Psychological Contracts in Organizations Understanding Written and Unwritten Agreements

Citation

Jardat, R. and de Rozario, P. (2012), "Psychological Contracts in Organizations Understanding Written and Unwritten Agreements", Society and Business Review, Vol. 7 No. 1, pp. 93-102. https://doi.org/10.1108/17465681211195814

Internal critics

Since the former employment deal, based on a sustainable relationship and career paths perspective, had hardly been challenged by economic and managerial choices (restructuring, downsizing, merging, outsourcing, etc.), the employers' and employees' experience nowadays in various forms of contracts and arrangements, is still unexplored in their contents and the aftermaths.

Uncompleted by definition and experience, contracts are necessarily subject to interpretation, sands of time and frequent drifts, as the author demonstrates. But as a subjective activity, contracting is more fundamentally based on the promises that contract holders believe they have to honour regarding what should or should not be an acceptable relationship. Context‐related beliefs on mutuality, trust, freedom, fairness, loyalty, etc. these are the key drivers of behaviour in Rousseau's demonstration.

As a consequence, the purpose of this book published in 1995, consists in building a “behavioural theory of contracts […] critical to understanding and managing change in contemporary organizations”. Referring to current theories on organization, Psychological Contracts in Organizations not only provides a systematic exploration of the contents and the dynamics of contemporary contracts, but also identifies pervasive factors shaping contract thinking at different levels: organizational, sectorial, social, media related, institutional and cultural. The author identifies the actual forces and threats to contracting, defined as a fundamental human activity expressing willingness and freedom in modern democratic societies. Contracts are a Product of Free Societies (xiii).

This book is divided into eight chapters that can be considered as a series of concentric layers contributing to the author's assumptions and demonstration. Chapters 1‐4 constitute the kernel of that work, establishing main definitions and key concepts as to contracts, including a historic perspective on how organizations have evolved. Chapters 5 and 6 address the key managerial issue of psychological contracts, namely discriminating between change and violation, and their related aftermaths on contract fulfilment. Chapter 7 looks like a peripheral add‐on in charge of translating psychological contract into CEO's strategic concerns. Chapter 8 embeds all precedent work into a wider social and societal perspective linked with major upheavals in industry and more in the US in the twentieth century. A total of 20 tables and examples taken from corporate surveys and case studies illustrate the demonstration. A total of 23 figures provide descriptive and theoretical schemes held to articulate the different components of the demonstration. An index of about 200 concepts serves as a more thematic reading. Human resources experts or social scientists can also make good use of approximately 250 references representing the main knowledge on organizational behaviour (OB).

The kernel of the work: founding the theory of psychological contracts in organizations (chapters 1‐4)

Denise Rousseau progressively gets deeper and deeper into the problematic of contracts throughout the chapters: from contracting (chapter 1) she focuses on contract making (chapter 2), then on contract makers (chapter 3) before addressing the diversity of existing contemporary contracts (chapter 4).

Chapter 1 “Contracting, a modern dilemma” first offers a state‐of‐the‐art on common knowledge about contracts. It appears that contracting is necessary to commit parties into an efficient and sustainable economic activity and relationship. However, contracts have two main complex characteristics to deal with:

1. 1.

   they cannot describe all possible contractual situations (Williamson, 1979); and

2. 2.

   even though they are coded, they are filtered by the human bounded rationality (Simon and March, 1958).

The author therefore demystifies the oversimplified economic definition of firms as a nexus of purely transactional contracts. The major limitation of contracting is considered as being cognitive in constructing the mental image of mutual expectations and promises forming a contract. A contract is multiple and ambiguous by nature. In a first key matrix typology, Denise Rousseau distinguishes four types of contracts. Two promissory contracts inside organizations are composed of the “psychological contract” (the way I view my own contract) and the “normative” one (the way member‐groups similarly view a collective contract). Outside the organization, medias and third parties also provide a public perception on corporate behaviour. The so‐called “implied contract” plays on the reputation of firms and provides specific social expectations. More detailed in chapter 8, the fourth contract is the “social contract”, pervasive in all kinds of contracts.

In chapter 2 “Contract making”, the author describes the cognitive processes by which the three organizational contracts (psychological, implied and normative) are shaped and she deepens the normative contract related to extra‐organization factors, such as norms and culture. We discover six main reasons why, or why not, parties keep their promises: acceptance of the settled goals, self‐control, and image formed by the contract, fear of reliance losses, degree of social pressure and value of incentives. Contract is a mental model described as an information encoding‐decoding subjective process. There is a will to take into account both collective and individual factors, the latter being however privileged. Consistently, the process of inter‐individual psychological contracting appears further in that chapter as a key model, with its punctuated status due to self‐fulfilling bias and event‐related testing. When shaped, this cognitive contract plays as an information filter whose review only occurs if critical incidents are challenging the employment relationship (detailed in chapters 5 “violating contracts” and 6 “changing contracts”). How critical is a drift is highly idiosyncratic and context related. From a process point of view, the collective normative contract is considered as “a sort of PC” taking part to the construction of organizational culture considered as “a system of interconnected layers of social experiences” (p. 49).

Chapter 3 “The contract makers” first deals with the principal‐agent problem transposed to psychological contracts. However, its main issue consists in defining more precisely the key notion of mutuality previously sketched in chapter 1. Indeed, “contracts are not an exercise in manipulation or distortion of reality. Rather, they are attempts at the creation of mutuality” (p. 86). Mutuality is not personally driven but situation driven with three main components: predictability, enablement and clarity. Mutuality “exists regardless of whether the individuals liked each other or had anything in common personally aside from their interdependence” (p. 65). However, such a situation only makes sense regarding given beliefs. Contract makers are people (e.g. managers, mentors, recruiters, co‐workers) as well as structural signals (over statements, compensation system, documentation, career path), both being subjectively combined into the “organization promise”. Listing the numerous contract makers, the author underlines two risks:

1. 1.

   the possible disconnections of messages on promises and expected commitments; and

2. 2.

   the highly subjective combination of information that frame a contract.

Making “the real contract” requires contract makers to be aligned and converged.

In chapter 4 “Contemporary contracts”, Denise Rousseau depicts the various forms of existing contracts and the historic shift from contracts to arrangements through three periods. “Emerging organizations” in the nineteenth century mainly required transactional contracts (short‐term relationship based on a precise deal). “Bureaucratic organization” developed administrative control and long‐term relationships in a period where predictability and efficiency of behaviours were mainly sought through relational contracts (long‐term relationship, internal labour market, high mutuality and implicit commitments). As far as they are concerned, “Ad hocratic organizations” introduced a fundamental shift in the nature of employment relationship and work. The “Shamrock organization” (Handy, 1989) with “Boundaryless career” (Arthur, 1994) not only recruit core employees, they also hire peripheral employees with many forms of contracts and arrangements, notably transitional contracts.

Denise Rousseau establishes the second (and most famous) key typology of her work, describing in a matrix model the so‐called transactional, transitional, balanced and relational contemporary contracts, crossing two dimensions: the duration of the relationship (short term/long term) and the specification of performance terms (specified/unspecified). The “psychological contract” is composed of transactional components which are objective and specified (e.g. wage, merit pay, compensations) and relational ones, mostly unwritten and unspecified (e.g. organizational citizenship, extra‐role behaviours, high emotional involvements). Both dimensions, transactional and relational, belong to and evolve on the same continuum. The “balanced contract” is a deal between employers and employees where the relational and the transactional dimensions of the contract depends on clearly specified performance terms. The “transitional contract” developed in periods of change with an alarming “no guarantee” message. Employability and self‐management are new notions promoted to specify the drift in mutual obligations characterizing transitional contracts.

Although each type of contract may be adapted to specific corporate situations, the author introduces an implicit appreciation of balanced contracts and a depreciation of transitional ones, building a sort of gradient within the matrix Figure 1.

Depending on the duration of the employment relationship and the strategy of internalization of workforce, contemporary organizations both use outsider workers (e.g. temporaries, pooled workers) and insider workers (e.g. core employees, civil servants). These types of status and workers are listed with the related degree of mutual commitment between them and their employers regarding the settled contract. The author concludes on a problem of justice and quality of mutuality due to the variability of existing treatments into the same organization and as a consequence, the in‐depth divergence of beliefs and values conveyed.

The core of the debate: change vs violation (chapters 5‐6)

Subjectivity and asymmetry are the implicit fundamental roots of the analysis developed in chapters 5 and 6. Because of time spending, aging and maturity, unexpected external or internal events, cognitive contract image and organizational changes (restructuring, merging, new management goals, etc.), discrepancies commonly occur. Some have few effects whereas others provoke a contract “violation”, defined as a trauma, a feeling of betrayal that durably undermines good faith and mutuality. Chapter 5 describes the process from simple misperceptions to contract violation and chapter 6 provides and illustrates the discreet and less discreet contemporary drifts in organizations and the best ways to integrate them without breaking contracts and eroding the beliefs they convey on co‐operation.

Chapter 5 lists the numerous sources of contract violation emanating from contract makers at the very moment objective and perceived promises are not fulfilled, whether inadvertently or not. Contract violations are becoming more commonplace, underlines the author, but their individual perception and aftermaths significantly vary from one person to another. A dynamic model of the cognitive process of contract violation then describes the individual monitoring launched in order to complete information on observed discrepancies and related existing remedies. Credible and systematic information and explanations to contract holders and the implementation of a procedural justice can change the meaning of a perceived breach and violation. Thanks to the author, procedures can establish more dignified treatment to victims through legal recourse. But its downsides are the escalation of expectations and bureaucratization. More anecdotally, Hirschman's Exit/voice typology is called upon to describe the responses to violation: voice (in case of possible remedy/compensation) and loyalty/silence keep the relationship safe contrary to neglect/destruction and exit (voluntary termination).

Chapter 6 “Changing the contract” details the reasons of changes and the two main ways in which organizations and contract holders react. Advice after a managerial process is then proposed to succeed in integrating changes with current contracts. With various forms of contemporary contracts as backdrop (chapter 4), Denise Rousseau underlines a contradiction: contracts are made to predict future behaviour starting from a mutual initial agreement and, at the same time, they are necessarily submitted to changes. Organization integrates changes in two ways: accommodation is a “single‐loop learning” or a “first‐order change” keeping the spirit of the contract with simple adjustments of the same agreement whereas transformation alter the nature of the relationship, namely perceived and objective promises and obligations. As they are beliefs, only the subjectively perceived gains related to transformation separate change from violation and accommodation from transformation (p. 161). The conditions for that are described according to four quite common‐sense steps of change. However, success looks quite complex because it involves complicated sense‐making phenomena and subjectivity: “contracts are beliefs in mutuality rather than actual fact of mutuality” (p. 174).

A focus on integrated corporate strategies (chapter 7)

That chapter mainly focuses on managerial perspectives promoting the articulation of market strategies, human resource strategies and types of organizational contracts (relational, transactional, transitional and balanced). The author therefore depicts four strategic corporate profiles with asymmetry between the types of employment relationship developed by each contract and the types of relationship developed with customers. This chapter underlines the importance of human resource practices such as training.

Defenders want to keep their market shares and their internal labour market with a low turnover and many psychological and relational contracts (they correspond to the “old” psychological contracts). They have an in‐depth knowledge of customers' preferences and stable relationships with them. As risk‐takers, prospectors seek new market opportunities and invest in technology and development like sport and leisure sectors, for example. They mostly favour transactional contracts with no internal labour market and a high turnover. Relationships with customers are focused and limited. As active former defenders, analyzers adopt a hybrid strategy with transactional and relational contracts. They tend to become responsive. Responsives preserve a core workforce composed of skilled workers committed in balanced contracts and a peripheral workforce, using transactional contracts. Relationships with customers and peripheral workforce are limited and focused. The no guarantee profile hardly offers sustainable relationships with employees nor clients, after‐market services often do not exist.

Diachrony founding the cultural embeddedness of contracts (chapter 8)

Chapter 8 “Trends in the new social contract” is a major section of the work demonstrating the reciprocal influence of the current “social contract system” and the social link concretely experienced by individuals through their single employment contracts. Thanks to a “soft” structuralism, the author describes the mutual influence of daily experiences of contract violation or fulfilment on the beliefs conveyed by the social contract and of these beliefs on the shape of psychological contracts. Perceptions of fair obligations and expectations can therefore be modified by practice and belief. The author then presents the main threats to contracting and the main forces in favour of contracting. This chapter ends by a proposal to create a new contract based on more voluntariness, mutuality and reciprocity as major beliefs of democratic and modern societies.

Culture or context related, the social contract is composed of five dimensions: the respective roles given to family and to work, the social and job security sets, the mutual obligations established by laws or habits, the privileged patterns for mobility, employment risk sharing between parties, and the articulation between education and employment. Repeated experiences become social facts. These elements convey fundamentally different beliefs and therefore expectations and promises from one generation to the other. Does family have to monitor individual careers or are individual careers more important than family concerns (i.e. Mexico vs USA)? Must a good performer be generalist or rather a specialist in the schooling shape (i.e. Japan vs USA)? Are injuries always considered as personal problems or do they entitle a legal recourse or compensation? Media and social judgements are presented as the social reality mirrors and drivers of such societal options.

The actual transition period is characterized by the end of compensation and incentives, escalating losses, inconsistent messages and unclear and unpredictable images of career paths and futures. Denise Rousseau therefore fiercely criticizes threats to contracting such as mimetic downsizing strategies and loss of voluntariness due to never‐ending restructuring, which caused “rising cynicism about organizations and employment opportunities” (p. 212). That critique addresses both political and societal dimension of organizations. Politically, “Voluntariness must be brought back into organizations” (p. 211) and participation is fairly recommended. Socially, Denise Rousseau appeals to fighting social anomy in organization where a “dearth of role models” encourages “a lonely life of reading self‐help books and taking self‐assessment tests” (p. 222). Restoring trust and the ability to contract itself can however rely on positive forces both at individual and organizational levels by creating more idiosyncratic contract terms.

Conclusion of internal critique

Why is it that work so embedded in the 1990s American employment upheavals became acknowledged worldwide and still ever resists the erosion of time? The first answer is obvious: thanks to many current examples and a didactic presentation of contracts in organization, Denise Rousseau faithfully depicted the pervasive and current disillusions experienced daily by employers and workers in most democratic societies. Is labour still the great mean it was for personal, professional and economical development?

The second reason for this success is probably due to the components of the demonstration, a unique combination of:

• •

  systematism in arguments' exposure;

• •

  salutary transgression of economic mainstream on contracts; and

• •

  preserved ambiguity of the theoretical models combining various levels, focuses and definitions, such as “mutuality” and “reciprocity” for example, or the linkage between employment contracts and the social contract.

By crossing and superposing schemas that present subtle gaps and intervals from one another, Denise Rousseau converts incompleteness of contracts into vibrating ambiguity and unique trans‐disciplinary harmonics.

“People think contractually” is however an unquestioned statement, a core belief pervasive to all dimensions of society in Denise Rousseau's work. Given that the empirical basis of that work is purely USA, some foreign sociologists like d'Iribarne (1989) not surprisingly demonstrated that contracting was a typical feature of American culture. However, the author succeeded in moderating this contractualism thanks to diachronic observations. She even suggested that contractualism defined as an ability to agree on and to stick to promises and commitments on a voluntary basis, is not universal (chapter 8). Contracts just occur or do not occur in a local context of experience conveying a specific belief on what relationship should or should not be. Threats to contracting and employment relation upheavals both play the role of remedies against the risk of ethnocentric thought: “contracts as a basis for social relationships occur in societies where individual autonomy and self‐expression are valued” (p. 217). Consistently, Denise Rousseau ends her work with a plea for the difficult but fruitful “balance” between individual lens and the “over socialized view” of institutionalists. That sheds an ultimate light over the permanent leitmotiv of her work: resist over‐simplification.

External perspectives

Psychological Contracts in Organizations belongs to academic works heralding that employment relationships are not always a pretty sight despite the common belief in a possible linkage between modernity (the future we “guarantee” to you) and profits (the benefits we will gain thanks to you). Describing real and subjective experiences of disjunctions between promises and fulfilments instead of the stereotyped models developed to specify them, these books known at the end of the 1990s an international impact that inspired many researchers but also experts of employment, human resources and organizations. In our opinion, this book participates to an international and interdisciplinary critique of the market economy principles applied to private organizations and to public services through the new public management during the 1980s, so‐called the “liberal moment”. Observing the financial scandals of the 2000s (Enron, Parmalat, Madoff investments, Worldcom, etc.) and their negative impacts on bankrupcy and employment plus the actual worldwide economic crisis, makes these seminal works necessary and up to date.

In France, the sociologist Castel (1995) published an impressing chronicle of the evolutions of labour organizations and capitalism, defined as various forms of human transactions and relations, which is, in some aspects, similar to the one described by Denise Rousseau (emerging organizations, bureaucratic organizations and ad hocratic organizations). In the field of management and administrative sciences, Chanlat (1990) proposed an anthropology of individuals in organizations taking notably into account the symbolic fuel of language that characterize human interactions. The same year in another academic field, the psychiatrist Hirigoyen (1998) carefully described daily psychological abuses and mobbing in workplaces. Are not these discreet but efficient relationships a possible consequence of the labour market segmentations between core qualified and well‐treated employees and peripheral discriminated ones, described by Denise Rousseau? Heterodox economists (Caillé, 1997) also established a clear distinction between employment markets and market economy, each one being organized by different rules and mechanisms. They also assume the limits of economic models when identifying and measuring impacts of externalities such as education, culture, training, etc.

Psychological Contracts in Organizations therefore inspired many researchers opening the black box of employment relationship and pleading for more fair and sustainable career perspectives and stronger accountability in managerial decisions.

Analyzing more than 35 studies led in various contexts and countries (see the state of the art in Delobbe et al. (2009)), it is however very surprising and frustrating to notice that enquiries multiplied, but focused on some restricted dimensions of the global framework designed by Rousseau (1995). Though the author tried to articulate the variety of organizational theories in order to rigorously depict the complexity of employment relationship, main studies focused on the individual level of perception of promises and fulfilments, the breach and contract violations and types of obligations thanks to employers and thanks to employees. Most results emanated from employees' side and showed the sole negative dimension of contracting. This exclusive intra‐personal reading of the psychological contract had been first criticized by Guest (1998) with an absence of theory of mutuality and reciprocity, critical in Denise Rousseau's assumptions and demonstration.

Not surprisingly in the field of social psychology, these studies pre‐ponderantly used quantitative methods to collect individual perceptions through pre‐concieved lists of obligations or contract violation events, with Likert scales sets of answers. Though Denise Rousseau strongly advised to develop qualitative methods like interviews because of the idiosyncratic, the diachronic and cross‐generational nature of contracting (p. 5), few researchers modify their methodological path dependence. The PCI, psychological contract index for instance, is based on typologies of obligations due by the employer (32 items) and the employee (27 items), grouped into seven factors as follows: retribution, job content, equity/trust, good material working conditions for employer promises and altruism, minimal performance at work and loyalty for employee promises. Sharp (2003) showed no consensus on contents of obligations and their high variability from one context to another, the numerous scales built on the basis of the PCI corresponding to the researchers' belief/culture and own interests. Comparability between studies is therefore very difficult. How the psychological contract changes through times and interactions remain unstudied. Synchronic studies also eclipsed the historical and political perspectives drawn in Psychological Contracts in Organizations and the interactions between organizations and their context.

The theoretical and practical framework designed by Denise Rousseau to describe employment relationship in its dynamics now paradoxically faces a risk of explosion due to too numerous and interconnected theoretical constructs and a reduction of individuals to statistical units. This matter of facts plead to “go back to basics” and to deepen the still unexplored framework proposed by the author in 1995. This exiting perspective means that Psychological Contracts in Organizations be confronted to other academic disciplines dealing with the key contemporary question of employment. At least, three areas of work could be re‐opened: building an anthropology of individuals in organizations nowadays where individuals are not defined as statistic and representative units but as a whole; to this end, developing qualitative and comparative methods and keeping the four levels of observation proposed by the author to represent the high complexity of contract thinking and employment relationship:

• •

  individual level (perceptions, emotions, attitudes, behaviours, personality, motivation, labour satisfaction, acceptance or adhesion to organization goals and stress), including education processes and inter‐generational inheritance;

• •

  group level (communication, cooperation, coordination, inter‐personal relationships, power, conflicts, group dynamics, efficiency and performance of teams, decision taking, leadership and trust), including the normative ability of groups to modify the rules;

• •

  organization level (structure, organizational socialization like training, recruitment, development activities, … , corporate culture), including the recent theories of stakeholders and the environmental and social responsibility of organizations; and

• •

  societal level (institutions, education, media, social contract, laws, etc.), employment relationship being more or less specified by sets of legal obligations and dedicated institutions depending on the various context of observation (Rousseau and Schalk, 2000).