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The ChangingPsychological
Contract:
The Human Resource
Challenge of the 1990s
JEAN-MARIE HILTROP, Professor of Human Resource Management, IMD, Lausanne
The psychological contract -- what employees and
Introduction
The economic context in which organisations operate
has been changing at a remarkable rate during the last
two decades. Increasing international competition,
deregulation and globalisation of markets have
demanded greater flexibility and productivity of
organisations, as well as new strategies focused on
speed, responsiveness to changing market conditions
and innovation. These economic changes, in conjunction with drastic corporate restructuring in much
of the private and public sectors, have induced many
organisations to eliminate jobs not just on the factory
floor, as so often in the past, but also among those who
have traditionally been offered a long-term career within
the organisation, as millions of jobless professionals and
managers can testify. Consequently, the psychological
contract that gave security, stability and predictability
to the relationship between employees and employers
has dramatically altered during the past two decades.
This article examines some of these changes and
considers their implications for the management of
h u m a n resources. Three specific questions are
addressed:
1.
2.
3.
286
287
Exhibit 2
One of the oldest Hartford insurance companies, is also trying to change the existing psychological contract.
According to Bill Garfield, the Vice President of Human Resources, the objective is 'to introduce uncertainty into
an organization that has for 140 years worked on getting rid of every shed of uncertainty that could ever exist'
(The New York Times, April 4, 1994). The transformation, still only in its initial stage, calls for most jobs to be
posted and the company's 1,889 employees to be reassinged to a new position, with a new pay scale and new
duties. Company officials say that most people's salaries will not change significantly, but that some could go up
and some could go down. The responsibility for career management is being shifted back to each employee, who
may apply for any three posted managerial jobs in the new organisation. Newly hired managers will be
responsible, in turn, for hiring their own staff, for managing their own career, for keeping their skills and
competencies up to date, and for getting themselves moved to the next position at the right time. The company
chairman has vowed repeatedly that this 'Transformation Project' is not about shrinking Connecticut Mutual.
Employees are not being braced for large numbers of layoffs, but some people, despite the flurry of statements,
newsletters and question-and-answer brochures to explain the transformation, believe it is all about layoffs
anyway, no matter what the company chairman really says. Clearly, some of the risks being taken by Connecticut
Mutual will only be evident well into the future, as employees consider what has happened and adjust to the new
work environment.
The N e w Contract
What are the principles upon which the new
psychological contract is based? How does this compare
with the past? Some authors suggest that we are
witnessing the following changes in the relationship
between employees and employers in Western
organisations:
1.
2.
3.
4.
5.
6.
7.
8.
289
Old
New
Focus
Security
Employability
Format
Structured
Flexible
Duration
Permanent
Variable
Scope
Broad
Narrow
Underlying
principle
Tradition
Market forces
Intended output
Loyaltyand
commitment
Value added
Employer's key
responsibility
High pay
for high
performance
Employee's key
responsibility
Good
performancein
present job
difference
Employer's key
Stable income
and career
advancement
Opportunities
for selfdevelopment
Knowledge
and skills
input
Employer's key
input
Making a
Clearly, the situation is vastly different today. A 'selfreliance' orientation increasingly pervades the
employment relationship. The need to be flexible and
adaptive to change is emphasised. This is a far cry from
the 'Organisation Man' phenomenon of the 1960s, in
which an employee completely invested himself in his
company, worked 60- to 70-hour weeks when needed,
relocated frequently at short notice, and did whatever
the company asked (Whyte, 1956). In contrast, Hirsch
(1987) likens the current situation to an employment
strategy which professional sports call 'free agency'. In
this strategy, professional athletes attempt to maximise
their personal status and income by selling their
individual talents to the highest bidder. Their sense of
identity is linked to their profession, rather than to
specific countries, organisations or sports clubs: they are
professional athletes first, a team member second.
Hirsch suggests (American) managers may want to
adopt a similar strategy in the present business
environment.
Changes in Management
Style
291
Organisationsneed to developa
new kind of commitment -through the creation of meanings
and values by individuals and
groups
Conclusion
To conclude, increasing competition and changing
expectations among employees have prompted a
growing disillusionment with the traditional approaches
to the management of human resources based on
lifetime employment and steady promotion from within.
Consequently, companies have experimented with a
radically different strategy, designed to increase the
flexibility, productivity and competitiveness of the
enterprise. This transformation has highlighted some
fundamental questions about how to develop and
maintain the commitment of people who no longer
293
2.
References
Armstrong, M. (1990) A Handbook of Human Resources
Management, London: Kogan Page.
Beer, M., Spector, B., Lawrence, P., Quinn Mills, D. and
Walton, R. (1984) Managing Human Assets. New York:
The Free Press.
Clark, F. (1992) Total CareerManagement. London: McGraw-Hill.
Carlile, P. (1991) The Use of Human ResourcePracticesfor Building
294
JEAN-MARIE
HILTROP, IMD,
Chemin de Bellerive 23,
PO Box 915, Lausanne,
CH-IO01, Switzerland
Jean-Marie Hiltrop is
Professor of Human
Resource Management at
the International
Institute for Management
Development (IMD),
Lausanne, in Switzerland. He was involved, for
many years, in executive education at the
Management Centre of the University of Bradford
and at the Department of Applied Economic
Sciences at the Katholieke Universiteit Leuven in
Belgium. He has been a personnel manager and
consultant for several European companies.
Recently, he co-authored European H u m a n
Resource Management in Transition and
European Casebook on H u m a n Resource and
Change Management, both published by PrenticeHall, and he is currently leading an international
research project which examines the impact of
human resource practices and competitiveness of
European organisations.