In the framework of psychological contract theory, a contract refers to an agreement, formal or informal, overt or implied, between two or more agents (Rousseau, 1995). According to Rousseau (2001), the mechanism about antecedents that lead to psychological contract are activated through pre-employment experiences, recruiting procedure, early on-the-job socialization, and evolves over the worker’s tenure in that organization (Soares & Mosquera, 2019). The process involves the perception of the obligation, perceived career development and well-being via the incentives and feedback of employer. Van den Heuvel, Schalk, Freese, and Timmerman (2016, p.41) signified that “psychological contract was identified as an overruling factor with the potential of reversing a positive evaluation of the change effect for employee into a negative attitude towards change and vice versa”.
As for the type of psychological contract, Rousseau (1995) explicated that there are two major categories of psychological contracts described as relational and transactional contracts.
Rousseau and Tijoriwala (1998) proposed two other types, which are the balanced/hybrid contract and transitional/uncertain contract. With the aforementioned, Rousseau and Schalk (2000) developed the four dimension based on the duration and performance-reward contingencies (Soares & Mosquera, 2019). First, relational contracts can be characterized as
“the beliefs about obligations based on long-term exchanges of socio-emotional factors (e.g.
loyalty and support) rather than purely monetary issues” (Grimmer & Oddy, 2007, p.155;
Rousseau & Schalk, 2000). Plus it includes “more direct, informal and ambiguous agreements, which clarify the significance of mutual emotional and physical investment” (Moquin, Riemenschneider, & Wakefield, 2019, p. 2). Second, in contrast, transactional contracts refer
to “short-term monetary agreements with little involvement of the parties”, mainly focused on economic exchange (Grimmer & Oddy, 2007, p.155; Rousseau & Schalk, 2000), as well as
“the direct and explicit enumeration of duties, deliverables, compensation and duration agreed upon by all parties” (Moquin et al., 2019, p.2). Third, balanced contracts is a long-term arrangement, but more dynamic contract that rewards employees based on individual and organizational performance (Rousseau & Schalk, 2000). Lastly, Rousseau and Schalk (2000) pointed out the transitional type is regarded as a cognitive state due to organizational transitions, so that the performance terms are not specified. These four psychological dimensions proposed by Rousseau (2000) are summarized in Table 2.2.
Table 2.2.
Summary of Four Dimensions and Each Construct of Psychological Contract
Dimension Constructs Description (Rousseau and Schalk, 2000, pp. 4-5) Relational
Contracts
Stability A long-term employment relationship for employees obligated to achieve the performance requirement and stay in the firm; for employer committed to offering stable wages Loyalty The employees are obligated to support the firm. In return, the
employer has committed to supporting the well-being and interests of employees and their families.
Transactional Contracts
Narrow The employees are paid to perform only a fixed scope of duties; the employer has committed to offering only limited involvement in the organization with little training and development opportunities.
Short-term The employee has no obligation to stay for long term and is committed to working only for a limited time. Also, the employer is not obligated to any future commitments.
Balanced Contracts
External employability
The employee is obligated to develop their skills for the market demand; the employer has committed to enhancing the employee’s long-term employability.
Internal advancement
The employee is obligated to develop their skills for the current employer; the employer has committed to providing internal career advancement plan for their employee.
(continued)
Table 2.1. (continued)
Dimension Constructs Description (Rousseau and Schalk, 2000, pp. 4-5) Balanced
Contracts
Dynamic performance
The employee is obligated to perform well of the demanding goals and make their firm be competitive; the employer has committed to provide continuous learning chances to assist employees achieving the job requirements.
Transitional Contracts
Mistrust The employee does not trust the employer due to the unclear information provided by the firm, which is inconsistent with the organization intentions.
Uncertainty Employees feel not clear about the nature of their own obligations to the firm; the employer evaluate the extent that the employees are uncertain regarding the employer’s future commitments to them.
Erosion Employee anticipates a declining of returns from their contributions to the firm compared to the past and the employer has introduced changes that reduce employee rewards.
Note. Adapted from “Psychological Contracts in Employment: Cross-National Perspectives”
by Rousseau and Schalk. 2000. Copyright 2000 by the Sage Publications.
Two of the most commonly used dimensions are relational and transactional contracts.
Grimmer and Oddy (2007, p.155) considered “the scope of relational contracts is more general and pervasive subject to clarification and modification as circumstances evolve”. Therefore, relational contracts might be more subjective and less tangible in comparison to transactional contracts (Grimmer & Oddy, 2007).
In addition, PCB can also be seen as reactions to violations of employment-related social exchanges, and can lead to reduced work efforts. The reduced work efforts can be the task performance, but may also be the contribution that beyond the performance requirements, such as OCB. More specifically, psychological contract breach will possibly cause the employees’ negative reactions including the strengthened turnover intention and weakened willingness of OCB. As claimed by Coyle-Shapiro & Kessler (2002, p. 83), “employees seem
to balance future benefits from their employer with present contributions as a way of discharging their obligations and concurrently maximizing the realization of future benefits from the employer”. If the current obligation and agreement are breached, some negative behavioral outcomes will likely to occur. From the literature search between 2010 to 2019, the researcher found two most common outcomes of PCB, one is the higher turnover intention, and the other is the lessened contribution beyond employees’ job duties to the organization, which means the OCB.
In conclusion, when the promises are broken, employees’ trust and faith toward the company are destroyed with destructive outcomes, and it not only has impacts on an individual scope but also the organizational scope. More specifically, when this kind of “mutual obligation”
between one person and another party in the organization is unfulfilled, it may cause employees to strengthen their inclination to leave the company and decrease the willingness to contribute more beyond the employees’ responsibility. The statements above demonstrate the negative effect caused by a violation of an invisible agreement mentally exist in our mind.