\- Induction and socialisation needs to help get employee and company goals in line.
\- Managing exit needs to happen fair too both with people leaving on their own and being let go who might work with suppliers,…
Performance Management
\- Appraisal needs to be promised and done, on appropriate criteria, with a fair rating format and more
\- Rewards
Work design
Employee involvement