Saturday, January 11, 2014

Polarities of leadership

To me, leadership is primarily about achieving the optimal balance between the various polarities in organizational life.

You are a leader if you can find the right balance between polarities like
  1. Being confident & making a vulnerable connection
  2. Providing hope & being realistic
  3. Driving change & maintaining stability
  4. Shaping the organization culture (and the definition of 'good' in the organization) & adjusting to the organization culture
  5. Taking too much risk & taking too little risk
  6. Focusing on the long term & responding to immediate challenges
  7. Taking charge & letting others take charge
  8. Maintaining a broad perspective & developing micro-awareness
  9. Being consistent & being  flexible
  10. Organization building & creative destruction
  11. Acting based on who you are as an organization & acting based on what the environment demands
  12. Holding on & moving on
The ‘right balance’ is highly context specific. It is also a dynamic balance/equilibrium as opposed to a static one(In a state of static equilibrium there is balance, but no change or movement - that exists in the case of dynamic equilibrium.  For example, a chair has static equilibrium while a bicycle in motion has dynamic equilibrium). Again, the equilibrium point is an evolving one - based on the evolution of the leader, followers and the organization.

All in all, it is quite a moving target & that is why it is so difficult to ‘train in’ leadership. While useful inputs/helpful experiences/coaching can be provided, leadership capability emerges in a non-linear fashion in the being of a person based on years of struggle with the polarities mentioned above! Of course, all the organizational issues are not ‘polarities’ and  one of the necessary conditions for leadership to emerge is the ability to differentiate between ‘a polarity to be managed’ & ‘a problem to be solved’!!

So, what do you think? If the 'work of leadership' is conceptualized mainly as 'achieving dynamic balance between polarities in organizational life', what does it mean for (a) leaders, (b) for team members (c) for organizations & (d) leadership development?

Note:  Since we have defined the work of leadership in terms of  'achieving optimal balance between polarities in organizational life', it would be interesting look at this 'optimal balance' in more detail. It is not about 'compromise' between the two poles (like a consistent score of 3 in a 1 to 5 scale-with 1 representing one pole and 5 representing the other). It is more about being a '1', '2', '3', '4' or '5'  based on the situation. Strangely, it also involves  transcending the scale by (as Pirsig says) catching the bull (polarity) by both its horns (poles) & even singing the bull to sleep. It is not about being 'timid' and avoiding strong decisions/behavior. It is about the ability to display a wide spectrum of responses and the courage to choose the appropriate response based on the situation. The courage also involves the willingness to explain why a particular choice was made in a particular situation - so that the behavioral flexibility won't become confusing to the team (i.e. variation in responses has to be accompanied by consistency at the level of underlying principles of choosing particular responses in a particular situations & these principles have to be communicated to the team - otherwise this flexibility will come across as inconsistency). Yes, this also involves taking feedback/admitting one's mistakes and revising one's mental map when required. Deep understanding & trust about the leader (i.e. understanding 'who he is' in terms of the principles governing his actions) - developed over a period of time - will obviate the need to explain everything every time! It is said that 'sometimes, who you are speaks so loudly that people can't hear what you are saying'!

Developing this kind  of behavioral range, that too across the many polarities in organizational life, takes a lot of development (psychological/spiritual growth) on the part of the leader. Please note that displaying a wide range of behaviors can put a lot of pressure on the leader's psyche as it involves  'holding multiple sets of diametrically opposite ideas in the mind at the same time' and constantly adjusting the balance/(as it is about dynamic balance as opposed to static balance). Yes, this development/growth (like all psychological growth) can be taxing as it demands regularly stretching one's boundaries. No -this does not mean that there is no room for the natural self/style of the leader, as it is about expanding the self as opposed to developing towards some (standard) 'ideal self'. Yes - it usually takes significant amount of time. But, we need to keep in mind that this development is a matter of degree & that different people learn at different speeds. So, investing in increasing one' ability to 'derive learning/growth from experience' becomes critical - especially for young leaders!!

Sunday, September 29, 2013

Of Leadership training and Corporate Rain dance

A couple of weeks ago, I came across a report which said that in the current difficult economic scenario, Indian companies are investing more in leadership training programs for their senior managers. The ‘espoused interpretation’ for this was that it will help the senior managers to be better leaders, enabling them to respond more effectively to the challenging scenario. While this was certainly a possibility, it did make me wonder if there are other interpretations possible. That is where rain dance comes in.

Let us begin by taking a closer look at the terms.
Rain dance is a ritual that is intended to invoke rain. The rain dance was common among tribes who lived in regions that received very little rain. Since the little rain they did receive was essential for their survival, they felt compelled to something to invoke rain (to influence their destiny). The result was rain dances. Over a period of time, intricate rain dance rituals were developed (that were supposed to do a better job when it comes to rainmaking). While there is no empirical evidence that rain dances caused rain, they did serve other useful purposes like giving them hope, enabling them to feel that they have some degree of control over their destiny/environment, deepening relationships among the members of the tribe etc.  
Leadership training involves all the training programs (Instructor-Led-Training programs) that employees are sent to with the purpose of making them ‘better leaders’ (whatever that might mean). These can be internal or external training programs (often designed/delivered by consultants/business schools). They are usually conducted off site (away from the pressures and distractions of regular work) and are often very expensive.

Corporate rain dance would mean rituals (events/ceremonies/programs) in corporate life that are designed to achieve an essential business objective (better business results/business survival in difficult times etc.) without sufficient empirical evidence that the ritual actually leads to the intended outcome. Going back to the report on the increased investment in leadership development programs, it made me wonder if they (at least to some extent) constitute some sort of corporate rain dance. Of course, there are other examples of corporate rain dance, including many types of ‘strategic business planning meetings’!
I have nothing against rituals in corporate life. Businesses are run by human beings and rituals have always played an important role in human societies. Please see ‘Accelerated learning and Rites of passage’ for an example of how to leverage the power of rituals in business organizations. It is just that we should be aware of what they can and cannot do when we are investing in them.

Leadership training is a Multi-Billion-Dollar industry. There is also a huge amount of literature on ‘leadership’. I have no intention to get into a detailed discussion on ‘leadership’ here. (Please see ‘Of leaders and battle-scars’, ‘The leadership sandwich’ & ‘Reasons, Rationalizations & Collective Delusions’ for some of my thoughts). For the purpose of this post, I will just raise the top five questions that have been bothering me("The best fool can ask more than the wisest man can tell" J).
  1. If ‘learning’ is defined as ‘sustained change in behavior’ how much empirical evidence exists that ‘learning’ results from leadership training programs?
  2. There are many people in top management positions who speak eloquently about the great leadership training programs their companies have. However, I have rarely heard anyone of them talking about a particular leadership training program they have attended that made them (or played a big part in making them) who they are now.
  3.  If ‘leadership development’ goes much beyond ‘leadership training’ (and if leadership is supposed to be learned ‘on the job’ supported by coaching) then why is most of the money/effort is concentrated on ‘offsite’ leadership training? 
  4. To what extent are the designs of leadership training programs based on a deep understanding of the concept of leadership? If the design is based on a particular leadership model/theory, has enough effort been made to check the empirical validity of the theory/model?
  5. If the underlying model of leadership goes beyond the traits and leadership style of the leader, to focus on the relationship between the leader and the followers, then why emphasis is only on training the leaders? Can any form of leadership (including thought leadership) exist without followers? 
Now, let us look at another type of ‘corporate rain dance’ that happens frequently in the domain of leadership development : redesigning leadership competency frameworks & then redesigning all the leadership training programs based  on the new competency framework. Here also the underlying belief (that leads to the rain dance) is that by changing the leadership competency framework we can build better leaders and thereby improve business performance. Sometimes, this can also be a case of 'Training the Victim'. A few years ago, I heard (from reliable sources) about a global company, that changed its leadership competency framework because the new CEO said something like ‘Leaders should Lead’ in a meeting with the HR Leadership team. In response to that statement from the CEO, the HR Head ordered redesign of the leadership competency framework & all the leadership training programs based on the same, spending Millions of Dollars. It also ensured that HR people at the global corporate office (who were under the threat of losing their jobs) kept their jobs and (as the company was a global giant) it contributed to the GDP of many countries in terms of spend on downstream work like ‘Train the Trainer programs’, reprinting of program material & of course putting the leaders through the newly developed training programs.

I am not saying that one should not redesign leadership competency frameworks. It is very easy to find fault with any leadership competency framework and hence no one can argue against the need to redesign the same. The trouble is just that the new framework might also have an equal number of (but possibly different) problems. Hence, unless there is a very clear difference between the new and the old leadership competency framework (that too very clearly aligned to a key strategic priority), the Return On Investment is unlikely to be positive. I also think that ‘competency frameworks are only an intermediate stage’ and that one needs to go beyond them..
Now, let us come back to leadership training programs. What exactly am I trying to say?

One does pick up useful insights, ideas and concepts from these programs. They provide a welcome break from the unpleasant realities of work. They can also act as some kind of signalling mechanism - to communicate (to the participants & to the significant others around them) that some people have been identified as leaders.

Like rain dance, they provide an opportunity connect more deeply with colleagues, provide new hope to the participants & provide satisfaction to the business head that something is being done to improve the business situation. The participants might also see them as recognition/reward– especially if the program is offered only to a select few/if the program is considered to be a prestigious one/if the program is an expensive one (remember, it is tax efficient also - for both the employer and the employee!) . The program might even have some placebo effect on leadership behaviors!J 

Going back to another beneficial dimension of rituals, leadership training programs can also act as 'rites of passage'/'initiation rites' to leadership-  especially if they (like initiation rites in tribal societies) involve doing 'dangerous things'; this danger can be either psychological (like doing something silly in front of a group) or physical (like what happens in some of the outbound training programs) - as they help in transitioning to a new self!! Hence, just as rain dance served a useful purpose in tribal societies for many centuries, leadership training programs can also serve a useful purpose in business organizations – even if that purpose is not the same as the espoused purpose!

If, the rain dance (leadership training program) is not leading to rain (developing better leaders), the organization should seriously consider whether to invest more in 'making the dance better' (e.g. by adding more modules to the leadership training program) or to explore other ways for rainmaking. Improving the dance can add to its value as a ritual up to a point (but not beyond that). Of course, it is possible that some of the other popular ways of rainmaking (e.g. 360 degree feedback) might also turn out to be 'rain dances'! But some of them (e.g. putting people through roles designed to provide a higher learning potential & helping them to derive meaning from their experience in those roles through coaching) might actually work!!!   

Any comments/ideas?  

Sunday, July 28, 2013

Sight, Insight and Foresight method for managing non-performance

This post was triggered by an interaction on Twitter that I have had with a senior HR professional on 'addressing non-performance'. We agreed that the focus should be on 'getting rid of non-performance in non-performers' as opposed to 'getting rid of non-performers'. Then, he asked me how exactly would I accomplish this. This put me in a fix; how will I say something worthwhile in 140 characters in response to such a fundamental question considering that our senior HR professional would have read (and even created) tons of material on performance management? That is when I came up with this 'Sight, Insight and Foresight method for managing non-performance'.

Though I was only 'semi-serious' when I came up with the above 'method', later I felt that it might not be such a bad idea to detail it out a bit. To be honest, there is nothing particularly new in this - it is 'old wine in new bottles'. It is also more of a 'perspective' than a 'method'. However, I feel that as the product (basic principles of performance management) is good & the need it addresses is real (still relevant), the requirement is just to ensure that remains attractive (appealing) to the customers by means of new packaging (positioning)! Also, I am convinced that when it comes to the basics of life and work, our problem is more to do with 'inaction' and not 'ignorance'! Hence, if new packaging can increase the probability of a good concept getting the attention it deserves, it is definitely worth the effort. So, here we go!

What do the various elements of the 'Sight, Insight and Foresight method for managing non-performance' mean?

'Sight' is about developing a shared understanding among the stakeholders (especially between the employee and the manager) regarding what exactly are the performance objectives, how will success be measured and how well one is doing against those objectives & targets at any point of time. This is not trivial, as there can be a disconnect between the manager and the employee on 'On what good looks like'  especially in the case of non-routine and rapidly evolving jobs. While SMART (Specific, Measurable, Agreed, Relevant, Time bound) objectives can help to some extent (especially if they can be made to remain SMART over the entire performance period - no easy task, I must say!), there are deep psychological factors that might lead to a situation where the employee disagrees with with the organization's/manager's assessment of his/her performance ( See Performance ratings and the 'above average effect' for details). 

'Insight' is about generating understanding through performance coaching about the factors that lead to non-performance and how to address  them. While this would involve providing developmental inputs/opportunities where required, we must ensure that the root causes of non-performance are correctly identified. Often, problems at the structure, process, policy, work planning & leadership levels get wrongly (and conveniently!) interpreted as 'non-performance' at individual employee level and hence get diagnosed as  'individual capability issues' (see 'Training the victim' for more details). By the way, if the diagnosis leads to the conclusion that the root cause of non-performance is 'lack of organizational commitment' on the part of the employee, we must check if we are using 'Appropriate metaphors for organization commitment'! Hence, the 'insight' we are talking about here is for both the employee and the organization!!

'Foresight' is about predicting possible impediments to good performance and dealing with them proactively. These impediments usually become apparent in hindsight*; but, by then, the performance window would have closed and the employee would have already been labeled as a 'non-performer'! It is also about identifying and addressing non-performance early enough - before it becomes a full-blown issue. If the performance standards are very high and 'non-performance' means 'anything other than outstanding performance', then deeper aspects related to person-job fit, employee engagement (See Employee engagement and the story of the Sky Maiden) , culture (See Of reasons, rationalizations & collective delusions) & meaning (See Architects of meaning) also need to be considered!

*Note: It is interesting to note that foresight and hindsight are represented by Prometheus and his brother Epimetheus in Greek mythology. Prometheus means 'he who thinks before' and Epimetheus means 'he who thinks after'. 

Any comments/ideas?

Saturday, April 27, 2013

Of Rewards, OD and passing the buck

Compensation decisions are based entirely on the market and business situations. Our objective is to achieve the right balance between ‘need to pay’ which is based on the market scenario and the ‘ability to pay’ which is based on the company scenario”, said the Rewards Manager. “Wouldn’t that make the Rewards function very transactional? Shouldn’t you look at the ‘want to pay’ aspect which is based on the overall people management philosophy of the organization, in addition to the ‘need to pay’ and ‘ability to pay’ aspects that you have mentioned?”, asked the Organization Development(OD) Manager. “We can’t create competitive advantage through compensation strategy as it can easily be copied. Hence, the compensation function has to be transactional and business oriented.While I agree that 'Total Rewards' is our approach, I am only the 'Rewards Manager'. Executing parts of the Total Rewards framework that are not related to compensation and benefits should be the job of the OD function as it is the mandate of the OD function to build a deeper engagement with the employees.”, replied the Rewards Manager. “OD function is also business aligned – it is not about charity and feel good initiatives. Creating deeper engagement with the organization requires a multi-pronged approach and that includes Rewards related dimensions also. Rewards is a very important tool to shape employee behavior. If our Rewards strategy is only about ‘paying the employees the lowest compensation that we can get away with’, we are not only not leveraging the full potential of Rewards, but also creating irreparable damage to the psychological contract between the employee and the employer. Managing the psychological contract is key to building deeper engagement with the employees”, said the OD Manager.

During the first few years of my career, I did a lot of HR consulting work related to Rewards – benchmarking, policies, benefits, compensation structuring, variable pay schemes, employee stock option plans, voluntary retirement schemes, job evaluation etc. Apart from developing functional expertise in the Rewards domain, I also developed an affinity/feel for compensation related numbers. When I look at a data sheet with a lot of compensation related information it (say the compensation data from various companies/units), the figures 'talk to me' (i.e. the patterns in the data and the actionable inferences based on the same automatically pop up in my mind). Later in my career, I gravitated towards OD, though I did get involved in Reward related matters when I have handled HR Business Partner roles. Anyway, Rewards has remained close to my heart though I have been making a living mostly out of OD for the last ten years. Of late, I have been making an attempt to stand at the intersection of Rewards and OD (Please see the six posts in the series on 'Salary negotiations and Psychological contract' for details). Also, I don’t miss any opportunity to interact with fellow Rewards and OD Managers. The conversation at the beginning of this post is derived from those interactions.

My opinion is that both the Rewards and OD Managers here are 'correct' - from the point of view of their respective sub-functions. They are just articulating the mandates given to them. However, while being 'technically correct' they are also missing the essential point here! Please note that one can be 'completely correct' and 'completely irrelevant' at the same time!

During the last 15 years, in the context of organizations that I am familiar with, I have seen ‘Compensation & Benefits’ evolving into ‘Rewards’ and then into ‘Total Rewards’. Similarly, I have seen OD evolving from ‘Process OD’, to ‘Process and Structural OD’ and then to ‘Organization Effectiveness’. That is where the 'trouble' begins. You see, when Reward Managers were just looking after compensation and benefits (providing 'money and goodies') and OD Managers were just doing OD interventions (the kind where you get people into a room and facilitate collaboration, better decision making or creation of a shared vision) these domains did not have much in common and they required very different skill sets. Now if we look at the ‘Total Reward Frameworks’ of many of the organizations, they will have dimensions like culture, learning opportunities, career development, empowerment, work environment etc. Similarly, Organization Effectiveness (OE) is essentially about enabling the organization to achieve its goals by ensuring alignment between the various dimensions/components of the organization and by facilitating positive change. This makes OE/OD more business aligned. This also calls for structural interventions (interventions at the structure, norms, policy & work process levels) in addition to interventions at the human process level. This creates an overlap between the Reward and OD domains, especially when it comes to policies and reinforcement mechanisms to encourage and institutionalize particular actions/behaviors/changes.

When there is an overlap, there are three basic possibilities. The first is that the parties find a way to work together effectively and help each other in the areas of overlap. Obviously, this leads to the best possible outcome. The second possibility is that there is a war over territory and the winning party captures some or all of the overlapping area. While this is often a wasteful process, things usually get done (i.e. they don’t fall through the cracks). The third possibility is that none of the parties take ownership for the overlapping area (and things fall through the cracks). Unfortunately, when it comes to the overlap between Rewards and OD, the third possibility is the one that often actualizes! May be, Rewards and OD Managers are basically ‘nice’ people who don’t want to step on the toes of others! So this creates a situation where the overlapping areas exist in the ‘Frameworks’ and Power Point Presentations of both the parties but nothing much gets done!!! This is what leads to the ‘passing the buck’ phenomenon that this post talks about.

So, what should be done? The important thing here (apart from seeing to it that things don’t fall through the cracks) is to ensure that there is alignment between what Rewards is driving and what OD is driving.

For example, if OD is working on creating an emotional connect between the employer and the employee (that goes beyond rational commitment) and the Rewards approach is that ‘compensation is purely a matter of supply and demand’, then it will send conflicting signals to the employees and also create a violation of the ‘psychological contract’.

Let us look at this in a bit more detail. The situation here can be traced back to fundamentals of the compensation philosophy of the organization – does the organization pay the employees based on what they deserve (within the constraints of what the organization can afford) or does the organization pay the employees as little as it can get away with? This comes into play in a situation where there is an industry downturn (making it difficult for the employees to change jobs) but the particular organization is doing well (growing reasonably fast with healthy profits). In such a scenario, the organization can afford to give the employees good salary hikes. But it can choose not to do so (or choose to give a very low salary hike) because even without the salary hike it can retain the employees. This certainly provides short term gains. It can also be explained away in terms of salaries being market benchmarked. However, this will violate the psychological contract and will lead to a situation in which the employees (especially very valuable employees) leave the organization as soon as the job market improves (Going by the same logic that the organization had used, the employees should leave the organization when the market will pay more!!). A similar situation occurs in the case of hiring also. When the company hires a person (internal or external hire) into a job what salary will be offered? Will the company offer the lowest salary that the candidate will accept or will it offer the salary corresponding to the worth of the job in the company? These are the situations where the 'want to pay' aspect comes in. If the company drives a hard bargain because the employee was not in position to negotiate at that time, no amount of talk later about ‘employees being the biggest asset’ and ‘building a great organization together’ will undo the damage that happened earlier because of the  loss of trust. Some of the IT organizations in India have learned this lesson the hard way!

At the core, people management (of which Rewards and OD are parts) is about understanding, predicting and influencing human behavior. Now, 'human motivation' is a complex phenomenon (See 'The power of carrot and stick' for a detailed discussion). Complex phenomena are usually 'over determined' - that is they have multiple (interrelated) causal/input factors. Some of these factors are in the OD domain and some of the factors are in the Rewards domain. Hence an integrated approach combining Rewards and OD is required. For example, the recent research findings in behavioral economics have created serious doubts on whether many of the performance linked pay schemes have any positive impact on performance. Hence, a combined effort from Rewards and OD is required to ensure a positive return on investment (in monetary and non-monetary terms) from such schemes. Otherwise, such schemes will just be 'tools to match the payout with the ability to pay' - without any useful impact on performance levels.
In a way, our problem (Rewards and OD working in silos) has similarities with ‘Multiple Personality Disorder’ (see ‘HR Professionals and Multiple Personality Disorder’ for details). The most important thing in such a scenario is to get the two parts of the personality (Rewards and OD in this case) to talk to each other. This is not something that can be accomplished in one big meeting. This involves a different way of looking at things and joint exploration and solution design.

One approach to make this happen is to get the Rewards and OD teams to work together in crystallizing, articulating and delivering (in terms of specific HR processes and initiatives) the ‘Employee Value Proposition’ (EVP) of the organization. EVPs (that specifies the total employee deal offered by the organization) usually have both Rewards and OD related components and the EVP should inform both the OD and Rewards strategy of the organization. Also, jointly thinking through the implementation details of the various initiatives to deliver the EVP will help professionals in the Rewards and OD sub-functions to develop a better appreciation of challenges the other sub-function is facing. For example, it is very easy for OD managers to talk about 'correcting the salaries' or about 'standardizing benefits'. Similarly, it is very easy for Rewards managers to talk about 'changing the culture' or about 'creating intrinsic motivation by providing employees opportunities for self-actualization'. However, to make these happen in a reasonably short time period within the constraints of the organization is incredibly difficult.

May be, it would also be a good idea to integrate Rewards and OD domains more tightly in terms of the structure of the HR function.

There is also a larger issue here. As I had mentioned in ‘Paradox of business orientation of HR’, while there is no doubt that the HR function (and hence the Rewards and OD sub-functions) exists to support the business, the exact nature of the ‘business orientation’ that is required to support the business most effectively is a complex one. This becomes especially important, if HRM has to mean something more than ‘making people do more work without paying them too much and without risking disruptions to the business operations’. Please note that this problem is not confined to the Rewards domain. For example, if the OD/OE function goes about actively deskilling the jobs so as to manage the process risk and to reduce skill requirement (and hence the time and investment required in hiring/training and of course the salaries that need to be paid), it would take away from the richness and hence the motivation and learning potential of the jobs. In the specialist functions like Rewards and OD we should also be careful to ensure that in our obsession with tools and techniques (see 'Daydreams of an OD mechanic') we don’t miss the broader picture – that is alignment with the core values and the basic people management philosophy (see ‘Towards a philosophy of HR') of the organization.

Any comments/thoughts?

Monday, April 15, 2013

Of salary negotiations and psychological contract: Part 6 (the big picture)

In this series of posts we have examined the impact of salary negotiations on the formation and evolution of the psychological contract. In the first post in the series (see Part 1: dramatis personae) , we looked at the concept of psychological contract, outlined the stages at which salary negotiations take place and also looked at some basic principles in the domain. In the second, third and fourth posts we examined the salary negotiations between the employee and the employer before joining (see Part 2), after joining (see Part 3) and after submitting the resignation (see Part 4) and examined how interactions influence and are influenced by the psychological contract. In the fifth post we looked at a special phenomenon in this domain – ‘batch mentality’ (see Part 5).

In this post, we will look at some broader aspects related to psychological contract and its workplace implications – over and above those related to salary negotiations.

Let us start with the concept of psychological contract. In the previous posts in this series, we looked at the psychological contract in the context of the 'employer – employee' relationship. However, psychological contract operates in any sort of relationship – not just that between the employer and the employee. This is because psychological contract is essentially about the mutual expectations people have about one another in a relationship, how those expectations shape the behavior of the people in the relationship and how those expectations evolve. It has even been argued that psychological contract between God and man is the basis of many of the major world religions (at least those religions that believe in a ‘personal God’).

If we look at the ‘content’ of the psychological contract in the context of business organizations, there are many other dimensions in addition those related to ‘Rewards’ (that we had covered in the previous posts). These include expectations related to the ‘relative seniority’ (where does my job in the new organization fit in the organization hierarchy of the new organization as compared to that in my previous organization), congruence between individual values and organization values, pace of career growth, degree of empowerment, amount of training/development opportunities provided, amount of support available, physical infrastructure, behavior of superiors/peers/subordinates, organization climate, how the organization will treat its employees when the organization and/or the industry is going through a downturn etc. In all these dimensions, the discrepancy between what a person encounters on the job and what he/she expected to encounter can lead to a violation of the psychological contract.

Now, let us take a look at the consequences of perceived violations in the psychological contract. Employees often respond to perceived violations in the psychological contract with withdrawal, reduced engagement levels, negativism, dissatisfaction, lowered job performance, turnover intention and actual turnover. As we have mentioned earlier, when it comes to the psychological contract, the employer is ‘represented’ by its agents/representatives like the managers of the employee. It has been observed that employees with ‘positive supervision experiences’ are less likely to perceive breaches of psychological contract. Also, even if they perceive a possible violation of the psychological contract, they are likely to deal with it in a constructive manner – like discussing the same with the supervisor and trying to find ways to mend the damages to the psychological contract.

We have mentioned that psychological contract (unlike the employment contract) is usually unwritten. However, Employee Value Proposition (EVP) statements often contain aspects (related to what the employer offers to the employees) that are not mentioned in the employment contract. This would mean that the Employee Value Proposition can be leveraged to actively shape and manage the psychological contract. EVP is usually worded in broad terms and is often expressed as a ‘statement of intent’ (and not a legal commitment). Hence it offers more flexibility to the employer and it can be used to actively shape the psychological contract and drive employee behavior. However, one needs to understand the difference between ‘management’ and ’manipulation’. If the employer communicates the EVP and fails to deliver the same (in terms of the employee experience/employee perception), this is likely to result in the violation of the psychological contract!

This implies that if an organization crafts an EVP based on what it can deliver consistently to its employees (ideally, what it can deliver better than that the other organizations can) and emphasizes the same in the various phases of the employee life cycle, it can have a very positive impact on employee engagement. Yes, there is material that can get into the psychological contract that can’t get into the EVP. Remember - EVP is common for all the employees – but psychological contract is individual specific – though there can be a lot of commonality of the content in the psychological contracts in the minds of the employees. At the recruitment stage, it makes eminent sense to communicate the EVP to the prospective employees. This will help in attracting those candidates who are likely to be a better fit to the organization (as they are motivated by factors that the organization is good in delivering to its employees) and also in ‘repelling’ those candidates who are unlikely to fit in. Yes, as the psychological contract is individual specific (and as it is likely to have material that is not covered in the EVP), the organization should take special effort in ensuring that all the interactions with the prospective candidates are carefully handled so that the candidates gets the ‘right hints’ on what it would be like to work in that particular organization in that particular job.

As the organization evolves/changes what it expects from the employees also changes. Again, as an employee goes through the various stages in his/her life, his/her expectations from the employer also changes. This ‘natural evaluation’ has to be kept in mind (and managed), in addition to the changes in the psychological contract that happens based on the interactions between the employer and the employee. With the accelerating pace of change in the organizations, the importance of psychological contracts (to shape employee behavior) and the importance of managing psychological contracts (to facilitate employee engagement) have increased significantly.

It is interesting to note that there are basically two types of violation of psychological contract. The first occurs when the employer or the employee knowingly fails to meet an obligation/expectation. The second occurs when there is a lack of shared understanding as to whether the obligation/expectation exists. From an organization development point of view, mapping the psychological contract (that exists in the minds of the employer and the employee in terms of mutual expectations), making it explicit and facilitating a discussion (exploration) on same can be a highly useful intervention – especially when dealing with aspects related to employee engagement and retention in a fast changing organization. Yes, this can also include ‘renegotiation’ of the psychological contract!!

Please let me know if you have any comments/suggestions!

Sunday, March 31, 2013

Of salary negotiations and psychological contract: Part 5 ('batch mentality')

In this series of posts, we are examining the impact of salary negotiations on the formation and evolution of the psychological contract. In the first post in the series (see Part 1: dramatis personae) , we looked at the concept of psychological contract, outlined the stages at which salary negotiations take place and also looked at some basic principles in the domain. In the second, third and fourth posts we examined the salary negotiations between the employee and the employer before joining (see Part 2), after joining (see Part 3) and after submitting the resignation (see Part 4) and examined how these negotiations/interactions influence and are influenced by the psychological contract.

In this post, we will examine a special phenomenon in this domain – ‘batch mentality’. While this phenomenon is typically associated with MBAs, this can apply to engineers and other professionals also.

The dynamics of the phenomenon is simple - MBAs tend to compare their career progress with that of the other MBAs from their batch - even after many years of completing their MBA. This is especially true for MBAs from premier institutes who get hired as Management Trainees in reputed organizations – often at a higher responsibility level and at a higher salary as compared to MBAs from less reputed institutes. Since the salary is often used as an indicator for career progress, batch mentality has implications for our domain here (salary negotiations and psychological contract) – across the various stages of the employee life cycle.

In the hiring phase, the prospective employee might expect to come in at the same or higher salary level as compared to the employees in the organization who are from the same batch/similar batches. Sometimes, they state this upfront. Sometimes, they will just assume/expect that it will be done. That is when the trouble begins.

The batch (or the number of years of post qualification experience) might not be a good indicator of the capability of the employee – especially after a few years of completing the degree. Different individuals could have taken different career paths and this could have resulted in different skills and different experiences. Also the relevance of these skills and experiences vary significantly across organizations. However, in the absence of other measures to compare one’s capability level with that of the employees in the new organization, the batch serves as a useful indicator (or at least as a reality check) for the prospective employee.

In my opinion, the best way to deal with this is to be as open as possible with the prospective employee regarding how his/her experience and capability is being compared with those who are working in the organization. For example, if one is joining a consulting firm after a few years in internal HR roles, he/she might come in at a lower salary/lower responsibility level as compared to those who joined the consulting firm from the campus as management trainees. This happens because consulting experience might be of more value in a consulting firm. In such a scenario, it is much better to state this upfront and let the candidate take an informed decision on whether or not to join the firm. Similarly, if the firm has a practice of pegging the consistently high performing employees who have come in through the management trainee program at a higher salary level as compared to lateral hires with similar years of experience (even if they have studied in comparable institutes), this should also be stated upfront. Again, the candidates should seek specific clarification on these aspects if it is important for them and if the organization hasn't proactively shared those details with them.

Of course, some candidates might decide not to join. However, this is a much better scenario as compared to them joining the firm, feeling cheated, becoming disengaged and possibly leaving the firm fairly quickly. Please note that the organization  has also to guard against the possibility that existing employees (especially the consistent high performers who have come in through the management trainee program) might feel that their psychological contract has been violated if lateral hires (from same/similar batches) come in at the same or higher salary and responsibility level.

Similarly, employees who join the organization as management trainees, might display a tendency to compare (‘benchmark’!)  their career progress with others from the same batch of management trainees – even years after they have moved into different jobs (and different career paths) after completing the management trainee program. As we have discussed earlier, usually, these comparisons are not very valid – especially after a few years of completing the management trainee program. However, this does not prevent them from developing some sort of entitlement mentality (i.e. expecting that their salaries will also be increased/they will also be promoted along with the other management trainees from their batch).
To counteract this, the organization should make it explicit that once they complete the management trainee program, they won’t be treated as a batch and each person’s career (and salary growth) will be dependent on the performance, demonstrated capability, role, potential etc. Hence, it has to be communicated explicitly that no 'batch parity' will be maintained. Of course, a greater amount of transparency around the policy/process for deciding promotions and salary hikes will minimize the chances of the psychological contract being violated.

Please note that the employees will have a greater need to compare their salary and responsibility level with that of others, when they don't have better indicators to figure out how well they are doing in their careers (and to figure out if they are being treated fairly by the organization. Hence making these alternative indicators available (and educating the employees on the same) and also generating confidence in the people management processes governing salary hikes and promotions are critical in addressing the 'batch mentality'.

In the next post in the series, we will look at a some broader considerations related to psychological contract in business organizations.

Please let me know if you have any comments/suggestions at this stage!

Of salary negotiations and psychological contract: Part 4 (after resignation)

In this series of posts, we are examining the impact of salary negotiations on the formation and evolution of the psychological contract. In the first post in the series (see Part 1: dramatis personae) , we looked at the concept of psychological contract, outlined the stages at which salary negotiations take place and also looked at some basic principles in the domain. In the second post (see Part 2: before joining) we examined the interaction between the employer and the employee before the employee joins the company and its impact on psychological contract. In the third post (see Part 3: after joining) we looked at the interaction between the employer and the employee after the employee joins the company and examined how these interactions are influenced by (and influence) the psychological contract.

In this post, we will turn the spotlight on the interaction between the employer and the employee after the employee submits his resignation and explore its impact on psychological contract (and how the psychological contract influences those negotiations).

The salary negotiations that take place during this phase (after the employee submits his resignation) are the most complicated ones. One of the key components of the psychological contract in any relationship is the expectations/assumptions about the continuity of the relationship. Here the expectations/assumptions vary widely – across various employees and across various organizations. Hence there is a very high possibility that the expectations (assumptions) the employee have are very different from the expectations (assumptions) that the employer has.

In some organizations, not questioning the continuity of the employment relationship is a necessary condition for any salary negotiations and hence once the employee submits the resignation, the organization does not negotiate at all. Thus the psychological contract prevents salary negotiations in this case. Other organizations have varying degrees of openness for renegotiating salary/making a counter offer once an employee submits his/her resignation. However, these negotiations throw up many complicated issues – for both the employee and the employer. The act of submitting the resignation (or not preventing the circumstances that lead to the resignation of the employee) often creates irreparable damage to the psychological contract for the employer and the employee (unless both the parties believe that they themselves were at fault - at least in part - for creating the situation).

If the employer negotiates with employee who has submitted the resignation and manages to retain him/her by making an offer with a higher salary, it might be perceived as a violation of psychological contract by the other employees. Once it becomes known that it is culturally acceptable to submit the resignation and renegotiate the salary, it might encourage other employees to follow suit creating long term damage to the organization culture. Even the employee who managed to get the salary hike might find it difficult to digest that the organization did not recognize his contribution/value till he put in his papers!

It is interesting to note that there is another psychological contract involved in these situations. Since the employee who managed to get the offer from a new organization would have gone through selection process (that would have involved multiple interactions with the organizational representatives of the new organization) his/her psychological contract with the new organization would also have got formed – at least to some extent. Taking the offer and negotiating with the current employer is usually a violation of that psychological contract!

Another variation of this theme is when an employee resigns from the organization, joins another organization and comes back to the first organization within a short time period with a higher salary and possibly at a higher responsibility level. If this happens in quite a few cases, it can be highly damaging for the psychological contract with the other employees. Hence organizations should have clear norms for rehiring. Keeping all these in mind, my opinion is that salary negotiations after submitting the resignation make sense only under exceptional circumstances.

In the next post in the series, we will look at a special phenomenon in this domain – ‘batch mentality’ and its implications for the psychological contract during the various phases of the employee life cycle.

Please let me know if you have any comments/suggestions at this stage!

Of salary negotiations and psychological contract: Part 3 (after joining)

In this series of posts, we are examining the impact of salary negotiations on the formation and evolution of the psychological contract. In the first post in the series (see Part 1: dramatis personae) we looked at the concept of psychological contract, outlined the stages at which salary negotiations take place and also looked at some basic principles in the domain. In the second post (see Part 2: before joining) we examined the interaction between the employer and the employee before the employee joins the company and its impact on psychological contract. In this post, we will turn the spotlight on the interaction between the employer and the employee after the employee joins the company and examine and how these interactions impact the psychological contract.

The salary negotiations that take place during this phase (after the employee joins the organization) are qualitatively different from those during the previous phase (before the employee joins the organization). This is because of the fact that by now a psychological contract has already been formed. The existing psychological contract will have a big influence on the salary negotiations from now on. Of course, the psychological contract can (and does) get modified by the negotiations at this stage. But the changes to the psychological contract at this stage are incremental changes (evolution). Thus, at this stage, the impact of psychological contract on the salary negotiations is much higher as compared to the impact of the salary negotiations on the psychological contact!

In general, the existing psychological contract makes it difficult for the employee to renegotiate the salary – assuming that there is a regular process for reviewing the salaries that is performance linked and market benchmarked. Most of the negotiations happen at this stage because of the ‘imperfections’ in the previous stage (problems/issues that come up because of the interactions during the phase before the employee joins the organization). For example, if an employee has been promised during the interview stage that that his salary will ‘catch up’ with that of the existing employees, once he proves himself in the organization and if ‘catch up’ never happens (or if it takes too long) the employee might feel that his psychological contract has been violated. Like I had mentioned in part 2 of this series, organizations should be more careful and specific when they are making such promises (and the prospective employee should seek clarifications or specific details - like how long it will take and what would qualify as proving oneself - if the organization does not do so).

There is another type of violation of psychological contract that can occur. This can be traced to fundamentals of the compensation philosophy of the organization – does the organization pay the employees based on what they deserve (within the constraints of what the organization can afford) or does the organization pay the employees as little as it can get away with? This comes into play in a situation where there is an industry downturn (making it difficult for the employees to change jobs) but the particular organization is doing well (growing reasonably fast with healthy profits). In such a scenario the organization can afford to give the employees good salary hikes. But it can choose not to do so (or choose to give a very low salary hike) because even without the salary hike it can retain the employees. This certainly provides short term gains. It can also be explained away in terms of salaries being market benchmarked. However, this will violate the psychological contract and will lead to a situation in which the employees (especially very valuable employees) leave the organization as soon as the job market improves (going by the same logic the organization had used, the employees should leave the organization when the market will pay more). No amount of talk about ‘employees being the biggest asset’ and ‘building a great organization together’ will undo the damage that happened to the loss of trust. Some of the IT organizations in India have learned this lesson the hard way!

Another interesting phenomenon observed during this phase is the so called ‘entitlement mentality’. This happens when an employee (or a group of employees) feels that he (they)  should get a salary hike (or a promotion) because another employee has been given a salary hike or a promotion. While this is usually interpreted as an ‘attitude problem’ on the part of the employee by many of the organizations, there are significant contributing factors to this from the organization’s side. Often, there is no clearly defined promotion policy or policy/process for ‘out of turn’ salary increases. When the employees are not clear as to why somebody has been given a salary hike or a promotion (and why they haven’t been given the same), it is ‘normal’ (in the statistical sense of the term) for them to feel that their psychological contract has been violated. The organization can counteract this to a large extent by having a clearly defined policy for salary hikes and promotions and communicating the same to the employees (and to the prospective employees). Yes, there could be factors related to employee attitudes (e.g. ‘superiority illusion’) that are also operating here and they need to be addressed at that level (Please see ‘Performance ratings and the above average effect' for details).

Somewhat related to this is the situation where new hires join the organization at a salary higher than that of the existing employees at the same responsibility level. In such a situation the existing employees might feel that their psychological contract has been violated. Unless the organization can clearly demonstrate to the existing employees that there is a valid reason for new hires coming in at higher salaries (e.g. they bring in a particular skillset that is not available within the organization and that that skillset enjoys a higher salary level in in the market), this is bound to happen. This situation will also encourage the existing employees (those among the existing employees with skillsets that are highly sought after in the job market) to renegotiate their salaries.   

I am not in favor of frequent renegotiation related to the salary. It puts too much strain on the relationship and on the psychological contract. However, in some of the organizations, it might be culturally acceptable to do so and in those contexts the employee might be able to manage this without damaging the psychological contract too much. I have come across organizations where the best paid person is ‘a great performer who is always on the verge of quitting’. However, my personal opinion is that this kind of brinkmanship creates mistrust and stress and that it is not worth it from a long term perspective.

It has to be noted that existing psychological contract also makes it difficult for the organization (represented by its representative like the managers) to reduce the salary of the employees, to be overly demanding or to terminate the employment. A special situation gets created when there is a change in the manager of the employee as the new manager hasn’t yet formed the psychological contract with the employee. Usually, the new manager does accept at least some part of the existing psychological contract (or at least what the new manager considers to be the existing psychological contract). However, if there is a significant leadership change, with many people in the reporting chain of the employee changing, this might not happen (especially if the new set of managers have been brought in to 'transform the organization' and that transformation involves significant changes to the way people are managed in the organization). Thus, the existing employees might feel hassled as they might feel that their psychological contract has been violated and they don’t have the opportunity to address the violation. On the flip side, this change in managers/leadership also makes it easier of the existing employees to renegotiate their salaries (at least in the case of those employees who are in a position to negotiate)!

In the next post in the series, we will take a closer look at the salary negotiations that take place after the employee submits his/her resignation and explore its impact on psychological contract (and how the psychological contract influences those negotiations).

Please let me know if you have any comments/suggestions at this stage!

Wednesday, March 27, 2013

Of salary negotiations and psychological contract: Part 2 (before joining)

In this series of posts, we are examining the impact of salary negotiations on the formation and evolution of the psychological contract. In the first post (see Part 1: dramatis personae) in the series, we looked at the concept of psychological contract, outlined the stages at which salary negotiations take place and also looked at some of the basic principles in the domain. In this post, we will turn the spotlight on the interaction between the employer and the employee before the employee joins the company and examine its impact on psychological contract.

Very few people will disagree with the principle of “a fair day's wage for a fair day's work”. But what exactly would be the fair salary for a particular job in a particular company at a particular time (or even what will constitute a fair day’s work in the same) is far from simple. This is especially true in the case of those jobs where the employee can influence the results (and even shape the job) to a large degree based on his/her capabilities making the ‘fair salary’ dependent on the individual.

There are different ways in which fairness can be interpreted by the employer and the employee. For example, when a company is hiring a person should the salary be decided mainly based on the previous salary the person? That is, if the company gives a ‘good’ (as agreed by the employer and the employee) increase over the previous salary of the new employee, does that indicate a fair deal? What if the salary offered to the employee is lower than that is being paid to other employees in the company (at the same capability level) doing the same job or similar jobs? Can the new employee consider this as an unfair deal? What if the salary offered to the employee is higher than that is being paid to other employees in the company (at the same capability level) doing the same job or similar jobs? Can the existing employees consider that this deal be unfair to them? Should the 'fairness' be decided purely based on the market forces of supply and demand - based on the current market value of the skillset of the employee?

The two basic ways of arriving at the salary for the new employee (entirely based on the employee’s previous salary or entirely based on internal equity) are extreme cases. Most companies will do some sort of a balancing act with different companies reaching different ‘equilibrium points’. For example, most of the companies try to arrive at the new salary based mainly on the previous salary while ensuring that the new salary is within the broad pay range or compensation band for the job (which is market benchmarked). However, these compensation bands are usually quite broad and there is significant room for ‘discretion’. Again, it is usually difficult to compare the capability level of the candidate with that of the existing employees and hence both the company and the candidate can make widely differing estimates regarding the relative capability level of the candidate.

Also, there is a basic conflict of interest involved in salary negotiations in most situations – the company wants to pay as a low a salary as possible (while ensuring that the candidate accepts the offer) and the candidate wants to earn as a high a salary as he/she can (while ensuring that he/she gets the job offer).

It is this basic conflict of interest coupled with the different ways of interpreting what constitutes the fair salary for the particular employee that make the interactions between the employer and the employee highly potent from the point of view of the formation of the psychological contract.

During the selection process, the employer and the employee will highlight what each can offer in the prospective employment relationship. This essentially a selling process for both sides and there is always the temptation to oversell and to get a closure as quickly as possible. However, this is key ‘moment of truth’ (a critical or decisive time on which much depends) in the employment relationship and any statements made during this process (even if it was just a passing mention) is likely to be interpreted by the other party as a promise and give raise to expectations (that form part of the psychological contract). This is especially true for informal and generic statements that don’t find their way into the formal employment contract. For example, if the employer (or any of the agents involved in the selection process like the hiring manager or the HR manager) makes statements like “No one has left us for salary reasons”, “In our company there are many people who received multiple salary increases in a year etc. it is highly likely to give raise to (unrealistic) expectations later! Thus one has to be very careful in making these statements as they are likely to impact the formation of the psychological contract.

However, there is one important advantage at this stage. Since there is no previous history of interactions between the employer and the candidate, there is no existing psychological contract at this stage. Hence while the parties have to be mindful of the impact of the interactions on the formation of the psychological contract, they don’t have to worry about the possibility of the interactions violating the existing psychological contract. Hence both parties can negotiate as hard as they need to do at this stage (a luxury they won’t have later). They just need to ensure that they don’t say anything that is factually incorrect or misleading.

So what do all these mean? We have seen that there are different ways of interpreting what constitutes the fair salary for the particular employee. I would strongly recommend that the employer explains the process they are using for arriving at the salary in addition to explaining the salary components in detail. Also, if the salary fitment that is being offered has implications for salary progression later (e.g. if the salary offered will put the candidate at the top end of the band which would make the future salary increments lower or if the next increment of the candidate can be prorated as the candidate is joining in the middle of the year) it should be clearly explained. This will enable the candidate to make an informed decision and not to feel like a victim later. Yes, there is a possibility that candidate might not agree with the process and refuses to take up the offer. But this is a much better scenario for both the parties as compared to the scenario in which the candidate joins, feels cheated and leaves the company (or functions at a low level of effectiveness). Also, broad/vague statements that can get misinterpreted should be avoided.

The candidate should also specifically ask for the process for arriving at the salary and seek clarifications on vague/imprecise statements made by the employer. Candidates should also negotiate as hard as they can at this stage, because trying to renegotiate the salary after one joins the company is a much more complicated process and it could be interpreted as lack of commitment (or 'attitude problem')on the part of the employee and a violation of the psychological contract.

In the next post in the series, we will take a closer look at the salary negotiations that take place during the tenure of the employee in the organization and examine its impact on psychological contract (and how the psychological contract influences those negotiations).

Please let me know if you have any comments/suggestions at this stage!

Of salary negotiations and psychological contract: Part 1(dramatis personae)

“I feel cheated. If I had known this, I would not have joined this company”, said the frustrated employee. “We had given you a good hike over your previous salary. We had also explained the details of your compensation and benefits when we gave you the offer letter. Once you have signed the employment contract, it is not appropriate on your part to raise issues about it so soon. What somebody else get paid is none of your business”, replied the HR Manager.

This is a scene that gets enacted quite frequently across organizations – with unpleasant consequences for both the employer and the employee. I have often wondered what can be done about it. Based on my experience in the domain (from both sides of the fence!), I think that an exploration of the terrain from multiple perspectives is required to find a reasonable solution to this puzzle. This series of posts is an attempt in that direction. I also feel that while the ‘best solution’ is likely to be context specific, some general guidelines can be formulated.

In the first post of this series, we will begin by taking a closer look at the concept of ‘psychological contract’. We will also conceptualize salary negotiations in terms of the key stages in the ‘employee life cycle’ in which salary negotiations take place.

The psychological contract is a set of mutual expectations held by the employer and employee that might not be captured in the formal employment contract. While the psychological contract is ‘not on paper’, it is very much real and significant as it impacts how the employer-employee relationship evolves. It also influences the key decisions made by the employees like the decision on whether or not to put in discretionary effort and whether or not to leave the organization. Hence maintaining the psychological contract is critical for enabling positive employee relations. Please note that in the case of reasonably well-managed organizations (where a breach of the legal employment contract is unlikely to happen), employee exits almost always happen because of the perceived violations in the psychological contract. Repeated violations of the psychological contract can also prompt the employees to form unions to protect their interest.

Salary negotiation is not the only factor that influences the formation and evolution of the psychological contract. Psychological contract might have other dimensions like organization climate and culture, degree of empowerment, career growth, learning opportunities etc. However, salary negotiation is a very significant factor in terms of the degree of impact on the psychological contract.

For our exploration here, we will use a broad definition of the term 'salary' – to include not only the cash part of the compensation but also the benefits and perquisites. Hence our focus in this series of posts will be on those parts of the psychological contract that have something to do with expectations the employees have regarding the salary (including variable salary), benefits & perquisites and the expectations that the employer has on what the employees need to do to earn the same. They also include mutual expectations regarding how (how fast, by how much and based on what) these (salary, benefits & perquisites) will change during the employment relationship. Mutual expectations regarding if, when and how these can be (re)negotiated will also be included. We will assume that the 'employer' is represented by the managers of the employee (people in the reporting chain of the employee and also the HR managers).

Salary negotiations happen at multiple points during the tenure of an employee. However, for the purpose of our discussion here, we will conceptualize the same in terms of the salary negotiations at the following stages

1. Before the employee joins the company (when the ‘employee’ is still an outsider)

2. During the tenure of the employee (from the time the employee joins the organization till he/she submits the resignation)

3. After the employee submits the resignation (when the company is trying to keep the employee back by making a counter offer)

Of course, this is a simplified picture. For example, if stage 3 is successful, the game goes back to stage 2. After that, stage 2 & 3 can (and often do) get repeated later. Also, an employee can indicate his/her intention to quit without formally submitting the resignation.

We will explore each of the stages in detail in the subsequent posts in this series. We will also look at some interesting phenomena observed in this land like 'batch parity' and 'entitlement mentality'. In addition to this, we will look at some other dimensions of psychological contract not related to salary and their implications. For the time being, let us look at a few basic principles.

a. When it comes to forming expectations (psychological contract), what was left unsaid is often more important than what was said during the interactions between the employer and the employee. Psychological contract is unwritten, broad and implicit as compared to the employment contract which is written down, specific and explicit. Hence there is much more room for misunderstanding and misinterpretation.

b. Employees often carry assumptions from their previous employment experiences. Hence they might assume (without any input on the part of the new employer) that something will exist or will not exist in the new organization. Similarly employers (based on the behaviors of existing employees) might assume (without any input on the part of the employee) that the new employees will do or will not do something (See ‘Appropriate metaphors for organizational commitment’ and ‘Passion for work and anasakti for more).

c. Keeping in mind (a) and (b) above, it makes a lot of sense on the part of both the employee and the employer to surface and validate as many of the possible expectations and assumptions as possible (See ‘On what good looks like’ for details). However, this might conflict with the need to strike a deal quickly (e.g. to get the employee to accept the offer or to get the employer to make a job offer). It has to be noted that any shortcuts employed here can lead to long term pain even if they provide some short term gain.

d. The self image of the employee (and the self image of the manager) can have significant impact on the creation and evolution of the psychological contract. Interactions with the colleagues and team members also impact the psychological contract.  
e. When it comes to psychological contract, ‘perception is reality’. Breach of psychological contract may occur if employees perceive that the company (or any of its agents like the managers), have failed to deliver on what they perceive was promised. It can also happen when the employer (manager) perceives that the employee hasn’t kept his/her end of the bargain. Since psychological contract was ‘not on paper’, often the parties don’t initiate a discussion immediately to check whether the perceived breach of the contract really took place. Usually the issue remains ‘underground’ for quite a while and by the time it surfaces it would have gained a lot of negative momentum.

f. Once the breach of the psychological contract occurs, it is often very difficult to repair. Hence prevention is much better than cure in this case!
g. On the positive side, psychological contract provides an excellent opportunity for the organization to engage with (and retain) the employees on multiple dimensions - transactional and relational. It can create a deep alignment between the employee and the employer and provide a sense of meaning a purpose to the employees. Hence it makes sense (for both the employers and the employees) to do whatever they can to actively shape and manage the psychological contract!


In the next post in the series, we will turn the spotlight on the interaction between the employer and the employee before the employee joins the company.

Please let me know if you have any comments/suggestions at this stage!