That's not what I signed up for
Feb, 2012
As companies the world over brace themselves for a slowdown, new research suggests employees can fare worse as their ‘psychological contracts' start to reflect worsening economic conditions.
Psychological contracts refer to the beliefs, expectations, promises and informal arrangements between managers and employees. While rarely made explicit in formal employment contracts - and they are not always spoken - they can have a decisive impact on employee morale and commitment.
What happens to these understandings when the global economy lobs a curveball in your direction?
Associate Professor Isabel Metz (pictured left) interviewed managers from the 17 standard ABS industry categories, ranging from finance and insurance, to retail and manufacturing, and the findings from that project are in a forthcoming article in the International Journal of Human Resource Management.
"Managing psychological contracts is critical to achieving organisational goals," Dr Metz says. "The effects are felt in increased employee commitment or disengagement, and any organisation engaged in competition for employees ignores psychological contracts at its peril.
Managing perceptions
"We focused on managers' perceptions of psychological contracts, because managers have been under-represented in the research so far, yet the way they handle this responsibility is fundamental to the nature and longevity of the informal employment contract.
"While a lot comes down to a manager's personality, we wanted to see what impact worsening economic conditions has had on the ‘care factor' that is really the glue in many organisations."
Dr Metz and her co-authors from the University of Melbourne and University of South Australia collected data on psychological contracts from 952 organisations before and after the start of the Global Financial Crisis of 2008, interviewing general managers, CEOs and HR directors.
Managers were asked about the extent to which they felt they and their organisations were responsible for making decisions with their employee's best interests in mind, and for providing leadership in the organisation.
There was also discussion on what their perceived obligations were in terms of providing employees with developmental opportunities, training, the resources needed to carry out their work, and a secure job.
"When it comes to assigning challenging developmental experiences, for instance, previous research has uncovered subtle forms of gender discrimination," Dr Metz says. "Missing out on these experiences acts as a roadblock to women's career advancement."
Occupational hazards
Supporting past research, Dr Metz and her colleagues found that there were marked differences by employee occupation and gender, regardless of the state of the economy.
Occupation influences the employee-organisation relationship in all economic contexts. Immediate managers in all industries report that they and their organisations are more obliged to provide an attractive benefits package to employees in managerial and professional occupations than to employees in other occupations (e.g., secretarial or sales staff).
"In light of the current labour shortage in Australia, this result indicates that the ‘war for talent' is fiercer for managers and professionals than for other occupations, and it is fought using attractive benefits."
Dr Metz also said that, after controlling for employee occupation, she and her colleagues found that men are more likely to get those attractive benefits than women.
When the state of the economy was considered, the GFC did indeed result in a deterioration in psychological contracts, as managers turned their focus from the employee relationship to the organisation's urgent economic needs. But this deterioration of the informal employment terms only applies to some industries.
Classic symptoms of a monetary squeeze?
"In what we termed Affected Industries - those hit hardest by the GFC, like Accommodation and Food Services - managers looked for ways to cut costs other than by shedding staff, and so psychological contracts suffered. Those managers felt they had lower obligations to provide training and development opportunities and to make decisions with employees' interests in mind," Dr Metz says.
Dr Metz says while economic downturns do put employer-employee relationships to the test, research from countries severely affected by the GFC, like Ireland, shows that open, honest and intensive communications are the key to ameliorating that impact.
"Employers have to be diligent about managing expectations and central to this is communication.
"There's also clear, demonstrated link between gender diversity and financial performance. Firms that offer women terms and conditions on a par with those offered to men, and are prepared to match high expectations of women with appropriate developmental challenges, do better in retaining female talent."
Citation:
Metz, I., Kulik, C.T., Brown, M. & Cregan, C. (forthcoming) "Changes in Psychological Contracts during the Global Financial Crisis: The Manager's Perspective". International Journal of Human Resource Management.
More research by Associate Professor Isabel Metz: http://works.bepress.com/isabel_metz/
