Increasingly, relevance of contractual issues within and between organizations suggests a need to explicate the role of subjective contracts in organizational research and theory. The subjectivity of contracts from each party's perspective underlies Mac- Neil's (1985) observation that all contracts (written or unwritten) are fundamentally psychological, existing in the eye of the beholder. The term psychological contract refers to an individual's beliefs regarding the terms and conditions of a reciprocal exchange agreement between that focal person and another party.

Parties to PS are employee and organization.

In the eyes of many, long-term employment gives rise to mutual obligations of loyalty, requiring employees to work hard in the interests of their employer and the employer to retain employees whenever possible and provide for them when not (Rousseau & Anton, 1988a, 1988b).

When an individual perceives that contributions he or she makes obligate the organization to reciprocity (or vice versa), a psychological contract emerges (Fig. 1).


Fig. 1. Development of an individual's psychological contract.

Belief in a contract is also enhanced when a promise precedes rather than follows an employee's contribution. As individuals make attributions about the underlying causes of their own behavior, the promise of a raise for hard work before the employee exerts effort is more likely to be construed as motivator or cause of that effort than is the promise of a raise given after the fact (consistent with Nisbett and Ross’s (1980) treatment of the effects of availability of event relationships upon causal explanations, pp. 21-23).

In any case, the more stable and consistent are the organization's requests and promises, the more likely it is that the employee forms an unambiguous and consistent perception of his or her obligations and entitlements (Rousseau, 1988).

Promises are the preferred term when defining the PS as they are more...

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