Interesting aspect of this weeks readings

Leadership_Psychology_Chapter6.pdf

Home >Human Resource Management homework help >Interesting aspect of this weeks readings

06the psychological contract – unwritten expectations of leaders and followers

‘It is very much about trying to establish a standard and a behaviour of intellectual – if you like psychological – commitment to doing things the right way. Hence the reason why we start that process at recruitment: we do not want people to join our company who don’t understand that.’

William Rogers Chief Executive

UKRD

BEST leadership quote

when employees are recruited to a new organization they will expect to receive a written contract or, at the very least, some form of docu- mented agreement that lays down what is expected from them in terms of their behaviour and performance in relation to their new role. The contract will also detail what they can expect from their new employer such as pay, conditions, holiday entitlement and contract period. The written contract or agreement is a precise document but will, by its very nature, contribute very little to the future working relationship between the organization – rep- resented by its leaders – and the employee. Both parties will have unspoken and tacit expectations of each other that began to be formed during the recruitment process, and will continue and develop throughout their future working association.

135

Cutler, Alan. Leadership Psychology : How the Best Leaders Inspire Their People, Kogan Page, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/apus/detail.action?docID=1773550. Created from apus on 2017-10-29 22:21:40.

C o p yr

ig h t ©

2 0 1 4 . K

o g a n P

a g e . A

ll ri g h ts

r e se

rv e d .

Leadership Psychology136

The employee may have been sufficiently encouraged to apply for the job by an advertisement that lauded the organization’s dedication to personal development and supportive team-working: factors that particularly appealed to him or her. They will have constructed their application form and CV to stress their commitment to the qualities and values they believe the organ- ization is looking for in its staff. Hence, expectations are being formed by both parties even before they meet, and will be reinforced and expanded throughout the recruitment process. These obligations may not be con- tained specifically within an employment contract, yet they are understood by both parties and may prove to be more influential to their future working relationships than any written document. It is a contract – a psychological contract (PsyC) – that defines the reality of the relationship between em- ployer and employee covering, for example:

● personal development;

● motivation to work;

● organizational culture and values;

● the ethical code to be adhered to;

● relationships at all levels and in all directions;

● levels of expected support.

Note that several of those bullet points could be applied to both parties: the PsyC is a two-way street.

The concept was first introduced by Edgar Schein who, in his book Organizational Culture and Leadership, defined it as ‘an unwritten set of expectations operating at all times between every member of an organ- ization and the various managers and others in that organization’. He further stressed that it is essential that both parties’ expectations of a con- tract should accord, if a long-lasting relationship – benefiting both – is to develop.

Guest and Conway (2002) proposed the following key factors associated with a PsyC:

● the extent to which employers adopt HR practices will influence the state of the PsyC;

● the contract is based upon the employees’ sense of fairness and trust, and their belief that the employer is honouring the ‘deal’ between them;

● where the PsyC is positive, increased employee commitment and satisfaction will have a positive impact on business performance.

It is interesting to consider how an understanding between two or more parties, similar to the PsyC, could also influence relationships outside an employment environment. The PsyC is based upon interpersonal qualities such as trust, respect, compassion, empathy, fairness – all features of emo- tional intelligence – which translate to many other situations where human

C o p yr

ig h t ©

2 0 1 4 . K

o g a n P

a g e . A

ll ri g h ts

r e se

rv e d .

the Psychological Contract 137

beings interact, especially where there is a degree of interdependence be- tween them. Be they family or sporting relationships, for example, through to the severe conditions we will consider in extreme leadership (Chapter 8), the degree to which different parties meet the expectations of each other heavily influences the extent to which they will commit to shared objec- tives. However, for the remainder of this chapter we will focus on how the PsyC impacts on the relationships between employers/employees, leaders/ followers.

Whilst I have used the plural, groups, the concept of a PsyC can also be applied to individuals. Whilst individual employees or followers will hold personal views and understandings as to the informal ‘contract’ that exists, the collective view of group or organization members is usually more significant and, in practice, a senior executive or leader will be more concerned with how the PsyC relates to a collective situation. This would especially apply within large organizations, where their scale will prevent consideration of the complexities of expectations and understandings on a person-to-person basis. That said, it is certainly incumbent on individual leaders to consider the implications of the PsyC in respect of the mutual relationships of those they directly lead. Whether considered or applied at the individual or collective level, the PsyC is formed of unwritten expecta- tions of one party that translate to obligations required of the other.

employee expectations

Whilst formal employment contracts will include details of pay, working hours, holiday allowance, pensions and other benefits, there are a host of other aspects of employment that may not be covered, such as:

● job security;

● recognition;

● work–life balance;

● status and respect;

● duty of care;

● open communication channels;

● provision of equipment;

● quality of leadership;

● opportunities for delegation and empowerment.

Yet the employee will have levels of expectations in relation to such benefits that may or may not accord with what the employer believes is their obliga- tion. The extent to which the employees’ expectations match, and are met by, the employer’s perceived obligations is crucial and will be a major factor determining the levels of motivation within the workforce.

C o p yr

ig h t ©

2 0 1 4 . K

o g a n P

a g e . A

ll ri g h ts

r e se

rv e d .

Leadership Psychology138

‘I did a survey 12 months ago asking, “What do you want from your managers and what motivates you at work?” I then did the same thing with some managers, who came back saying: “We think that the teams are motivated by money, working conditions and knowing what is expected from them.” However, only one of those features, “knowing what is expected of them” was what the teams said. In fact, one of their top motivators was recognition and praise, whilst salary came only sixth. It is interesting that we have that difference between what the team think and what the management expect them to think.’

Antony Smith Culture and Development Manager

Bourne Leisure

BEST leadership quote

Let us consider, as an example, an employee’s expectation to be treated equitably. When people feel that they are being treated fairly, or even better, advantageously, they will be more highly motivated and, hence, perform better at work. Conversely, if they believe they are not receiving equity of treatment they are more likely to feel disaffection and demotivation – leading to underperformance, unreliability and a host of other unproductive outcomes. People’s belief as to whether they are being treated fairly will be formed by two measures: whether they feel they are receiving adequate reward for their input in terms of effort and personal qualities; and also by comparison to work colleagues performing similar roles. Equity of treat- ment, the second measure of fairness, is not about the relationship between personal reward and effort; it is dependent upon the comparison that a person makes between the rewards he or she receives, and that received by others considered to be in a similar situation. Being treated no worse than work colleagues is a reasonable expectation of all employees and, as such, is a powerful and influential aspect of the PsyC.

Adams’ equity theory Around the time that occupational psychologists such as Maslow, McGregor and Herzberg were publishing their motivational theories, John Stacey Adams created his equity theory, which proposed that an employee’s motivation is affected by whether he or she believes that his or her employment benefits

C o p yr

ig h t ©

2 0 1 4 . K

o g a n P

a g e . A

ll ri g h ts

r e se

rv e d .

The Psychological Contract 139

and rewards are at least equal to the amount of effort he or she put into their work. His theory, therefore, extends beyond the individual, in that it involves comparison with others in terms of work inputs and outcomes. Adams called those with whom we compare efforts and rewards ‘referent others’ as they act as reference points for comparison and, hence, determinants of our sense of equity and resulting levels of motivation.

Adams’ theory is more fluid than many other motivational theories in that it can be used to explain why a person’s degree of motivation can change from day to day, even hour to hour, when there has been no change to his or her own personal circumstances. Reduced motivation could occur, for example, if a colleague was perceived to have received a better reward-to-effort ratio – even worse if applied to an entire group. Creating a universal perception of equity of treatment is an important feature of the PsyC and leaders must be continually conscious of this.

Consider it in the form of scales of justice, where we balance our own inputs with our outputs, and where the degree of fairness or equity is deter- mined by how the scales balance in comparison with the ‘referent’ others. Inputs include aspects such as:

● effort;

● loyalty;

● commitment;

● skills and ability;

● flexibility;

● tolerance;

● determination;

● enthusiasm;

● personal sacrifice;

● trust placed in leaders, colleagues and subordinates;

● good attendance and punctuality;

● willingness to work extra hours when required;

● courtesy to clients and colleagues;

● honesty;

● input of ideas.

Outputs are aspects such as:

● tangible rewards, such as financial benefits;

● recognition;

● reputation;

● praise;

● level of responsibility;

● development opportunities;

C o p yr

ig h t ©

2 0 1 4 . K

o g a n P

a g e . A

ll ri g h ts

r e se

rv e d .

Leadership Psychology140

● sense of achievement;

● advancement;

● feedback on performance;

● interesting work;

● respectful treatment;

● reasonable job security;

● pleasant and safe working environment.

How we react to a perceived imbalance will differ according to our own personal priorities. For some people, most of the time, there will be a pro- portional relationship between the level of demotivation and the perceived disparity with other people, whilst for others the degree of demotivation may be disproportional, resulting in a huge feeling of injustice from an apparent slight tilting of the scales. Moreover, people’s reactions will differ – from reduced effort to disobedience or even outright rebellion. Others may make demands for more outputs, which if not forthcoming may encourage a move to other employment. Adams’ equity theory provides a reminder to leaders that followers do not only react to how they are treated personally, but also by comparison to other team members.

Each PwC [PricewaterhouseCoopers] employee, from the CEO downwards, has someone called a people manager, who may not be their line manager but is responsible for achieving a deeper understanding of that person in terms of expectations and career planning. It is a two-way relationship, with the people manager offering mentoring advice, but also reporting up any identified interests or concerns. The system therefore offers opportunities to use the collected information to inform overall company policy.

Leadership BEST practice

Coyle-Shapiro and Neuman (2004) studied 500 public sector employees over a three-year period to identify their perceptions of what they believed their employer owed them in terms of outputs, and the extent to which they had been met; as well as the extent to which their own inputs had been fulfilled. The researchers were particularly interested in exchange and creditor ideologies, and their moderating effect on the PsyC.

Exchange ideology determines the extent to which individuals’ work effort is contingent upon how it is perceived that the organization responds to their inputs. Those with a strong exchange ideology will work hard only if

C o p yr

ig h t ©

2 0 1 4 . K

o g a n P

a g e . A

ll ri g h ts

r e se

rv e d .

the Psychological Contract 141

treated fairly, whereas those with a weak exchange ideology will continue to work hard even if they perceive themselves to be treated poorly. The extent to which employees perceive that their inputs are reciprocated – by their employer’s contribution to the PsyC – will have an effect on measures such as absenteeism and loyalty to the organization. Moreover, individuals may react both in respect of present inducements, as well as proactive recip- rocation based on the anticipation of future treatment by their employer. Hence, the strength of an individual’s exchange ideology may influence his or her response to the organization’s assumed present and future outputs, with the effect being more pronounced in respect of those with a strong exchange ideology. Such employees take a keen interest in what they receive from their employer in exchange for their hard work, prefer high outcomes for themselves, and feel that their organization ‘owes’ them for their efforts.

Creditor ideology, on the other hand, reflects an inclination to give greater contribution to the PsyC than is received in return. Those with high creditor ideology prefer to have others in their debt, hence willingly work harder than could be expected of them: thus they are rated high in creditor ideology. They prefer to over-reciprocate their input to the contract, rather than feeling that they are the lesser contributor to the exchange. Consequently, creditor ideology determines the extent to which an employee reciprocates the outcomes offered and fulfilled by the employer.

The study concluded that both exchange and creditor ideologies influence what employees feel obligated to contribute to the exchange relationship implicit with a PsyC. Those with a strong exchange ideology are more likely to pay attention to the outcomes they believe their employer is obligated to provide, and moderate their contribution accordingly. On the other hand, those who have a high creditor ideology focus more strongly on what they can contribute to the relationship and will tend to willingly exceed their employer’s inducements. The key skill of a leader, in this respect, is to understand the psychological standpoint taken by their followers in order to ensure the optimum exchange contribution, based upon realistic expectations.

A fundamental tenet within the PsyC is how we determine our worth to our employer, as it will influence the depth of expectations we hold. A person who has been seeking employment for some time and finally secures a job may have lower expectations than an existing employee who knows, as does his employer, that he could secure an alternative job, possibly at a higher salary, without much difficulty. The market worth of one is perceived to be significantly greater than the other, yet external factors can affect this perception and, therefore, influence the potency of the PsyC. Imagine, for example, a programme designer working for an internet company in Silicon Valley in the late 1990s: the number of internet users was increasing dramatically, business was booming, attractive bonuses were being paid to computer developers. Our designer was reaping the lavish rewards and was confident that her job was safe and that her experience would be sought by other employers should she decide to move on. She knew she was con- sidered to be a valued member of the company, which would go to great

C o p yr

ig h t ©

2 0 1 4 . K

o g a n P

a g e . A

ll ri g h ts

r e se

rv e d .

Leadership Psychology142

lengths to retain her services – her PsyC expectations of her employer were justifiably high.

Then the dot-com bubble burst! Her company had, unbeknown to her, extended its borrowing in the hope of dominating the market and, hence, hardly had sufficient financial reserves once the market collapsed. Now, all of a sudden, the company was struggling and was having to lay off staff, as were most of its competitors. Our designer was no longer confident of her job security: the balance of power had swung towards the employer. Her relative value had diminished, which was reflected in a different interpreta- tion of her PsyC. She was the same employee; her employer was the same; the conditions of her written employment contract may not have changed – but she would feel the need to demonstrate and reinforce her inputs (loyalty, enthusiasm, personal sacrifice, etc) in the hope of receiving recognition from her employer that she was still a valued member of staff with a continuing future with the company. The scales of justice had reversed, as had the ex- pectations and assumptions within the PsyC.

The above scenario demonstrates how external factors can influence the PsyC, but it can also be affected by the personality traits of the employee. As previously described, a PsyC is an unwritten set of perceptions and expect- ations regarding obligations within an employment relationship. From the employees’ side they will vary from person to person, according (to a large extent) to each individual’s personality: especially what sort of PsyC they are seeking; how they perceive the contract and any future breach or viola- tion of it; and how their attitudes influence its enactment. A study by Raja, Johns and Ntalianis (2004) examined the relationship between employee personality and PsyC type, perceptions of contract breach, and feelings of contract violation. They considered how personality characteristics were related to contract type, using three of Goldberg’s (1990) five-factor model of personality (discussed in Chapter 5) – neuroticism, extraversion and con- scientiousness – along with three others: equity sensitivity, locus of control and self-esteem:

● Neuroticism is associated with emotional instability, mistrust, anxiety, self-pity and lack of psychological adjustment, which results in those prone to this personality trait having limited social skills, along with a disinclination to take control of situations. This tends to result in them enjoying limited job satisfaction and performing poorly over a wide variety of jobs. More complex tasks can cause them to experience high anxiety. These characteristics combine to make neurotics unlikely to engage in long-term commitments that demand high social skills, initiative and trust in others. Hence, they are more likely to form PsyCs that are short term and transactional – on a purely financial basis, in exchange for aspects of performance not requiring high levels of initiative and confidence.

● Extraversion is the characteristic of extraverts – who are highly social, talkative, enthusiastic, assertive and ambitious. They seek

C o p yr

ig h t ©

2 0 1 4 . K

o g a n P

a g e . A

ll ri g h ts

r e se

rv e d .

the Psychological Contract 143

material gain, recognition and power, which combine to create a desire for status and increased financial remuneration. They generally perform well and gain high levels of job satisfaction in doing so. As regards the PsyCs they will seek to create for themselves, they are likely to be long term, as more time-restricted ones will not allow sufficient opportunities for gaining the status, recognition with social networks and power that they desire. The researchers argue that extroverts will form relational PsyCs with more emphasis on material gains in their exchange relationships. Moreover, being highly assertive, energetic and ambitious, they will be very vigilant in monitoring how well their organizations are fulfilling their part of the contract, especially in materialistic measures. They will use their advanced social skills to seek information to ensure they are not being denied the outputs they expect in both the short term and the long term.

● Conscientiousness in employees is related to being methodical, dependable and risk averse. Conscientious individuals are generally highly motivated and satisfied in their roles – being more concerned with task completion than with financial reward. They will regard their PsyC as relational in nature and extending over a long-term period, and including opportunities for achievement and personal success. Conscientious people will be very active in monitoring their contracts and, being risk averse, will actively seek reassurance to ensure they do not face any unpleasant surprises, as well as being afforded opportunities for personal development and success.

● Equity sensitivity is a personality trait that explains how a person reacts to perceived inequality of treatment. Those with high levels of it are outcome-oriented and expectant of more for their inputs than other colleagues. They have been found to place more emphasis on tangible extrinsic outcomes such as pay, benefits and status. Conversely, those with low equity sensitivity give more attention to their inputs and are less aware of possible inequity in exchange relationships. They are also more concerned with intangible, intrinsic outcomes such as a sense of achievement and personal work, and self-actualization. It is apparent that the needs of people with low equity sensitivity closely match those identified by humanistic psychologists such as Maslow and Herzberg, discussed in Chapter 3. Equity sensitivity was found to be negatively related to job satisfaction, commitment, work ethic and social responsibility; and positively related to a likelihood to leave positions of employment. People with high levels of equity sensitivity are therefore more likely to form PsyCs of a transactional nature, based on expectations of pay, status and material gain. Contracts will generally be short term in nature, with less emphasis on relationships than on extrinsic benefits. Also, as equity of treatment is high on their agenda, they

C o p yr

ig h t ©

2 0 1 4 . K

o g a n P

a g e . A

ll ri g h ts

r e se

rv e d .

Leadership Psychology144

will be especially vigilant in monitoring the maintenance of their PsyCs.

● Locus of control is a variable that describes how people perceive the relationship between their own actions and the outcomes resulting from them. Those with internal loci of control believe more strongly that outcomes such as reward and recognition are within their own control. Individuals with external loci of control are more likely to attribute personal success or failure to factors beyond their influence, such as luck, or input from other people. The former, those with an internal locus of control, will probably be committed employees enjoying high levels of job satisfaction, whilst the latter may perform to lower standards and be less motivated. External loci of control encourages a less forward-looking approach, coupled with reduced interest in long-term relationships, resulting in transactional PsyCs that offer quick gains rather than future opportunities, which are perceived as uncertain and potentially problematic. Believing that outcomes are generally out of their personal control, they are not likely to closely monitor the relationship between their inputs and the outputs they receive in return.

● Self-esteem, the last personality trait considered by Raja, Johns and Ntalianis (2004), refers to the value one puts on oneself. People with high esteem are confident in their abilities and will seek roles that they believe will offer opportunities for personal development, achievement and self-actualization. They consequently seek to form PsyCs that promise such potential – ones that are long-lasting and relational enough for their status to be recognized on the basis of their high performance. Their high levels of confidence and self- worth will encourage them to closely monitor that their PsyC expectations are being met by their employer.

We can conclude that, in general, relational PsyCs will result in better personal and organizational outcomes than those of a transactional nature, including job commitment, performance and longevity in post. The role of leaders in building powerful, mutually beneficial relationships with their followers is therefore of paramount importance in influencing the forma- tion of the PsyCs between both parties. The dominant position held by leaders, compared to their followers/employees, means that the success of PsyCs at individual, group and organizational levels is largely determined by them. We have seen that the individual personality of employees will deter- mine to a large extent the type, longevity and expectations contained within individual PsyCs, and it is up to leaders to build teams around them who have positive expectations, whilst also showing empathy towards those whose contracts may not totally accord with the leader’s expectations. McGregor’s theory X leaders – an authoritarian management style (see Chapter 3) – are less likely to be in tune with the concept of PsyCs, let alone exhibit an

C o p yr

ig h t ©

2 0 1 4 . K

o g a n P

a g e . A

ll ri g h ts

r e se

rv e d .

the Psychological Contract 145

empathetic approach to them. Indeed, I personally worked as a depart- mental head under a director who once told me that his staff were ‘paid to do their job and I expect them to get on and do it’. A more enlightened leader – a theory Y leader with a more participative management style – is more likely to take the view that ‘everyone is different and it is my role to understand their assumptions and expectations and, as far as I can, meet them for our mutual benefit’.

Every Haven caravan park, part of Bourne Leisure, has cultural champions, called Pioneers, who are volunteers with a passion for the business. They undertake the induction training for new members of staff at the start of the season, which is based around the cultural values of the company, and then act as, what manager Antony Smith describes as, ‘the eyes, ears and voice of the culture throughout the year’.

Leadership BEST practice

organizational culture

To what extent does the culture of an organization influence the PsyCs embraced by its leaders and employees? Research undertaken by Richard et al (2009) sought to determine what relationship, if any, there was between organizational culture, PsyCs and organizational commitment – hypothesiz- ing that PsyCs mediate the relationship between the other two factors. In doing so, they defined organizational culture as: ‘the pattern of shared values and beliefs that help individuals understand organizational functioning and thus provides them with norms for behaviour in the firm’. In particular, they focused on hierarchical and clan cultures. The former are held together by formal rules, policies and structures, with interactions subject to careful scrutiny, evaluation and control. They are also found not to be very adaptive and are generally resistant to change. Conversely, clan cultures emphasize togetherness, participation and teamwork – encouraging effective horizon- tal and vertical communications and positive human relations. There is less emphasis on formal structures and controlled decision-making, and more on tradition and loyalty. The researchers make the point that, whilst both culture models appear to be diametrically opposed, organizations can contain characteristics of both.

C o p yr

ig h t ©

2 0 1 4 . K

o g a n P

a g e . A

ll ri g h ts

r e se

rv e d .

Leadership Psychology146

As the organization plays a significant role in determining the PsyC it has with its people, it would appear reasonable to assume that its culture would be a major influence in this. Hierarchical cultures, for example, encourage perceptions of a transactional contract based upon limited employee re- sponsibilities, narrow span of control, and clearly defined outcomes relating to the quality of work inputted in the exchange relationship. In contrast, clan cultures, where members are treated much like family, are more likely to encourage relational PsyCs in which employees agree to contribute loyalty and trust to a contract that is matched by the employer (clan leaders) creat- ing a sense of togetherness and belonging. Raja, Johns and Ntalianis (2004) also reported similar findings relating to the differing consequences of relational and transactional contracts in terms of intentions to quit, job satisfaction and affective commitment.

In addition to considering the relationships between cultures (hierarchi- cal and clan) and types of PsyCs (transactional and relational), the study also sought to explore two more factors affecting the exchange relationships between employees and employers, namely commitment and yearly earn- ings. Previous research had identified that there is a connection between organizational culture and commitment – with (clan) cultures that are based upon mutual respect, teamworking and innovation being related to positive employee responses such as commitment, job satisfaction and low staff turnover. Richard et al (2009) introduced an additional criterion, yearly earnings, arguing that organizational culture not only impacts on PsyCs, but also has implications for the reward system. A clan culture, for example, recognizing the value of its members, is more likely to invest in them, includ- ing appropriate compensation. In contrast, hierarchical cultures, with their emphasis on cost reduction and efficiency, will probably result in lower

‘Culture is the reflection of leadership behaviour within the organization. Leaders can indeed influence, as well as change, culture for the benefit of the organization. However, we have seen great organizations, which we have measured over many years, fall off the list because the founding principles have not been lived by leadership. In short, great culture can take years to build up but a moment to break.’

Jonathan Austin Managing Director

Best Companies

BEST leadership quote

C o p yr

ig h t ©

2 0 1 4 . K

o g a n P

a g e . A

ll ri g h ts

r e se

rv e d .

the Psychological Contract 147

levels of compensation, including yearly earnings. Hence, organizations that value long-term relationships with their people are more likely to offer greater rewards, including higher monetary reward, to encourage trust, loyalty and commitment. There are, therefore, direct links between the culture of an organization and the effectiveness of the PsyCs made with its people, measured by the commitment given by employees and the financial reward offered by the employer.

As we have also considered previously in this book, the culture of an organization is determined largely by its senior leaders, who require the operational leaders to cascade the culture throughout the organization, down to the team leaders whose role it is to ‘live’ the ethos of the culture in their dealings with the front-line staff. Employees in large organizations do not usually identify any single person as their ‘employer’. They have little appreciation as to who, if anyone at all, is personally responsible for deter- mining the values upon which the outputs of a PsyC will depend. For this reason, many business leaders have decided that they need to create a cor- porate personality or identity based upon a set of intangible values that employees can expect to be offered in exchange for the inputs they apply to their side of the scales of justice. Often termed an ‘employee value proposi- tion’ it is an attempt by employers to clarify the PsyC they hope will be ‘signed up to’ by their staff.

‘This year I appointed a Director of Culture and People Development because culture is about our family values and is absolutely in our DNA.’

Karen Forrester Chief Executive

TGI Friday’s

BEST leadership quote

Moreover, rather than creating a single value proposition for the whole workforce, some organizations have realized that a ‘one-size-fits-all’ infor- mal contract may not be appropriate and have thus taken a more segmented approach. The expectations of a diverse workforce will vary according to factors such as age, lifestyle, and attitudes to communication in the organ- ization. Hence, the ‘contract’ is tailored according to the needs of different groups by emphasizing different elements of the value proposition. Flexible

C o p yr

ig h t ©

2 0 1 4 . K

o g a n P

a g e . A

ll ri g h ts

r e se

rv e d .

Leadership Psychology148

benefits packages could be offered to different groups, for example sales teams, technical support or administrative staff. Whilst not tailoring the employer’s side of a PsyC to the personality characteristics of individual employees, it is probable that the majority of those employed in sales act- ivities would be extraverts, whilst many administrative staff would have high levels of conscientiousness. Employers who recognize that different work groups will form different informal, unwritten contracts with the organ- ization may, therefore, ensure that their sales teams would be given every opportunity to realize their ambition for status and recognition, as measured by the financial rewards they have achieved. Administrative staff, on the other hand, would be more likely to respond positively to long-term career plan- ning based upon structured development plans. There are exceptions to the rule, of course, but many of us will readily relate these generalized descrip- tions to colleagues we have worked with ourselves. We will consider the preferred PsyCs of different groups, including those of different generations, in more depth later in this chapter.

The importance of emotional intelligence Empathy – an emotional intelligence quality recognized in Chapter 4 – is described as ‘the ability to engage with and influence others’, being one of the key qualities a leader needs to display in order to create a supportive climate: one where employees trust their organization, as represented by its leaders. One normally considers empathy as being displayed by individual people, but in terms of PsyCs it reflects how the organization as a whole engages with its people collectively or in different work groups. A company that appears to understand the needs, concerns, opinions and ambitions of its employees is more likely to create a climate of trust, co-operation and transparency – factors featuring large in PsyCs. The more an employer demonstrates an awareness of the employee situation, the more likely that healthy PsyCs are established and maintained. If, however, things are not going well for a person. he or she will look for someone to blame, especially if he or she has an external locus of control. If the problems are work- associated, the employer will feature high on the blame list and the PsyC will be seen as having been breached. One can also envisage a shift on Goldberg’s (1990) neuroticism scale from secure/confidence towards sensitive/nervous. The employee’s trust in the employer’s best intentions will be eroded and suspicions will multiply.

Trust is a crucial requirement of a fruitful two-way PsyC and is defined in the Oxford Dictionary as a ‘firm belief in the reliability, truth, ability or strength of someone or something’. Its opposite, suspicion, is often founded upon a belief that the other party is withholding information or actions that would be to one’s personal benefit. From my personal research and experience, if employees are asked informally, or within a staff satisfaction survey, what is their organization’s greatest failing, they will often say ‘poor communica- tions’. Communications, communications, communications – perhaps the

C o p yr

ig h t ©

2 0 1 4 . K

o g a n P

a g e . A

ll ri g h ts

r e se

rv e d .

the Psychological Contract 149

most important leadership skill of all. How often have we heard people say ‘no one tells us anything’ or ‘wouldn’t it be nice if they just listened to us occasionally’ or ‘one manager tells us one thing; another tells us something completely different’. Within a PsyC it is the responsibility of both parties to communicate effectively: employees to be open and honest about their feelings; and employers to create open, transparent lines of communication throughout the organization. The onus is, however, on the leadership to create a culture of transparency that, in turn, creates a level of trust within their followers to reciprocate. Distrustful employees are a time bomb wait- ing to explode: their leaders will be blissfully unaware of the simmering discontent until it blows up in their face.

‘Leaders must avoid the temptation to “sugar-coat” bad news and “hype” the good news. If leaders communicate well, and communicate often, they will earn the trust of their employees.’

David Fairhurst Chief People Officer, Europe

McDonald’s Restaurants

BEST leadership quote

I have lost count of the number of leaders I have known who ‘talk the talk’ of open communications, but fail to ‘walk the walk’. Could it be that they believe that their people:

● already know?

● don’t want to know?

● are incapable of understanding?

● have no right to know?

Or is it that they fear the consequences of being open and transparent? Sharing information risks loss of power and a dilution of unique authority, they may think – an opposite interpretation to Kofi Annan, the UN secretary- general, whose well-known assertion states that: ‘Knowledge is power. Information is liberating.’

C o p yr

ig h t ©

2 0 1 4 . K

o g a n P

a g e . A

ll ri g h ts

r e se

rv e d .

Leadership Psychology150

Leadership transparency encourages mutual trust, whilst also empower- ing followers with the facts upon which to objectively create their PsyCs. Without the necessary facts they are in danger of being influenced by mis- information, rumour or false perceptions. Ignorance and uncertainty make people feel threatened and vulnerable, neurotic even. A vicious circle begins to form, where secrecy begets greater secrecy, begets greater fear; where trust transforms into suspicion and open, destructive hostility.

Leadership style is an important variable in determining how both parties in a PsyC approach their responsibilities. In Chapter 1 I suggested transfor- mational leadership as an important example of the relationship theory of leadership – and its comparison to transactional leadership in influencing the fulfilment of PsyCs is equally relevant here. The transactional style refers to patterns of actions that influence people in the way they behave, by setting measurable goals, co-ordinating their work and then rewarding or sanction- ing them according to the extent that the goals are met. This style works best when the job requirements are clearly understood, consistent and can be communicated in advance. It can be particularly effective where work is done at a distance: with limited interpersonal interaction between leader and em- ployee. It does, however, assume that the task requirements are consistent and that the employee does not have to make any significant decisions individu- ally, or with other team members, in order to achieve the task successfully.

The transformational leadership style, in contrast, works by inspiring fol- lowers through appealing to their personal values in order to increase their motivation to achieve mutually supported goals. When leaders behave in a transformational fashion they elevate their followers’ aspirations in terms of job achievement. They reinforce common goals and mutual identification, and propose a compelling vision for the future. Followers are encouraged to question old assumptions and to view problems in innovative ways. Transformational leadership requires followers to welcome, and operate, a degree of self-management, especially in a changing environment where the task is not so well-defined or clearly understood. By its very nature, it is most successfully applied where leader and follower are co-located and, hence, can interact freely. Communication through information technology is certainly not conducive to a leader adopting the transformational style.

It is important to realize that both transactional and transformational styles are not mutually exclusive and can both play their parts within the creation and fulfilment of PsyCs. Leaders can employ a combination of both: the latter to communicate an overall vision and to imbue work with mean- ing; and the former to provide direction and structure to individuals and teams requiring it. Factors that may influence the application of specific leadership styles are:

● mix of generations within teams and departments;

● generational expectations;

● the skills and abilities of individual employees;

● the task to be achieved: routine or fluid;

C o p yr

ig h t ©

2 0 1 4 . K

o g a n P

a g e . A

ll ri g h ts

r e se

rv e d .

the Psychological Contract 151

● external pressures, such as competition or globalization;

● internal pressures, such as downsizing or financial constraints;

● cultural diversity within the workforce, resulting in a variety of approaches affecting leader–follower relationships;

● distance between leader and followers: close contact or geographically dispersed;

● size of the organization, affecting the leader’s personal knowledge of each employee.

Whilst we know that the senior leadership within an organization determines its culture, which, to a large extent, underpins the inputs and outputs of its PsyC, it is the team and operational leaders that are the keys to their success. How the leaders heading business units and departments handle their followers on a day-to-day basis determines how the PsyCs are fulfilled. Line managers are the primary contract-makers for employees (McDermott et al, 2013). When they act in ways aligned with the unwritten terms of the PsyC, both its inputs and outputs are supported. Good leaders adapt their style, behaviours and communication to convey appropriate and realistic expectations to their followers. In their daily contact they can directly con- vey what efforts are needed from them and what they can expect in return. By virtue of what leaders pay attention to, measure and control, they exert huge sway over how their people direct their efforts, how well they perform, and how successful the leader’s vision is achieved.

Contract violation – from the employee’s perspective

Contract violation, or breach, occurs when either party believes that the PsyC has not been honoured. It signals an imbalance in the exchange pro- cess, where either the employee or employer does not receive the expected outcomes in return for the inputs they believe they have contributed. From the employees’ position, responses to a perceived breach could include:

● altering their own perceived obligations to the PsyC;

● lower job satisfaction and morale;

● reduced commitment to their role or organization;

● reduced task performance;

● breakdown in trust;

● deliberate disruptive behaviour;

● notice to quit.

The employee who believes that his or her organization has failed to meet its side of the bargain by failing to deliver what he or she not only deserves, but

C o p yr

ig h t ©

2 0 1 4 . K

o g a n P

a g e . A

ll ri g h ts

r e se

rv e d .

Leadership Psychology152

what is important to him or her, experiences feelings of anger and betrayal. Such perceptions can occur shortly after the employee joins the organization, if the assumptions gained during the recruitment process fail to materialize, or even after years of satisfactory service if, for example, aggressive down- sizing or outsourcing are introduced. Either way, the relationship, which was initially founded upon trust rather than written contract terms, is broken and may be difficult, or impossible, to repair.

It is obviously in leaders’ best interests to maintain expectations to reasonable and achievable levels: where they can deliver on their followers’ assumptions of outputs in return for their effort, loyalty and commitment. As I have proposed earlier, open communications are crucial to positive work environments, even during difficult periods of change. Indeed, it is during such times when honest communications are required in order to counter followers’ suspicions that can so easily lead to reduced morale and feelings of betrayal. All too often, for example, employees believe that internal politics are working insidiously to their disadvantage. Kiewitz et al (2009) identified that when employees attribute PsyC breach to external forces, outside the control of their employer, they will be less likely to view it as reneging on the exchange relationship implicit within a PsyC. However, if they believe that the breach was committed intentionally, they will perceive this as a strong signal that their organization does not care about them or value their contribution. Worse still, the two studies contained within Kiewitz et al (2009) demonstrated that if employees suspect a political motive behind the contract breach it enhances their assessment of the malevolent nature of the organization. Organizational politics revolve around a subjective belief that the work environment is being influenced by those in power, engaging in self-serving behaviour. Employees who perceive high levels of internal politics are more likely to believe that the PsyC breach reflects badly on the organization.

Managing expectations Leaders must manage the expectations of their people. Previously in this book, I have extolled the benefits of encouraging employee empowerment, participation and involvement in decision-making – not least in terms of enhanced staff engagement leading to business benefits. Yet encouraging staff involvement can post a dilemma for leaders as the process can have a snowballing effect, as involvement raises staff aspiration and expectations of even greater contribution. This forms part of the PsyC, where the employees’ willingness to participate in devolved decision-making is seen as an input – to be matched by the employer’s output of the empowerment ethos being continued, or even expanded. Yet personal and situational factors may re- quire a review of the extent to which the ethos can be further developed. The organizational situation, the person(s) involved, or the nature of the work may call for moderation in the extent of staff involvement now or in the future – thus risking a perception of PsyC breach.

C o p yr

ig h t ©

2 0 1 4 . K

o g a n P

a g e . A

ll ri g h ts

r e se

rv e d .

the Psychological Contract 153

Here, I add to research by Paul, Niehoff and Turnley (2000) to propose methods by which leaders can manage expectation relating to staff empower- ment, which could be applied more widely for all expectations of employees within a PsyC:

● Orientation and socialization. During the recruitment process candidates should be presented with an accurate preview of the job and employer so that their expectations will closely match the reality of the role they are applying for. This should include details of staff involvement programmes, as well as orientation and socialization. Orientation includes an understanding of the mutual obligations within their employment status. Socialization involves an acceptance of what behaviour is acceptable within the organization and the values it upholds.

● Employee opinion surveys. Open-ended survey questions that elicit employee interpretations of company practices and policies can provide useful insights as to how the PsyC is viewed, and any breaches that have occurred or are likely to occur in the future.

● Discussion groups. Periodic meetings between employer and employee representatives can be used to assess perceptions of the exchange relationships within the PsyC.

● Review of organization literature. Company publications, including staff handbooks, can give rise to expectations underpinning PsyCs and create a benchmark for comparison between entitlement beliefs and reality. Such literature should not be allowed to foster false, unreasonable expectations.

● Leadership training. All leaders understand that followers expect rewards, financial or otherwise, in return for their efforts, but not all will be conversant with the concept of PsyCs and the crucial importance they have to employee–employer exchange relationships. The concept of a PsyC is rather like that of human love: everyone knows it exists, what a powerful effect it can have on us, and the disastrous consequences of its betrayal. However, unlike love, we can be trained to understand and apply it reciprocally to great effect.

● Ensure open, two-way communications. Employees may be prepared to accept actual and anticipated changes when they know the rationale behind them. I have no hesitation in reiterating that communication is one of the most important leadership functions; yet it is one that is practised so badly, so often.

● Encourage good employee relations. The purpose of related activities should be to meet the needs of both employees and employers, thus demonstrating a willingness to fulfil obligations within the PsyC.

● Provide supportive line managers, mentors and role models. Zagenczyk et al (2009) found that organizations that put in place appropriate support mechanisms can moderate employee expectations of the exchange relationships within a PsyC and, if

C o p yr

ig h t ©

2 0 1 4 . K

o g a n P

a g e . A

ll ri g h ts

r e se

rv e d .

Leadership Psychology154

a contract breach is believed to have happened, can reduce the belief that the organization neither values their contribution nor cares about their well-being. The line manager, in particular, is key in terms of ‘living’ the relationship on a day-to-day basis.

Contract violation – from the employer’s perspective As we have found, a PsyC requires inputs and outputs from both parties in the exchange relationship, which, if not forthcoming due to a breach of the contract, has implications for each. So far we have explored the implications of a breach, perceived or actual, by the employer – but what about contract violation where the employer suffers as a result of employee breach? Perhaps it is not surprising – in an age of economic pressures leading to job insecurity, coupled with the demand for increased flexibility, longer hours and reduced pay in real terms – that much of the recent research into PsyC breach has been conducted from the employees’ perspective. Less well considered has been the employer’s experience of contract violation.

PsyCs are, at their very core, based upon mutual trust. Hence, when one party is perceived as not fully partaking in the relationship, it is the breakdown of trust that results in the offended party feeling less inclined to invest emotion- ally and/or behaviourally in the relationship. Moreover, the effect will be more pronounced in relational as opposed to transactional contracts, which are less specific in terms of responsibility and reward, and therefore more dependent upon each contributor trusting the other to fulfil their obligations.

‘We have a value that is very simple: “You are obliged to be open, frank and honest with people.” Typically in a law firm, if you have an underperforming assistant no one says anything to them. Gradually that assistant is not given work because the internal market does not buy them; they become more miserable and depressed, and things cascade into a difficult situation. Now what will happen is someone will say, “Hang on. The social contract says we have to be frank and honest”, and they will have a conversation. Hence, the values have come from something that is merely written down, into a Charter of Rights.’

Kevin Gold Managing Partner Mishcon de Reya

BEST leadership quote

C o p yr

ig h t ©

2 0 1 4 . K

o g a n P

a g e . A

ll ri g h ts

r e se

rv e d .

the Psychological Contract 155

In organizations – often in small to medium enterprises (SME) – where it is the employee who breaches the PsyC, the disruption caused can be consider- able. Examples of employee contract breach include:

● criminal activity, such as theft;

● leaving the organization without giving prior notice;

● refusal to carry out duties;

● intentional disruptive behaviour;

● lack of team participation.

In relational contracts, more prevalent in SMEs, such violations can result in intense feelings of anger and betrayal on behalf of the business owner, which can result in withdrawal behaviours similar to those of employees who perceive a breach of contract. The employer may well review his or her leadership style and consider a shift from a transformational to a transac- tional style – a closer examination of which will follow later in this chapter.

The employer will be at pains to limit the damage and disruption to the smooth running of the business caused by employee violations; as well as any fallout due to a resulting change of leadership style in the eyes of other employees. Depending on the actual violation and its consequences, the impact of reputational damage affecting customer confidence may also be of critical concern for the business leader. A study by Nadin and Williams (2012) found that small business owners often reacted to contract breach by one of their staff by deliberately and proactively involving other employees in dealing with such incidents, which served three functions:

● They sought support from other staff members to deal with what was a challenging and personally distressing situation.

● They wished to reaffirm the norms of acceptable behaviour that had been transgressed by the violation: the employee obligations within the PsyC.

● Recognizing that they had more at stake than the practical fallout of the violation, they were at pains to reaffirm their authority in the eyes of their team. The violation was seen as an identity threat, which required considerable effort in order to confirm their leadership status.

the generational factor

Every employee has his or her own individual expectations and assumptions about his or her job: no two people will have exactly the same. Yet certain categorizations will influence these expectations: for example, personality types, levels of education, gender and age groups – all of which merit con- sideration in terms of the exchange relationships within a PsyC. Whilst I am not suggesting that each employee’s age should be considered uniquely in

C o p yr

ig h t ©

2 0 1 4 . K

o g a n P

a g e . A

ll ri g h ts

r e se

rv e d .

Leadership Psychology156

order to arrive at a balanced PsyC, it would be prudent for employers to be aware of the broad needs and feelings of generally recognized generational groups that constitute the large proportion of the workforce. That said, organizations should resist any temptation to ‘label’ people and thus make assumptions about their attitudes and expectations. There is, however, sufficient evidence to suggest that each generation creates its own traditions and cultures through shared attitudes, preferences and dispositions. These differences can be held throughout one’s life and are influenced by a com- bination of factors, such as those listed in the CIPD report of September 2008, entitled ‘Gen Up: How the Four Generations Work’, as:

● societal trends around raising and educating children;

● traumatic social events;

● a significant change in the economic cycle;

● influence of significant leaders and entrepreneurs;

● a dramatic shift that influences the distribution of resources in a society.

The three generations that form the vast majority of the current working population – baby boomers, Generation X and Generation Y – along with their characteristics and work-related expectations, are discussed below:

● Baby boomers (born circa 1946–64) account for around 30 per cent of the UK workforce. Growing up after the Second World War, for some of them their formative years could have been influenced by rationing and other hardships, although Beetlemania and the pop culture revolution will have had greater impact in their later youth. Other influences include the civil rights movement, the women’s movement, nuclear disarmament, union power and soaring inflation. Baby boomers have contributed to all these momentous changes and, as a result, have come to believe that change is possible to an extent that no other generations do. They are idealists and optimists who believe that, through hard work, they can ensure a better future for themselves and their families. Boomers are competitors who dedicated their lives to their jobs, being the first generation to contemplate having dual careers, although many found themselves ‘time poor’ in their rush to achieve their ambitions. Those born earlier in the time frame had a greater desire for extended job tenure and advancement within one company than the younger members of this generation, although, overall, more than half have spent the last 10 years with their current employer. Socially, many have reached a point in their private and working lives where they no longer have as strong a desire to network and socialize as they once did. Because they have had such a career-dominated existence they may find it difficult to balance work and home life and to nurture relationships in both environments.

C o p yr

ig h t ©

2 0 1 4 . K

o g a n P

a g e . A

ll ri g h ts

r e se

rv e d .

the Psychological Contract 157

● Generation X (born circa 1965–78) account for slightly more of the current workforce than baby boomers but are less optimistic in nature. Indeed, although they may have enjoyed a relatively comfortable childhood, they are often thought of as being negative and cynical, and characterized in the media as people who ‘sleep together before getting married (if they even do), don’t believe in God, question privilege and the royalty, and don’t respect their workaholic parents’. In other words, generally anti-establishment. Their formative years would have exposed them to corporate scandals and governmental corruption such as Watergate. They joined the workplace in times of economic turmoil, with many graduating into the worst job market since the Great Depression, with large-scale redundancies, and pay and benefit cuts. They are, therefore, less likely to be loyal to their employers and are requiring of a better work–life balance. They recognize the need for hard work but are committed more to their own careers than their organizations, hence frequently change jobs, preferring creative, entrepreneurial ventures, especially those that promise skills development and a recognition of social and environmental issues, rather than status and a job for life. Half have spent five years with their current employer. Generation X expect employers to promote their people on ability and potential, rather than seniority with the company – and they expect these views to be considered and valued!

● Generation Y (born circa 1979–2000), also known as millennials, are the quickest-growing segment of the workplace, increasing from 14 to 21 per cent between 2001and 2005, to a current 27 per cent. Accessible technology has played a huge role in shaping this generation, which, as a result, has developed excellent multitasking skills, often in the role of service or knowledge workers. Like baby boomers, they place high value on hard work and a structured environment, although they expect the new technologies to provide options for flexible working outside traditional hours. Education also features large in the minds of Generation Y workers: they are more likely to have gained qualifications prior to entering the world of work and expect developmental opportunities to be offered by their employer. Expectations for career progress may be high but, as the employment market is flooded with graduates, such hopes may prove to be unrealistic. In contrast to the baby boomer generation, however, Generation Y workers feel the need to socialize and network on a regular basis in order to advance their careers, albeit not necessarily with one employer – perceiving personal connections to be as important to their future as their skills, abilities or even qualifications.

Delcampo et al (2011) establish a synopsis of generations, as shown in Table 6.1.

C o p yr

ig h t ©

2 0 1 4 . K

o g a n P

a g e . A

ll ri g h ts

r e se

rv e d .

Ta b l e 6 . 1 Synopsis of generational values, strengths and weaknesses (Delcampo et al, 2011)

Generation Personal Values Work Values Strengths Weaknesses

Baby Boomers

idealism; creativity; tolerance; freedom.

workaholism; criticism; innovation; commitment; loyalty.

accountability; adaptability; clear communication; initiative; project management; problem solving; service orientation; collaborative working.

need for instant gratification; technology; valuing diversity.

Generation X individualism; scepticism; flexibility; negativity; creativity.

learning; entrepreneurialism; spirit; materialism.

adaptability; resource management; problemsolving; technology; valuing diversity.

selfcentred focus; desire quick achievement; lack of plain speaking; project management; service orientation; collaborative working; loyalty to organization.

Generation Y moralism; confidence; positivity; environmental consciousness; ambition; social responsibility; pragmatism.

passion; balance; leisure; security; teamworking; thrive on feedback and praise.

accountability; project management; service orientation; valuing diversity; collaborative working; better educated.

communicating by texting; problemsolving; loyalty to organization; overreliance on technology.

158

C u tle

r, A la

n . L

e a d e rsh

ip P

sych o lo

g y : H

o w

th e B

e st L

e a d e rs In

sp ire

T h e ir P

e o p le

, K o g a n P

a g e , 2

0 1 4 . P

ro Q

u e st E

b o o k C

e n tra

l, h

ttp ://e

b o o kce

n tra

l.p ro

q u e st.co

m /lib

/a p

u s/d

e ta

il.a ctio

n ? d o cID

= 1 7 7 3 5 5 0 .

C re

a te

d fro

m a

p u s o

n 2

0 1 7 -1

0 -2

9 2

2 :2

1 :4

0 .

the Psychological Contract 159

By understanding the values and expectations held by different genera- tions, business leaders are better placed to develop compelling value pro- positions for their staff. However, the 2008 CIPD report referred to above cited numerous employers who were struggling to attract and retain certain generational groups, whilst turnover was very low in others. Baby boomers, for example, were interested in long-term reward packages, whilst Gener- ations X and Y value more short-term benefits. Another example of the generational requirements of the value propositions identified was related to personal development opportunities. Here, boomers and Generation X expect these to include internal job moves, whilst Generation Y is more interested in being given specialist skill training to allow them to grow ‘on the job’.

The relationship between age and employees’ interpretation of PsyCs was examined by Bellou (2009) who offered an international perspective by studying the needs of 1,145 employees in Greece. She found that Generation Y have generally accepted the reality of modern-day employment relations and PsyCs. Whilst they struggle for balance between work and private life, their expectations are rather restricted by the difficulties experienced in finding suitable employment. Baby boomers, on the other hand, appear rather indifferent, caring less for support and opportunities to contribute to the success of their organization. Bellou suggests that this may be a result

‘If you are going to put millennials in a hierarchical, controlling environment that is all about greed they are not going to last very long. The CEO of the Girls’ Day School Trust told me what happened when a successful alumni, a vice- president of Morgan Stanley, came to speak to her girls. The expectation was that they would ask questions such as “You are very successful. How can I get where you are?”, but instead the questions were “What about your ethics?”, “What are you doing about your communities and the world?”, and “Why would I want to work for your organization?”. What we want is not to lose that attitude as they grow older.’

Ann Francke Chief Executive

Chartered Management Institute

BEST leadership quote

C o p yr

ig h t ©

2 0 1 4 . K

o g a n P

a g e . A

ll ri g h ts

r e se

rv e d .

Leadership Psychology160

of boomers wanting to retire, or simply being intimidated by their overall working experience. Generation X, in contrast, appear to be the most triggered: having been dragged to the contemporary working reality, they are highly demanding. They expect more than the other two generational groups, such as advancement and development opportunities, participation in organizational issues, job security, support and commitment from their employers. Consequently, Generation X are not only uncompromising but also somewhat attached to the better PsyC outputs they experienced when they first entered the employment market. It would be interesting, however, if further research was conducted to ascertain whether generational attitudes have changed since the collapse of the Greek economy that followed shortly after Bellou published her findings in 2009.

Bal et al (2008) conducted a meta-analysis of 60 studies to examine the influence of age on job attitudes when a PsyC breach has occurred. Taking as read that a breach will harm employees’ trust in their organization, which in turn will result in reduced job satisfaction and commitment, the researchers examined whether age moderates that effect, such that the attitudes of older workers are less affected by contract breach. Of the 60 studies, 75 per cent were conducted among employees, 17 per cent amongst MBA students and the remaining 8 per cent were amongst managers.

The results were interesting and did, indeed, indicate that age was a moderating factor in terms of trust, job satisfaction and commitment when a PsyC was breached – but not consistently across all three reactions. It was found that, as employees grow older, they respond less emotionally to contract breach than younger workers, especially in terms of reduced trust and commitment, because older workers focus more on positive aspects of their relationship with their employer and, hence, are less affected by expectations not being met. However, this was not the case in terms of job satisfaction where the correlation was more negative for older workers. Thus, when they perceive a breach of their PsyC, the level of job satisfaction experienced by older employees reduces more than for younger genera- tional groups.

The researchers proposed several explanations for this job satisfaction– contract breach relationship for older workers, such as:

● Older workers have more experience, therefore their work may be less interesting.

● They have fewer opportunities to change jobs than younger employees.

● Job satisfaction for older workers stems primarily from their relationship with their employer and co-workers: more so than those of a younger age – for whom satisfaction may be derived to a greater extent from the work itself.

● Older workers may receive higher satisfaction from factors outside their work environment, such as family and hobbies, therefore breach of their PsyC at work is of less importance to them.

C o p yr

ig h t ©

2 0 1 4 . K

o g a n P

a g e . A

ll ri g h ts

r e se

rv e d .

the Psychological Contract 161

Present-day workforces present leaders with a complex mix of generational motivations, assumptions and expectations. Moreover, the changing demo- graphic landscape will continue to present challenges as the older generations approach retirement and newer employees join organizations alongside Generations X and Y. The active leadership of cross-generational attitudes, alongside potential misunderstandings and conflict, will be an issue at all levels within organizations. However, avoiding labels and assumptions about followers’ attitudes is important, as people may have core values through- out their working lives but life experiences will combine to influence their psychological needs at different times throughout their career path. Leaders need to develop a compelling value proposition that meets the common generational expectations, whilst also being able to adapt PsyCs to reflect individual, sector and cultural differences. The challenges facing leaders are wide and far-reaching, such as: attraction, recruitment, engagement, career development and retention of talent.

Proactively managing the organization’s brand values and reflecting generational differences in the offer of PsyCs will be fundamental drivers for the attraction and continuing engagement of talented staff. PsyCs will need to reflect the increasing importance of social responsibility and the different cross-generational attitudes to loyalty and commitment. Emphasis on retention and engagement must be balanced against business needs, in the light of increasing demands for acceptable work–life balance and flexi- ble working arrangements. PsyCs should also take into consideration the younger generations’ expectations of opportunities for socializing and networking.

Leadership development will need to include an understanding of the requirement to adapt leadership styles as a result of different generational views of hierarchies, reporting structures and team-working, as well as the younger workers’ expectation of increasing responsibility and autonomy. Trust is a crucial factor in PsyCs, which is less easy to establish with Generation X than the age groups either side of them. Managing the potential conflict between the baby boomers’ expectations of reward linked to length of service, and the younger generations’ aggressive attitude to performance management and reward related to merit will be a significant leadership challenge. The requirement to deliver communications through multiple channels is unlikely to reduce, with some employees wanting it technologi- cally based, with others more interested in its reliability and trustworthiness.

The changing employment relationship Bellou (2009), referred to above, discussed how Generation Y has generally accepted the realities of the modern-day exchange relationships, as assumed within the PsyCs agreed between employee and employer over the past two decades or so. This period has seen major changes within the work- place (some discussed in Chapter 2) as a result of increasing demands being placed on organizations for greater flexibility and productivity – at less cost.

C o p yr

ig h t ©

2 0 1 4 . K

o g a n P

a g e . A

ll ri g h ts

r e se

rv e d .

Leadership Psychology162

These economic demands, coupled with organizational restructuring within both the private and public sectors, have led to job losses at all levels, and within all departments. Hence the PsyC offering job security, stability and predictability, enjoyed by baby boomers, has changed significantly. Indeed, it is the expectation of tenure of employment in exchange for reasonable job performance that has been perhaps the greatest change in the PsyC. In the 1950s and 1960s most people were clear about the security and stability of their job – feelings that fostered a sense of commitment to the organization. In return for their loyalty and hard work, the employer would provide good pay, regular advancement, annual wage increases and rewards for loyal and long-standing employees. The PsyC was understood and honoured by both parties.

However, since the 1970s that exchange has been severely strained. The flexible, flatter, slimmer organization, constantly having to adjust to chang- ing markets, can no longer guarantee the PsyC outputs previously offered. The expectations of Generations X through to Y have, in consequence, changed and those boomers still in employment have been forced to believe that the workplace has become much less comfortable than in their earlier years: the PsyC they remember has changed to such an extent that the commitment and loyalty they were previously happy to offer is not now so willingly reciprocated.

For the younger members of the workforce, their expectations are largely different as they seek development opportunities, autonomy, flexibility and to have their views heard and considered. They value independence, crea- tivity, tolerance, responsibility and a better work–life balance. Hence, their PsyC has changed over recent decades: from one that was largely relational in nature, with lifelong rewards for contract adherence, to one that is more short term, situational and with less emphasis on interdependence and mutual commitment.

The link between type of PsyC and employee commitment was explored by McInnis, Meyer and Feldman (2009), who found that a more positive correlation was evident when the contract was trust-based, collective and long term. Conversely, transactional contracts – short term, tangible and explicit – created less feeling of loyalty and commitment from workers. However, the findings of the study raised questions as to whether, in the current world of work, we can so easily define PsyC types as being either transactional or relational. It found ‘new’ types of contract emerging as the employment picture changes to meet the challenges of the 21st century. The evidence suggested the emergence of what the researchers described as ‘organization-centred contracts’, which tend to be imposed, and of a short- term nature. They give the organization greater control and might typically be used with peripheral, rather than core, employees who provide an important, but non-permanent, function. By dictating the contract terms and duration, organizations can ensure that important, clearly defined tasks can be com- pleted without creating long-term relationships. Not surprisingly, it was found that the more ‘organization-centred’ the contract was considered to be, the less commitment the employees demonstrated.

C o p yr

ig h t ©

2 0 1 4 . K

o g a n P

a g e . A

ll ri g h ts

r e se

rv e d .

the Psychological Contract 163

The study also found evidence for an increasing number of ‘balanced con- tracts’ that included features from traditional, transactional and relational forms. They tended to be open-ended in nature but also included some tangible performance-reward features. Their objective is to retain many of the benefits of longer-term relational contracts, but with the added flexi- bility required to adapt to the ever-changing economic environment. In practice, balanced contracts are aimed to meet the needs of both employer and employee.

The final, non-traditional PsyC identified by the research corresponded to what Rousseau (2005) described as I-Deals. Here, employers individually negotiate flexible contracts with the intention of retaining key people. For example, the employee may be able to negotiate unpaid time away to pursue other interests on the understanding that he or she will return once the leave is completed. Whilst one might imagine that an I-Deal offering apparent employee benefits would be viewed by them as attractive, the research sug- gested that it could result in a level of commitment based upon obligation, rather than desire.

Hence, new PsyCs are emerging in response to demands for flexibility and adaptability in the new global economy – some that place greater control in the hands of organizations; others offering benefits shared between em- ployer and employee. For the employee, contracts that are based upon trust and that treat him or her as an equal partner are, the researchers conclude, of value in the developing world of the contemporary work environment.

How will Generation Y lead? This is an important question because how organizations attract, develop and retain young leaders in the future will be crucial to their future. Bersin (2013) reported research by Deloitte, in partnership with the Confederation of India Industries, which sought to understand the role of millennials in business, with nearly half of the 2,400 respondents already being in leader- ship positions. Millennials will rule the world in the future and the following seven research findings suggest that supporting and retaining this talent will require many organizations to rethink the way they do business:

1 Millennials want leadership and they want it their way. The principal finding was that they are particularly interested in creating and leading their own businesses. This is probably not too surprising considering the fact that they have seen their elders laid off during recessional times, and have also experienced the growth of new internet companies. Hence, if organizations want to keep their Generation Y talent they will have to offer creative opportunities to innovate and build.

2 Millennials know they are not ready for leadership, but they still want it. The research showed that they are very aware that they need to develop their leadership skills. However, modern, flatter

C o p yr

ig h t ©

2 0 1 4 . K

o g a n P

a g e . A

ll ri g h ts

r e se

rv e d .

Leadership Psychology164

organizations offer less opportunity for promotion so they will need to create special assignments and job rotation programmes to meet the expectations of their millennials. Deloitte describe this as having a corporate lattice, rather than a corporate ladder.

3 Millennials value open, transparent, inclusive leadership styles. Young people readily use social media, so companies must also operate accessible, transparent internal communication systems. Moreover, growing up where gender, race, sexual orientation and age diversity is increasingly accepted, millennials will, themselves, also lead in an inclusive way.

4 Millennials demand career growth, and quickly. Personal development is very important to them so they will move jobs willingly if their present job does not offer promotion potential – much more so than their generational predecessors, who are more likely to accept career progression over a longer period. Organizations should, therefore, offer a more dynamic career model, including assignments offering opportunities for leadership development.

5 Millennials want appraisals based upon performance, not length of service. Organizations that reward employees entirely for their length of service will not meet the needs of Generation Y, who want their performance to be fully and fairly recognized.

6 Millennials require less role clarity and manager relationships. Not only do they not seek structured jobs, they are also less committed to strong relationships with one manager. Rather than relying on a single manager for advice and support they are more interested in building up a close network of peers and colleagues. That is not to say that they do not value effective leadership, they do, but they are happy to operate in an open culture that offers support from many sources.

7 Millennials thrive on change. Unlike previous generations who were wary of, and uncomfortable with, change, young 21st-century leaders want to work in innovative, dynamic and changing organizations. More established leaders should, therefore, create environments where their younger colleagues have new learning experiences, such as opportunities to work on projects and new business development initiatives.

Figure 6.1 offers an analysis of some statements contained within the Deloitte research, comparing responses from millennials with those from other generations.

C o p yr

ig h t ©

2 0 1 4 . K

o g a n P

a g e . A

ll ri g h ts

r e se

rv e d .

the Psychological Contract 165

F i g u r e 6 . 1 Needs of millennials compared to other generations (Bersin, 2013)

0 1 2 3 4 5

Pace of career growth is important to me

Importance of exposure to global opportunities

Focus more on short-term than long-term career …

Want challenging roles

Want job rotation

Need stability and job security

Need for innovation

Need for process-oriented culture

Need for risk-taking culture

Relationship with immediate manager

Other generations Gen Y

A good example of an organization recognizing that its PsyC offer should meet the needs of its employees is McDonald’s. The Generation Y cohort makes up almost 75 per cent of their workforce who, according to the 2008 CIPD report quoted previously, are more inclined to expect development opportunities on the job than any other generation. In McDonald’s case, they have also been found to be more positive about the use of feedback processes to improve performance, and to look to their store leaders to provide them with the support needed to progress along their growth paths. Therefore, training and development plays a fundamental part in McDonald’s efforts to attract, engage and retain a large proportion of their workforce. With such a large proportion of younger employees, the company has developed a bespoke training and development programme to meet their specific generational needs, rather than using a more broad-brush approach. The company had identified what expectations their people held and what inputs they could offer to the PsyC and found them to be superb multitaskers, with the ability to quickly absorb information from a myriad of channels, especially those using audio-visual communication. David Fairhurst, McDonald’s chief people officer (Europe), told me: ‘The work we have done on aligning training to qualifications has

Leadership BEST practice

C o p yr

ig h t ©

2 0 1 4 . K

o g a n P

a g e . A

ll ri g h ts

r e se

rv e d .

Leadership Psychology166

transformed lives and is a source of immense pride for me and for the business.’

Generation Y have a strong sense of loyalty to friends and peer groups, more so than their sceptical generational predecessors, Generation X. The bespoke programme that McDonald’s designed is founded upon collaborative working, multitasking, audio-visual delivery and real-time feedback. The intention is that if the young workers’ expectations are met they will respond with a commitment to deliver high levels of customer service and product quality.

For my book Aspire to Inspire I interviewed a McDonald’s restaurant manager from Leicester, Pritpal Sagoo, who explained his company’s development programme and went on to expound his leadership philosophy in relation to his team. Here is an excerpt from the book that describes how Pritpal applied his philosophy:

The leader should create a culture that encourages personal development, in the belief that most people are motivated by achievement. It is the leader’s role to create an environment where endeavour is valued and rewarded; where people are respected for the contribution they make to their team and their organization.

However, for Pritpal, a successful team can only be created if all members are aware of what is expected of them – hence it is the leader’s responsibility to explain what he or she requires from each team member and then to create the structures and processes that allow those expectations to be met. Each person is different and so the leader must not adopt a ‘one size fits all’ approach; rather identifying individual needs and using the authority vested within the leader to ensure that those needs are met. However, leaders must not shirk from taking corrective action if it is merited. A happy workplace is founded upon an appropriate balance of control and reward: if no discipline exists within a team there will be members who coast along. People need to know what is expected of them and that, Pritpal asserts, is one of the most important responsibilities of leadership. If leaders provide an example of openness, honesty and integrity, those will be the foundations upon which they can reasonably expect their followers to behave.

Pritpal may, or may not, have realized that his approach concisely describes the exchange relationship contained within a PsyC, but it certainly does. It also goes some way to explain why McDonald’s is regularly recognized as a good employer, including in The Sunday Times’ Best Places to Work survey.

C o p yr

ig h t ©

2 0 1 4 . K

o g a n P

a g e . A

ll ri g h ts

r e se

rv e d .

the Psychological Contract 167

Chapter summary

As opposed to a written contract of employment, the PsyC encompasses the unspoken, but understood, set of expectations that employers and employees have with each other. In exchange for inputs by the employee, such as com- mitment, flexibility and personal sacrifice, they believe they have a right to expect their employer to reward them appropriately, as well as providing interesting work, a pleasant and safe working environment, and reasonable job security. Equally, an employer expects employees to fulfil their part of the contract in exchange for the benefits, tangible or otherwise, understood to be offered to them. The PsyC is based upon assumptions and expectations that form an exchange relationship that, if breached, can lead to feelings of betrayal and mistrust by either party.

External factors, such as economic pressure on the organization, can influence the contract, as can the personality type of the employee and the culture of the organization itself. Such variable constructs call for leaders to consider the need for different contracts for different individuals and work groups. The chapter explored the very different expectations of the three main generations currently engaged in employment: baby boomers, Generation X and Generation Y. As the effective fulfilment of the perceived obligations within the exchange relationship of a PsyC is crucial to staff engagement and, hence, performance, the leader’s role in understanding and managing expectations is critical. This will call for leaders to carefully consider the approach they adopt to meet different individual, group and situational needs.

C o p yr

ig h t ©

2 0 1 4 . K

o g a n P

a g e . A

ll ri g h ts

r e se

rv e d .

168

THIS PAGE IS INTENTIONALLY LEFT BLANK

C o p yr

ig h t ©

2 0 1 4 . K

o g a n P

a g e . A

ll ri g h ts

r e se

rv e d .