Importance of managing the psychological contract and the challenges Essay

Importance of managing the psychological contract and the challenges associated with it - Essay Example The term ‘psychological contract’ thus refers to expectations within a relationship, and the manner in which these expectations transform, affecting one’s behaviour over a period. The term has gained recent popularity, and it is used for delineating mutual expectations between an organisation and its employees. Psychological contract, which is a form of unwritten agreement between an organisation and the employees, is fast changing its form after the 1990 and 2007 economic crises. Short-term and contractual employment is increasingly gaining more popularity within organizations, owing to which psychological contract, which is related to the concept of self-actualisation, is gaining significance amongst employees. This transformation in the nature of psychological contract has various ramifications on the employers that look for motivation among to its employees to achieve all organizations goals. This essay explores the concept of psychological contract and its ma nagement within current times, and the various challenges associated with it.... These interpretations influence employee behaviour, by changing the understanding of what is meant by psychological contract for each individual employee (fig 1). Business strategies (implementation and resources) HRM (interpretation) Psychological contracts Fig 1: Link between business strategies of an organisation, its HR practices and psychological contract (Rousseau and Wade-Benzoni, 1994: 464). Defining the term ‘psychological contract’ Argyris (1960) first used the term psychological contract in order to delineate the subjective nature of an employer-employee relationship first used the term psychological contract. Rousseau (1990) suggested that a psychological contract refers to the mutual understandings, oral or written, concerning the commitments between employees and an organisation. From an operational perspective, psychological contracts perform two functions: they give the organisations an idea of results to be expected from their employees; They predict the gains that employees will receive in return for their time and effort invested in a firm. The relationship that comprises of mutual exchanges between an employer and his employees vary from being legal to psychological (Spindler, 1994). Agreements, laws, or a contract signed by the employee (containing details such as salary, working hours, benefits, etc.,) often frame this mutual relationship. Besides these, however, often an employment relationship is defined by what is known as the ‘subconscious’ (Spindler, 1994). In this context, a psychological contract refers to the ideology that creates a framework for comprehending the ‘subconscious’ relationship, or the ‘hidden’ arenas within an employment relationship (Shore and Tetrick, 1994). A