Understanding the Relationship between an Organization and its Employees

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Defining the psychological contract The exchange relationship between organisation and employee ranges the entire contract spectrum from strictly legal to purely psychological (Spindler 1994). Many aspects of this relationship are shaped by legislation, enterprise agreements and/or an employment contract signed by the employee detailing issues such as hours, salary and benefit plans. However, other aspects of the employment relationship are likely to be confined to the subconscious (Spindler 1994). The term psychological contract (Argyris 1960; Schein 1980; Rousseau 1989) refers to a commonly used exchange concept providing a framework for understanding the ‘hidden’ aspects of the relationship between organisations and their…show more content…
Without consideration being given to the ‘employer perspective’, the development of a psychological contract in the minds of employees — that is, a picture of what they owe the organisation and what the organisation owes them in return — can result in perceptions of inequity in the exchange relationship. To retain balance in the psychological contract, any perceived increase in employee obligations to the organisation needs to be matched by a perception of increased rewards. If increases in employee obligations are determined as exceeding increases in employee rewards, it is possible to assume that a negative shift has occurred in the psychological contract. This situation, in turn, is likely to result in a decrease in perceived obligations to the organisation, as witnessed in employee withdrawal of organisational citizenship behaviours (OCBs) or in employees’ leaving the organisation. Employees often hold on to the terms of the psychological contract that operated at time of hire, and subcultures can form around employees according to time served in the organisation, since those with similar tenure can be expected to share similar perceptions of the terms of the psychological contract (Rousseau & Greller 1994b). Tenure, and perhaps age, may therefore influence employee perception of the terms of the psychological contract. Given the importance to the employee–employer relationship of the psychological contract, attention will now be
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