Contribution of the "Psychological Contract" towards Theoretical Understandings of the Employment Relationship The relationship between an employer and

an employee is commonly known as employment relationship and it has always played a crucial role in the success or failure of any business organization. Without the contribution of employees, it would not be possible for any organization to move ahead and perform up to their potential level (Edwards0000). The importance of this relationship can be observed from the fact that there had been a considerable amount of research conducted on this issue and it is not surprising to note that firms that pay special attention to improve their relationship with employees are the ones who can easily beat their competitors by moving ahead of them. Not only is it important to understand the significance of this relationship, but it is also necessary to focus upon key factors that might influence it. One such factor is Psychological Contract which has come into the limelight in the past few years owing to its substantial influence on the relationship between employers and employees. It has been revealed that if the employers are unable to accomplish a certain commitment, the employees associate this to a lack of trust between the two parties and would then reciprocate by deteriorating their performance (Jacqueline & Shapiro, 2006). The term Psychological Contract can be defined as the mutual and emotional understanding and the expectations of one party from the other and it is also known as Utilitarian. Because the two major parties that exist within an organization are the employers and the employees, there are not only the legal contracts that bind them together but also some psychological contracts regarding these hidden exchanges of agreements. The legal contracts that strengthen the relationship between the employers and employees are those which target issues such as salaries, number of working hours per day, benefits and rewards to be provided for extraordinary contribution etc (Anderson & Schalk, 1998). However, all the agreements and expectations of employers and employees cannot be put forward in the legal contracts, thus the psychological contracts helps to bridge in this gap by taking into consideration all those agreements that are present but not mentioned in the terms and conditions. It is somehow also related to the employment relations because it forms the basis to sustain the employment relation overtime rather than worsening it (Maguire).

After the crucial changes that took place in most of the organizations during 1980s, it was found that technological changes were not the only changes that were important to improve the performance of the organization. It was also necessary to tackle the impacts that took place on the relationships between the two major parties in any organization. It was then that the concept of psychological contracts came to be known and their importance came to be realized by the participants of organizations. Not only should the psychological contract be used to motivate the employees in order to make them work according to what the leaders want but it should be the form the basis to strengthen the connection between employees and the organization by understanding their needs and demands and gain an insight to the crucial problems that might exist within an organization. Thus it can be said that in order to understand the employment relationship, it is necessary to understand the effects of any change in an organization, not only with regard to the change in salaries, working hours or other factors etc but also the expectations between the two party that might be distorted as a result (Morrison0000) The rise in competition and the challenging business environment has now made it essential for the firms to take into account this factor while creating and adjusting their policies. Not only is it necessary to look upon the performance of other competitive firms but the foremost responsibility of the organization is to realize whether any particular organization is strong enough to compete in the market with other organizations or not. If there would be negative expectations from the both parties regarding the obligations that they have to fulfill, then obviously this would weaken the structure of the whole business and made it difficult or almost impossible for the firm to move ahead in the complex business environment (Maguire0000). This means that the management of any organization needs to understand the fact that if the employees are unable to meet the requirements of the business, then they would not be able to meet their goals and objectives in a smooth manner. Despite knowing this fact, most of the businesses still find it to be a tough matter to meet the obligations of their employees in a way that their expectations regarding the employers and the organizations do not deteriorate. This is because of the challenges that the organizations face, especially from the external forces which makes it difficult to monitor every individual separately and motivate them to work hard. The best solution then is through the contributions and the obligations that both parties have towards each other i.e. the psychological contracts (Rousseau, 2004).

As the psychological contracts are hidden and binding obligations between the organization and the employees, it is important to discuss the different perspectives of this contract. Even though the legal contract and the psychological contract, both aim to determine the extent to which the employers and employees may fulfill their obligations and improve or weaken their relationship but the only difference between the psychological contracts from legal one is the nature of this contract (Van Den Brande, Sels, Janssens, & Overlaet, 2002). If the employers of the business are the agents who represent the actions of the organizations itself, then it can be said that these employers are the ones who hold the psychological contract. This is because the employees of this particular business would have their expectations indirectly from the organization through the management or employers of this business. Thus if they employers are unable to meet the obligations and expectation of the employees who contribute significantly towards the performance of the business, then this would mean that the psychological contract is violated by the employers. However, the contract remains intact if the employers are fully aware of their position as responsible agents of the organization and strive hard to maintain their relationships with the employees. Similarly, if the employees are unable to perform up to the expectations of the employees, then the psychological contract would be breached by the employees and hence the performance of the organization would be affected negatively (Jaqueline & Kessler, 2000). Psychological contracts will only hold until the employers and the employees feel that the opposite party would continue to contribute in positively towards the organization without breaching the contract. As long as the expectations of both parties are met without any hurdle or difficulty, there would be benefit for any of the party to break the contract and thus the overall performance and returns of the organization would increase and it would be easy for the business to participate and compete rigorously in the competitive market with other organizations. The important question that arises in this situation is whether the company is able to mould itself successfully in accordance to the significant changes that take place within a market or business or not. A successful transition in this regard means that this change would not cause the expectations of the employees or employers to change. One such example can be that of any technological innovation that takes place and is adopted by the company in order to increase the level of returns and the ability of the business to compete successfully with other organizations. Several studies have revealed that any change in the operations of any organization may also cause the relationships of the agents involved to change as well (Morrison).

The psychological contract signifies the role of trust and commitment of the agents of any organization not only towards the development of the business but also towards the hidden expectations that they have from each other. This shows that if the employers and employees trust each other, this also facilitate the expansion of loyalty and trust of customers for that specific organization. Without any loyalty or trust within the structure of an organization, the business would not be able to maintain their potential level of performance and hence the legal contracts may not also be useful for the company in order to motivate people to work harder than before (Kingshott). Trust on the other hand, allows the employees to be sure that whatever return they expect from their employers would be realized in the future and thus there would not be any ambiguity regarding this subject. This would also allow the employees to contribute more significantly for the organization and hence the probability of any breach of the psychological contract would be reduced. If the company thus wishes to improve their performance in order to reach their specified goals and objectives, they need to alter their psychological contracts as well so that the expectations of the employees and the employers from each other do not change in a negative manner. If psychological contract that remains constant over time despite the changing environment of the organization, then the risks and chances of the contract being breached would increase considerably (Robinson, 1996). This clearly depicts the fact that the sole application of legal contracts is not enough to maintain the employment relations. Nor is it wise for the organization to apply a psychological contract and then do not amend it according to the changing policies of the business. Thus it is important to be aware of the fact the merely the existence of the psychological contract might not prove to be beneficial for the company until and unless it is amended according to the needs and expectations that might change due to the changes that are adopted by the organization (Atkinson, 2007). There have been several cases where the employees or the employers of a particular organization had ended up violating the psychological contract because of various key issues and thus the relationship between the two parties were destroyed. The extent to which the contract is violated also depends upon the understanding of the psychological contract by these parties. If the understanding of people of one organization differs from that of the other, then obviously the magnitude to which they reciprocate if the result is not up to their expectations may also differ substantially as well (Smithson & Lewis, 2003). The geographical location of the organization may also cause the response of people to change if they feel that their psychological contract has

been violated. One such example regarding this can be that of the organizations in Singapore and United States. In Singapore, most of the contracts are short termed and the labour markets are mostly unstructured as compared to the markets in United States. This means that the labours do not have many expectations from the employers or the organization and even when the organization goes though any major change, the employees would not perceive that their rights have been violated to a large extent (Smithson & Lewis, 2003). It is also important to note that even within the context of psychological contract; there have been various changes that have taken place in recent years. This has resulted in a significant diversion of the evolving psychological contract from the traditional one. It is crucial to understand the changes that have taken place with regards to the psychological contracts because these changes have caused there to be a distortion between the expectations of the parties involved and the requirements of the psychological contracts. The traditional psychological contracts were based on a constant rather than changing environment and thus the contract focused on short term goals and was relatively stable. The new contract focuses on the issue that the contract should be adjusted according to the changing and evolving environment. Under the old contract, the employees were expected to work for the organization for their entire lives and be loyal to that company and the employers. The new contract shows that the employees do not expect themselves to be involved in any long term job and thus work according to the responsibilities provided to them. Moreover, the traditional psychological contracts expected the employees to execute their work according to the interests of the employers. This did not allow them to enhance or change their and hence their output and thus their performance remained relatively monotonous over time. The new psychological contracts are such that the employees demand for innovations or development if they want their employers to see an improved performance compared to the past results. The traditional psychological contracts consider it to be a responsibility of the organization to develop the personality of the employees. The new contracts on the other hand believe that the individual is the one who is responsible for personal development so as to improve their time span of employment (Maguire). These modifications in the psychological contracts may help in understanding the concept of employment relationship. As the contracts change over time, the relationship between the employees and the employers would also change as a result and thus it is crucial to get rid of any distortions by making necessary changes to them in an efficient way (Hiltrop, 1995).

With the continuously changing environment in which the organizations operate, it becomes almost inevitable to take into consideration, the various factors that have a major impact upon the relationships of the employees and the organization or employers. Thus, in order to understand this relationship, it is not enough to look into the legal written contracts that exist between the two parties but also gain a substantial insight regarding the hidden contracts that are also present namely, the psychological contract. This particular topic gained is now considered to be crucial factor when determining the extent to which the employers and the employees trust each other. Not only would improving this contract be essential to strengthen their relationship but this would also have a positive and direct impact on the performance and the returns of the organization. The concept of psychological contract still continues to evolve. Therefore, it is important to know how the new concept differs from the traditional one. Finally it can be said that in the process of understanding the importance and impact of psychological contract upon the behavior and relationships of the two parties, it is also possible to understand how this concept contributes towards comprehending the concept and important of employment relationship.