The greatest asset to any organization is human capital which is the sum of habits, knowledge, talent, skills, capabilities and earning potential of Labour. Every successful organization has a very strong human capital supporting its successes with cutting edge ideas and innovation. This is one of the reasons why organizations invest so much in recruiting the ideal employee to fill in a position and if there is an error in the recruitment and selection process, it could also cost the organization direly. Therefore, when a resourceful employee is recruited especially one that adds value and supports the organization’s goals and objectives, it becomes very vital that such a talent is retained.
The National Bureau of Statistics (NBS) stated that at the third quarter of 2018, the unemployment rate in Nigeria was 23.1% and underemployment rate was 20.1% summing up to 43.3%. This shows a dwindling employment rate caused by lack of suitable jobs and high employee turnover due to dissatisfaction. One ideology that has tried to conceptualize employee behavior outcome such as dissatisfaction, high labour turnover and lack of employee commitment to mention a few, is Psychological contract.
According to Aggarwal and Bhargava (2009), psychological contract refers to the relationship between employee and employer in terms of the unwritten expectations that exist. Psychological contract involves the expectations that employees have from their employers or the organization, stemming from the written employment contract. Rousseau, one of the leading pioneers of psychological contract identified four dimensions to psychological contract: transitional, transactional, balance and relational contracts. Transitional contract is a passing phase of relationship between the two parties, resulting from organizational change including mergers and acquisition. In such a case, some employees could be demoted, transferred and retrenched which could bring about dissatisfaction. Transactional psychological contract indicates obligations that may be considered to be “economic” in nature that is, involving compensation in which inadequate pay or defaults in pay could lead to withdrawal of employee’s productivity and commitment. Relational contracts involve long term obligations based upon trust. When this trust is violated, it could result to employee turnover. Lastly, balanced contract is a combination of transactional and relational contract.
When there is a violation of psychological contract by the organization, knowingly or unknowingly, it results into negative emotions from the employees. An employee will try to balance the scale by withdrawing from work, failing to meet targets, high level of absenteeism, dissatisfaction with the activities of the organization, disloyalty and resigning. When a psychological contract is violated, it results to the formation of a new psychological contract which is built on shaky foundation and distrust. This will lead to a ‘me first’ mentality because of the shift in thinking that there is no longer security of pay, as well as other promised compensation by the organization regardless of the employee’s good performance.
This is why it is important for employers and representatives of the organization in the likes of managers to carefully define the employment contract explicitly so that there is no room for assumptions and misinterpretation. In addition, both parties should communicate appropriately their expectations of the employment relationship and subsequently, there should be a formal discussion between the employee and employees where they could voice out their needs and dissatisfaction. When an organization is going through a transitional phase, it is very important to sensitize employees to ensure employee are on board with no violation of either the written contract and psychological contract. A good knowledge of psychological contract enables to obtain positive employee outcomes in the form of job satisfaction and organizational commitment. Ignorance to this concept is not an excuse, managers must take out time and take special care in dealing with employees and managing them to accomplish the organizations goals and objectives.
Aggarwa, U., & Bhargava, S. (2009). Exploring psychological contract contents in India: the employee and employer perspective. Journal of indian business research, 1(4), 238-251.
National Bureau of Statistics (2018) https://www.cnbafrica.com/news/west-africa/2018/12/20/nigerias-unemployment-rate-rise-to-23-1-percent-in-q3/ (Accessed 21 July, 2019)
Rousseau, D. M., & Tijoriwala, S. A. (1998). Assessing psychological contract: Issues, alternatives and measures. Journal of Organizational Behavior, 19, 679-695.