Examining the Nature and Effects of Psychological Contract: Case Study of an Indian Organization

• Author: Rajen K. Gupta,Upasna A Agarwal
• Published date: 01 March 2018
• Date: 01 March 2018
• DOI: http://doi.org/10.1002/tie.21870

175

Published online in Wiley Online Library (wileyonlinelibrary.com)

© 2016 Wiley Periodicals, Inc. • DOI: 10.1002/tie.21870

Correspondence to: Upasna A. Agarwal, NITIE, Vihar Lake, Mumbai 400087 India, +91 22 28575533/9769422029 (phone), upasnaaagarwal@gmail.com

Examining the

Nature and Effects of

Psychological Contract:

Case Study of an Indian

Organization

By

Upasna A Agarwal

Rajen K. Gupta

This study investigates psychological contract contents and the effects of different types of psychologi-

cal contracts on the work outcomes of employees in an Indian organization. Analysis of case study

interviews and secondary data suggests that employee expectations can be categorized into relational

and transactional psychological contracts. The contents of these contracts, while largely similar to

those in the West, re ected certain aspects that are unique to the sociocultural context of employment

relationships in India. Further, the ful llment or breach of these psychological contracts led to different

effects on work outcomes. Relational psychological contracts affected long-term affective work out-

comes, such as prosocial work behaviors, psychological ownership, and engagement. Transactional

psychological contracts had stronger effects on turnover intentions and attitude to work. © 2016 Wiley

Periodicals, Inc.

FEATURE ARTICLE

176

FEATURE ARTICLE

Thunderbird International Business Review Vol. 60, No. 2 March/April 2018 DOI: 10.1002/tie

Introduction

A

psychological contract is defined as employees’

beliefs about what they are entitled to receive, or

should receive, based on perceived promises made

by the organization (Morrison & Robinson, 1997 ). As one

of the main constructs of the employment relationship,

it has received considerable research attention in the

past two and a half decades (Arshad, Tetrick, & Tetrick,

2016 ; Chambel et al., 2016 ; Lub, Bal, Blomme, & Schalk,

2014 ) because employment relationships are currently

undergoing a period of dramatic change, and meeting

employees’ expectations remains a challenge for most

organizations (Alcover, Rico, Turnley, & Bolino, 2016 ;

Raja & Johns, 2010 ; Robinson, 1996 ; Robinson & Rous-

seau, 1994 ; Suazo, Martínez, & Sandoval, 2011 ; Suazo,

Turnley, & Mai, 2005 ). Extensive empirical evidence sug-

gests that a psychological contract consistently predicts

work-related attitudes and behaviors (Katou & Budh-

war, 2012 ; Lapointe, Vandenberghe, & Boudrias, 2013 ;

Low, Bordia, & Bordia, 2016 ; Zhao, Wayne, Glibkowski,

& Bravo, 2007 ). Psychological contracts are viewed by

many as a useful concept for understanding apparent

changes to employment relationships brought about by

new economic and organizational circumstances such as

demographic diversity, increased reliance on temporary

work, and increased global competition in the market

(Anderson & Schalk, 1998 ; Guest, 2004 ).

Since their formulation more than five decades ago

(Argyris, 1960 ), the social exchange theory (Blau, 1964 ;

Homans, 1961 ), and the norm of reciprocity (Gouldner,

1960 ) have dominated theoretical and empirical research

on psychological contract (Shore, Coyle-Shapiro, & Tet-

rick, 2012 ). Employees develop mental schemas about

their psychological contracts as a result of multiple

sources of influences (e.g., social contracts, norms) and

formative preemployment factors (e.g., motives and

values). These schemas affect the creation of meaning

around reciprocity and mutuality that parties to the con-

tract should demonstrate (Dabos & Rousseau, 2004 ). The

fulfillment of the psychological contract is defined as the

perception that the other party has lived up to their obli-

gations (Katou & Budhwar, 2012 ; Robinson & Rousseau,

1994 ); conversely, a breach occurs when employees per-

ceive a discrepancy between what they are promised and

what they actually receive (Morrison & Robinson, 1997 ).

Experienced by a high number of employees (Robinson

& Rousseau, 1994 ), psychological contract breach has

long-lasting adverse effects that are difficult to repair

(Conway, Guest, & Trenberth, 2011 ; Morrison & Robin-

son, 1997 ; Robinson & Rousseau, 1994 ).

Despite the vast volume of research conducted on

psychological contract, several key issues remain unad-

dressed. First, much of the psychological contract research

has focused on the “state” of the psychological contract,

examining the extent of fulfillment or breach, without

understanding its contents or employees’ expectations

from their organizations. The recent years have witnessed

a change in employees’ work values (Alcover et al., 2016 ),

and to effectively manage the emerging social exchange

relationships, it is critical to examine employees’ expecta-

tions (Low et al., 2016 ; Lub et al., 2014 ). In their study

on employment relationships, Herriot and Pemberton

( 1997 ) also highlight the importance of understanding

the contents of psychological contract.

Second, studies do not differentiate between the

outcomes of different types of psychological contracts.

According to the nature of employees’ perceived expecta-

tions from their organizations, the psychological contract

contents are categorized into relational, transactional,

transitional, and balanced typologies (Macneil,

1985 ;

Raja & Johns, 2010 ; Raja, Johns, & Ntalianis, 2004 ). Evi-

dence suggests that the effects of psychological contracts

on employee attitudes and behaviors may vary across

these types (Hui, Lee, & Rousseau, 2004; Rousseau &

Schalk, 2000 ; Turnley & Feldman, 1999 ). However, empir-

ical efforts to examine the varying effects of psychological

contract breach are scarce (Ho, Rousseau, & Levesque,

2006 ; Hui, Lee, & Rousseau, 2004b ; Jensen, Opland,

& Ryan, 2010 ; Kickul, 2001 ; Montes & Irving, 2008 ; Raja

& Johns, 2010 ; Raja et al., 2004 ; Robinson, 1996 ; Robin-

son & Morrison, 1995 ).

Finally, the extant body of research on psychological

contracts (Arshad & Sparrow, 2010 ) is far from being

universal. As in other domains of organizational research,

most of the studies are based in the West (with the excep-

tions of Arshad & Sparrow, 2010 ; Bao, Olson, Parayitam,

& Zhao, 2011 ; Restubog, Bordia, & Tang, 2007 ). Psy-

chological contract is a cultural phenomenon, and the

cultural profile of a society—its values, attitudes, norms,

and beliefs (Hui, Lee, & Rousseau, 2004b )—may influ-

ence employment expectations. The cognitive as well as

motivational differences across cultures may also affect

reactions to fulfilled and unfulfilled expectations (Bagby,

1957 ; Conway & Briner, 2002 ; Herriot & Pemberton,

1997 ). Contextualized research is therefore important,

particularly in settings whose cultural roots drastically

differ from those of the West (Bhagat & McQuaid, 1982 ;

Tsui, 2004 ). In international management literature,

concerns have been raised about the suitability of West-

ern management models, theories, and frameworks to

non-Western setups. Moreover, the growing dominance