Psychological Contracts: Are They Still Relevant?

In dynamic business environments the concept of the psychological contract has altered radically. Empirical evidence from a case study conducted in one of Australia’s largest banking organisations is used to illustrate how change can impact upon the psychological contract. Traditional loyalty to an organisation and continuance commitment are becoming less important as organisations pursue more transactional relationships with their employees and as employees are encouraged to pursue more self-interested ‘protean’ careers. The question could be asked whether, with such increased emphasis on self-serving personal and organisational strategies, the ‘psychological contract’ continues to provide a means of establishing effective relationships between organisations and their employees. The main conclusion is that the maintenance of such contracts still makes an important contribution to organisational relationships but that organisations need to seek ways of adjusting the terms of the psychological contract to meet the needs of an increasingly mobile and protean workforce. WHAT IS THE PSYCHOLOGICAL CONTRACT? Psychological contracts can be described as the set of expectations held by the individual employee which specifies what the individual and the organisation expect to give to and receive from each other in the course of their working relationship (Sims, 1994). As such, psychological contracts are an important component of the relationship between employees and their organisations. This employment relationship can be described as an exchange relationship (Mowday, Porter, and Steers, 1982), which runs the entire contract spectrum from strictly legal to purely psychological (Spindler, 1994). Whilst many aspects of this relationship may be covered by legislation, enterprise agreements or included in an employment contract signed by the employee detailing aspects such as hours, salary and benefit plans, there are always likely to be aspects of the employment relationship which are confined to the subconscious (Spindler, 1994). This ‘hidden’ aspect of the employment exchange (Eisenberger, Huntington, Hutchison, and Sowa, 1986; Greenberg, 1990) has come to be known as the psychological contract (Argyris, 1960; Schein, 1980; Rousseau, 1989). Psychological contracts can be viewed as containing both transactional and relational aspects (MacNeil, 1985). Transactional contracts are described as those containing terms of exchange which have monetary value, are specific and of limited duration. These contracts can be characterised as ‘a fair day’s work for a fair day’s pay’ (Rousseau and Wade-Benzoni, 1994). In terms of the psychological contract, transactional components could be described as being synonymous with the ‘effort bargain’, namely the reciprocal process of exchanging reasonable effort for extrinsic and intrinsic rewards (Marks, Findlay, Hine, McKinlay, and Thompson, 1994). Relational contracts, by contrast, contain terms which may not be readily valued and which broadly concern the relationship between the individual employee and the organisation (Guzzo and Noonan, 1994). In terms of the psychological contract,