Changing Psychological Contract Implications for HRM Essay

The Changing Employer-Employee Relationship and Implications on HRM



Organizations now operate in a rapidly changing world. Changes in consumer behavior, increased competitive pressure, technological advancements, as well as regulatory shifts in the last few decades have generally compelled organizations to adjust their strategies, objectives, policies, and actions in an attempt to enhance organizational efficiency and profitability (Freese, Schalk & Croon, 2011; Ulen, 2015; Abu-Doleh & Hammou, 2015). In fact, the ability to accommodate change has been marked as a vital ingredient of success in the constantly evolving operational environment (Wellin, 2007). Whereas its importance cannot be overemphasized, adapting to change has had a significant impact on the psychological contract, which essentially denotes the intangible employer-employee relationship, particularly exemplified by mutual expectations between the employer and the employee (Smissen, Schalk & Freese, 2013). The shifting psychological contract has consequently presented a significant challenge for organizations, specifically their human resource management (HRM) function. The challenge relates to maintaining and improving employee motivation, commitment, and job satisfaction, which tend to be crucial drivers of both individual organizational productivity and performance (Smissen, Schalk & Freese, 2013).



It is imperative for organizations to acknowledge the shifting psychological contract, and create new contracts that are favorable to both the employer and the employee. With reference to literature in the area of organizational behavior and HRM, this paper explores the changing employer-employee relationship and its implications on HRM. First, a comprehensive definition of the notion of psychological contract is offered. Attention is then paid to factors responsible for the changing employer-employee relationship, possible consequences of the new relationship, and the actions HRM can resort to, to create contracts that resonate with the modern work environment.



The Changing Employer-Employee Relationship and Implications on HRM



The notion of the psychological contract is not new. It has dominated organizational behavior HRM discourses since the 1960s (Wellin, 2007). Though there is no universally accepted definition, the notion generally denotes the unwritten agreement that define the relationship between an organization (employer) and its employee (Sims, 1994). It refers to the beliefs, perceptions, or expectations employers and employees perceive concerning their obligations to one another (Robinson, Kraatz & Rosseau, 1994). Essentially, by investing in employees, employers expect certain outcomes, and vice versa (Ishaq & Shamsher, 2016). For instance, by providing competitive remuneration, job security, and professional development opportunities, an organization often expects to get loyalty and commitment from employees in return. Equally, by demonstrating commitment to work, employees usually expect their employer to reciprocate by offering financial and/or non-financial benefits. Dissimilar to formal contracts between employers and employees, psychological contracts are essentially perceptual in the sense that there may be varying interpretations of the expectations employers and employees have one of each other (Freese, Schalk & Croon, 2011).



The employer-employee relationship has experienced tremendous shifts in the last few decades (Ulen, 2015). This has been due to a number of factors. First and foremost, the operational environment has become more competitive than ever before (Freese, Schalk & Croon, 2011). Organizations are now more focused on maximizing profit margins and driving stock prices up at all costs. This largely explains why restructures, mergers, acquisitions, and corporate downsizings have become more widespread since the 1980s than earlier (Wellin, 2007). Organizations in diverse sectors and industries have increasingly dismissed workers, reformed their structures, acquired or merged with competitors, and shifted corporate strategy, all in an attempt to enhance organizational efficiency and improve financial performance. The pressure of competition has been further compounded by unanticipated economic events such as recession, changing consumer behavior, globalization, technological advances, as well as adjustments in the regulatory environment (Sims, 1994; Abu-Doleh & Hammou, 2015).



While such shifts in organizational strategy and policy may have improved profitability, they have considerably reformed the employer-employee relationship. Today, in an effort to optimize personnel costs, organizations are ever more preferring short-term contracts, unlike in the past where employees were contracted on a long-term basis and gradually trained on the job to perform more demanding and complex tasks (Smissen, Schalk & Freese, 2013). In essence, there has been a tendency of hiring employees on a need basis, and releasing them when the organization no longer requires their skills. This has somewhat eliminated job security and reduced commitment. As a result, employees have become more focused on immediate needs of the…