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!

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