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  1. 1. THE EFFECTS OF PSYCHOLOGICAL CONTRACT VIOLATION ON EMPLOYEE- EMPLOYER RELATIONSHIP IN ORGANISATIONS; A CASE OFKETEPA LIMITED KERICHO. KENYA. ABSTRACTThe nature and implications of employees’ psychological contracts has become a major researchfocus in the last two decades. Current employment trends, characterised by an increase in short-term employment contracts and a loss of job security, have resulted in a redefinition of careerexpectations in terms of psychological contract. This study sought to examine the effect of thepsychological contract violation employee-employer relationship. This study adoptedOrganisation Support Theory which holds that employees will contribute to the success of theorganisation if their efforts are recognised and rewarded. The study used both qualitative andquantitative techniques. Simple random technique was used to select the employees that wereincluded in the sample. Data was collected mainly through questionnaires and interviews. Bothinferential and descriptive statistics were adopted in data analysis. It was found out thatpsychological contract violation affects the relationship between employees and employers.italso affects the commitment and trust that the employees have on the organisation. Thisinformation should assist organisations in their effort to offer psychological contract that aremore in tandem with the exchange relationships that employees are seeking to create. 1
  2. 2. 1.0 INTRODUCTION1.1 Background of the studyThe nature and implications of employees’ psychological contracts has become a major researchfocus in the last two decades. Current employment trends, characterised by an increase in short-term employment contracts and a loss of job security, have resulted in a redefinition of careerexpectations and of the nature of the employment relationship. The current focus on company‘fitness’ and ‘flexibility’ has led to a major shift in work and employment practices with directimplications for both individual employees and employing organisations.Millward and Herriot (2000), citing deregulation of the labour market, suggest that the currentrhetoric in the UK is that the old contract of security in exchange for loyalty has been replacedby a new contract of employability for flexibility. Sims (2004), states that the traditionalexpectation of ‘cradle-to-grave’ employment characterised by life-long employment in exchangefor loyalty and commitment is no longer valid. Moreover, Hendry and Jenkins (1997) argue thatthe new era of uncertainty created by organisational restructuring has resulted in middlemanagers and professionals becoming the ‘new insecure. Consequently, employees no longergain secure employment in return for offering loyalty, but rather exchange skill flexibility andhard work for simply having a job.In the recent years the business environment has experienced much more rapid change andintense competition.As the workplace changes the styles of labour relations are undergoingsignificant changes as well. In particular the antagonism and confrontation that traditionallymarked employee-employer relationship on the factory floor are being reduced and replaced with 2
  3. 3. psychological contract in order to bring about a cooperation that sees the management of changeeasier and highly committed employees for the effectiveness of the organization.Mills (2004) explains that whereas the contract of employment represents the traditional way ofdefining the employment relationship, in recent years there has been an increasing interests in thenon-legal aspects of the relationship. This is particularly because the very foundations of therelationship in many cases built upon years of mutual understanding have been threatened. Thishas given rise to the employment relationship being analysed in terms of the `psychologicalcontract’ that exists between employer and employee.KETEPA limited is an organisation situated at the highlands ofRift Valley province KerichoCounty, it buys processed tea from other factories in kericho region and packs them forexport.KETEPA limited employs staff from all corners of the country and they represent otheremployees in a Kenyan context whose promisesgiven to them by the management are broken,expectations never met and obligations never taken serious by their managers who in this studyrepresent the employer.1.2 Research problemNew employees enter into an organization with the expectations that their new organisation willgive them the necessary, sufficient, and correct information about its operations or that thepromises given to them during recruitment will be fulfilled for example continued training forstaff, career development and information sharing among others. The organisation also expectsthe employee to work diligently and tirelessly in pursuit of fulfilling organisational goals; it’s amutual expectation. The important thing is that they are believed by the employee to be part ofthe relationship with the employer.Some of the promises and expectations are documented in the 3
  4. 4. employment contract or job description given to employees as they begin their job. Thedocumented promises and expectations form the legal contract of employment which theemployee may have contributed little to its terms beyond accepting them. The nature and contentof the legal contract may only emerge clearly if and when it comes to be tested in an employmenttribunal.But in cases where the promises and expectations are not documented, the employeesare left in the mercies of their bosses to decide whether to fulfill or not.Where employees believe that management has broken promises or failed to meet theirexpectations, it has always had a negative effect on the relationship the management has with theemployees. Actions that violate may foster mistrust, dissatisfaction, and exit. These actions thatviolate the contract may occur shortly after an employee enters an organization or after years of asatisfactory working relationship.This study therefore seeks to find out whether the violation ofpsychological contract affects the relationship between management and employeesin KETEPAlimited.1.3Specific objectiveThe main objective of this study is to establish the effect of psychological contract violation onthe employees of KETEPA limited kericho.The specific objectives are:1. To investigate the extent to which the psychological contract has been violated in KETEPAlimited kericho2. To investigate the effects of psychological contract violation on the trust and commitment ofemployees of KETEPA limited kericho 4
  5. 5. 1.4Scope of the studyThis study was carried out in Kenya Tea Packers (KETEPA) Limited Kericho. All the sixdepartments were involved in the study. (KETEPA) limited kericho is assumed to represent allthe organisations. This study also covered the violation of psychological contract on therelationships between the employees and the management.1.5 Justification of the studyThis study will help fill a significant gap in knowledge, especially on the fact that employee -employer relationship has changed with the change in the business environment and that theconcerned should understand that employees’ expectations are also changing. This study’sfindings and recommendations will also be of great importance to managers in particular themanagement and supervisors of KETEPA limited Kericho in reminding them that employeesexpectations are changing and failing to meet them will have an effect on the organisation`sperformance. The management will also get to know that the workers are not part of the problem,they are the source of the solution and that nobody knows more about a job and how to improveit, than the person who is doing it, this will propel them to come closer to the employees. Thestudy will as well add to the knowledge of psychological contract violation in organisations andits effects.1.6 Theoretical framework1.6.1 Organizational Support TheoryThere are a number of theories that can help one in understandpsychological contract violation.Examples include, Expectancy Theory, Equity theory and Organisation Support theory 5
  6. 6. Expectancy Theory by Victor Vroom (1990) on employee motivation focuses on threerelationships, namely, Effort performance relationship, Performance-reward relationship andRewards-personal goals relationship (EPR).As per the theory an employee will be motivated toexert a high level of effort when the effort will lead to1) a good performance appraisal 2) that agood performance appraisal will lead to organizational rewards such as bonus, salary increase, ora promotion and 3) that the reward will satisfy the employee’s personal goals.From an equity theory perspective (Adams, 1965), individuals try to find an equitablebalancebetween what they receive from the organization and their own contributions. Whenemployeesperceive that their employer has failed to fulfill promised inducements, they maywithhold theirown designated contributions (Robinson and Morrison, 1995). Shore andBarksdale (1998) foundthat employees expressed higher levels of perceived organizationalsupport, affectivecommitment, and lower levels of turnover intentions when their employmentrelationships werecharacterized by mutual high obligations.Organizational support theory (OST): as given by Eisenberger, et al (1996), explains that inorder to meet socio-emotional needs and to assess the benefits of increased work effort,employees form a general perception concerning the extent to which the organization valuestheir contributions and cares about their well-being. Such perceived organizational support(POS) would increase employees’ felt obligation to help the organization reach itsobjectives.Their affective commitment to the organization, and their expectation that improvedperformance would be rewarded. 6
  7. 7. Eisenberger et al., (1996) holds that the formation of POS is encouraged by employees’ tendencyto assign the organization humanlike characteristics. Levinson (1965) noted that actions taken byagents of the organization are often viewed as indications of the organization’s intent, rather thanbeing attributed solely to agents’ personal motives. According to Levinson, this personificationof the organization is abetted by the organization’s legal, moral, and financial responsibility forthe actions of its agents; by organisational policies, norms, and culture that provide continuityand prescribe role behaviours; and by the power the organisation’s agents exert over individualemployees. Based on their personification of the organisation, employees would view favourableor unfavourable treatment received from the organisation as an indication of the extent to whichthe organisation values their contributions and cares about their well-being.Out of these theories Organisation Support Theory was chosenbecause of its relevance to thestudy.When employees decide to work for any organisation, they form a general perception thatthe organisation will value their contribution and cares for their wellbeing if they work for theorganisation and meet its objectives. This theory is relevant to this study in that it examines howan employee would perceive the organisation in terms of its contribution to their wellbeing, if anorganisation values its employees, the employees in return would work an extra mile to makesure that the organisation meets its targets and therefore contribute to the success of theorganisation. If the employees perceive the organisation as not valuing them, then they will notwork to meet the organisation’s objectives. 7
  8. 8. 2.0 LITERATURE REVIEW2.1 Psychological contractThe psychological contract constitutes a reciprocal (although implicit) agreement betweenemployer and employee by which one is obligated to give something in return for somethingreceived; it is essentially an exchange relationship.When employees commence a new job, they evaluate many of their experiences in relation towhat they expected the job would be like and what they thought the job should provide them. Forexample, employees may enter an organization with the expectation that they will be providedwith opportunities for further education, Job content, social environment, financialcompensation, Career development and many others.If employees perceive that the organisation treats them fairly, respects their efforts and rewardsthem justly, they will feel obligated to reciprocate by working hard and avoiding harming theorganisation (Gouldner, 1960). Guest et al (1996), suggest that the strength of the psychologicalcontract is dependent on how fair the individual believes the organisation is in fulfilling itsperceived obligations and expectations above and beyond the formal written contract ofemployment. This in turn determines commitment to the organisation, trust, job satisfaction andthe extent to which they feel secure in their job (Guest, 1996; Rousseau, 1994: 996). In otherwords, promises made by the organisation followed by employee effort lead to expectations ofpayment or organisational fulfillment of obligations. When fulfilled according to expectations itleads to positive attitudes and a high level of commitment which will in turn lead to goodrelations. 8
  9. 9. Robinson and Rousseau (1995) argue that contract violation is a serious issue that occurs moreoften than not. In their study of MBA alumni, they found that over half their sample (54.8%) feltthat their employer had at some stage violated their psychological contract. They alsodemonstrated that the perception of violation was negatively related to an employee’s trust intheir employer, satisfaction with their job and organisation, intent to remain with the employer,and positively associated with actual turnover.A psychological contract contains the unwritten beliefs of one party in an employmentrelationship about the reciprocal contributions of the other party. These relationships aremaintained by voluntary actions by which an individual will reciprocate the receipt of benefits inthe future (Homans, 1998). Contrary to a relationship based on economic exchange, arelationship based on social exchange requires the parties to trust each other.Robinson (1996) further studied the effect of contract violation on trust amongst MBA students.They found that initial trust in one’s employer was negatively related to the perception ofcontract violation. Those with low trust were more likely to look for incidents of violation, whilstthose with higher trust were likely to overlook, forget or not recognise the violation. Kickul(2001), in her study of small business employees who were also enrolled in a part-time MBAprogram, found that psychological contract violation was negatively associated with anemployee’s commitment and affect toward the firm, and positively related to intention to leave.Turnley and Feldman (1999), in a study of over 800 managers, found that psychological contractviolation resulted in increased levels of exit, voice (e.g. whistle-blowing, grievance-filing),neglect (e.g. decrease in effort), and decreased levels of loyalty to the organisation. 9
  10. 10. Commitment strategyThe concept commitment refers to the feelings of attachment and loyalty and as such plays animportant role in the employment relationship. As defined by Shore(1995), Commitment is the relative strength of the individual’s identification with and involvement in, aparticular organization. It consists of three factors: 1 A strong desire to remain in the organization 2 A strong belief in ,and acceptance of ,the values and goals of the organisation 3 A readiness to exert a considerable effort on behalf of the organizationThe importance of commitment emerges clearly from the research into the impact of peoplemanagement on performance. Traditional management theory focuses on reward and particularlypay as a prime source of motivation. But Herzberg thought that employees were motivated tohigher levels of performance by less material incentives such as interesting work and theopportunity to develop their skillsThere have been several studies done in a variety of industries, including automobile plants andsteelworks, where researchers found that high-commitment human resources practices led toreduced errors in production, greater productivity, reduced employee turnover and otherfavourable outcomes, according to Tsui (2006).Measured in accounting performance, thosefactors usually contribute to a substantial increase in the bottom line.Researchers at the Massachusetts Institute of Technology found that high-commitment practicesat auto manufacturers resulted in high productivity as measured by hours spent building each car,and high quality as measured in defects per vehicle. 10
  11. 11. Still another research project, one that covered 10 companies in five industries and 85 job titles,found that old employment approaches tended to reap a host of unfavourable employeeoutcomes. Among them, you will find lower performance as rated by supervisors, loweremployee engagement in good-citizenship behaviours, such as helping fellow employees orhaving less psychological commitment to the organisation. "The employees also perceived alower level of fairness, had less trust in their coworkers and reported more frequent absences,".Tsui Carey (2006).Committed employees are more likely to act as organisational advocates than those who are notcommitted and can play a powerful role in promoting their organisation as an employer ofchoice. HR professionals need to recognise that commitment is a strategic issue that cannotsimply be left to manage itself. Organisations should review their communications andparticularly their arrangements for listening to employee opinions. Line managers need supportin designing challenging jobs and managing effective teams.Communication is the glue that makes policies real and without which they are ineffective. Thefact that communication is necessarily a two-way process, involving dialogue rather than simplyinstruction, is well established. Yet many organisations perform badly in this area, failing to givecommunication the priority it deserves. 11
  12. 12. 3.0 RESEARCH METHODOLOGY3.1 Research designThis research used a survey type of research design; this was adopted because it attempted tocollect data on the current status of the effect of psychological contract on employee employerrelationship.3.2 Target Population and Sampling ProcedureThe target population was 600 employees of KETEPA limited inKericho which constituted boththe supervisors, their staff and managers. Out of 7 managers, 3 were interviewed.Conveniencesampling technique of method was used tosample the managersbecause of thenature of their duties which involve field work.The total population studied among thesupervisors and their staff was 180. A simple random technique was used to pick 30% of therespondents. This is because each respondent has an equal chance of being included in thesample. The table below explains better.Table no. 1Department Number of employees Sample 30%Production 120 36Marketing 109 32Human resource 85 26finance 80 24Audit 76 23security 130 39total 600 180Source: owner 2012 12
  13. 13. 3.3 Collection MethodThe study used both primary and secondary data.Primary data was obtained throughquestionnaires which were self-administered.Out of 180 questionnairesadministered 150 werecollected and analysed, 83%. Secondary data was obtained from various textbooks andjournals.The response from the management was collected using interview method, this wasbecause it is easier for respondents who are mobile and don’t have time to answer thequestionnaires.4. 1 Data Analysis and PresentationThe data was carefully scrutinized to ensure that it was accurate consistent with other factsgathered, uniformly entered, as complete as possible and have been well arranged. Computerbased excel programme was used for data entry thereafter it was coded and processed usingstatistical package for social sciences (SPSS) for ease of analysis.Analysis involved estimatingthe values of unknown parameters of the population.Descriptive statistics were utilised.4.2 Results /DiscussionsThe table below shows in summary the extent in which the contract has been violated by theemployees of KETEPA limited.Table. No. 2 Questions asked Response rateHas your employer ever failed to meet your promises? 68.7% -violated 31.3%-not violatedHas the failure to fulfill promises affected your trust in the management 78% yes 22%not reallythe extent to which you feel your expectations are fulfilled 71.3%-poorly fulfilled 28.7%- fulfilledHas the failure to fulfill your expectations affected your commitment 76% yes 24% not reallySource: owner 2012 13
  14. 14. When employees were asked whether their employer ever failed to meet their promises, (68.7%)of them responded that their employer had ever failed to meet theirpromises. The promises thatwere violated included training in which most of the respondents indicated, the researcher alsofound out that the respondents were once promised increment in remuneration which it wasn’tfulfilled. Most of them indicated that they were promised during recruitment and in the inductionexercises given to them. 31.3%indicated that their promises had never been violated.Those who responded that their promises were never fulfilled were further asked whether itaffected their trust in the management, there was a positive correlation. The failure to fulfill theirpromises affected the trust they had on the management. This means that failure to fulfillpromises can affect trust.When they were further asked whether the failure to fulfill promises affected theirstrong desire toremain in the organisation and belief in values and goals of the organisation, the response waspositive, this means that failure to fulfill promises also affected commitment but in a lessstronger way than that of trust.When respondents were further asked to indicate in overall the extent to which they felt theirexpectations were fulfilled by their employer. 71.3% indicated that the expectations they hadabout the organisation were poorly fulfilled.Before new employees enter into an organisationthey already have a perception on how the organization performs and operates, this isinformation is formed through the adverts the organization places, how other people talk about it,and the way they advertise their job opportunities. The perceptions create expectations and ifthese expectations are not fulfilled it may create disappointments amongst employees.28.7%indicated that their expectations were fulfilled. This is an indication that they may have beensatisfied with the way they were treated by the management. 14
  15. 15. When the respondents were further asked how they felt when their bargain was not met,76%indicated that it affected the relationship they had built with the management.Research onperceived organizational support began with the observation that if managers are concerned withtheir employees’ commitment to the organization, employees are focused on the organization’scommitment to them. It’s a mutual relationship. When employees found out that the managementdid not fulfill their promises,or expectations not met,it affected the trust they had and alsocommitment to the organisations objectives.24%had the feeling that the fulfillment ofexpectations i.e. favoured them in one way or the other.The table below shows the degree of the trust the employees have on the managementTable no. 3 Questions asked NO YES• do you believe that the management means what it says 75.3% 24.7%• do you feel you are treated fairly, equitably and consistently 74.7% 25.3%• does management delivers the deal-it keeps the word and fulfills its side of the 70% 30%bargain.Source: researcherThe trust scale questions sought to find out whether the employees trusted the management.Questions were asked and they responded in the following manner.When the employees wereasked whether they believe that the management means what it says, 75.3% said no they do notbelieve. The reasons given were that in most cases they fail to fulfill what they have promisedforexample, increase in salary, career development and promotions. Trust is avital ingredient inevery relationship.Behavior that is most likely to engender trust is when management is honestwith people, keeps its word, and practices what it preaches. When they were asked whether theyare treated fairly, equitably and consistently, 74.7% said no, some of them gave instances likenepotism when promoting employees, and recruitment. They were also asked whether their 15
  16. 16. employer delivers the deal it keeps the word and fulfills its side of the bargain, 70%said no, thiscould mean low trust in the management.The managers who were interviewed cited competitive forces among their rivals like UNILIVERand FINLAYS as affecting the market of their products. They also indicated the counterfeits oftheir products as another challenge. These challenges force the management to expect more fromthe employees which in most cases is never availed.The employees according to them do notmeet their part of the bargain, they do not work as they promised to .As much as the employeesexpect to be treated fairly, promoted and trained,they should as well give their part of the bargainand be ready to work diligently towards the organisational goals.3.6 Summary, Conclusions and RecommendationsThe current study supported Robinson and Rousseaus (1994) findings relating to the perceptionof contract violation. Robinson and Rousseau found that a majority of MBA participants (54.8%)felt that their psychological contract had been violated at some stage. Similar results were seen inthe current study with 71.3% of the participants reporting violation of their psychologicalcontract. The notion of contract violation being normal is thus generalisable to a Kenyan context.Managers should be aware that whilst the psychological contract is often nebulous andidiosyncratic in nature it provides them an alternative mechanism to help to increase the level ofpsychological and social binding within the relationship.On the basis of the open-ended explanations offered by participants, many of the reasons givenconcerned the employer reneging on promises made during recruitment and induction, as well asthe employer not meeting initial expectations regarding career opportunities and also incrementin salary. This suggests that it is essential to manage successfully and fully the entry of a newemployee into the organisation It was also found in the study that 43.2% of participants indicated 16
  17. 17. that their expectations were either well fulfilled or very well fulfilled by their employer, andthat at some point the obligations they perceived their employer owed to them were exceeded.On the one hand this may indicate that participants took the dichotomous item relating to failureto meet obligations too lightly. On the other hand, it may indicate that violation and over-compensation with respect to perceived obligations are both valid and frequent occurrences inthe workplace.Thus, psychological contracts and their violation may be multifariously experienced byemployees. Personal differences with regard to experiences may also play a part here in the wayperceptions of obligations arise; in addition, it may have been the case that the fulfillment ofexpectations question could have been read as fulfillment of any expectations, even if they werehigh or low, positive or negative. However, there is some comfort in the finding that thoseparticipants who indicated that their employer had failed to meet their obligations were lesslikely to say that their expectations had been fulfilled.RecommendationsThe following were the recommendations for the study: 1. That management should be more careful on thepromises made to the employees, they should promise them tangible and feasible promises that they are able to fulfill. The management should also be vigilant on the way they advertise their vacancies, they should not paint a picture of the organization that never is. 2. That management should be very mindful that terms of the psychological contract represents perceptions of promises and they engender bonding through reliance within 17
  18. 18. the relationships. This is critical to understand because the making and, more importantly, keeping of promises are essential ingredients for a relationships that will work towards fulfillment of organisational success. 3. That during recruitment interviews the management should present the unfavourable as well as the favourable aspects of a job in a realistic job review. 4. That in induction programmes the management should communicate to new starters the organizations personnel policies and procedure, indicating to them the standards of performance expected in such areas as quality and customer service and spelling out requirement for flexibility. 5. That management should issue and update employee handbook as that reinforce the messages delivered in induction programmes. 6. That the management should encourage the development of performance management processes that ensure that performance expectations are agreed and reviewed regularly. 7. That management shouldencourage the use of personal development plans that spell out how continuous improvement of performance can be achieved , mainly by self – managed learning.REFERENCEAdams, J.S. ed., 1965.Inequity in social exchange. In L. Berkowitz ,Advances inexperimental social psychology (pp. 267-299). New York: Academic Press.Eisenberger, R., Huntington, R., Hutchison, S., & Sowa, D. 1996.``Perceived organizationalsupport’’.Journal of Applied Psychology, 71(3), 500-507 18
  19. 19. Guest, D.E. and Conway, N. 2004``Employee Well-being and the Psychological Contract’’: AReport for the CIPD.Research report.London: Chartered Institute of Personnel andDevelopment.Hendry, C. & Jenkins, R. 1997, Psychological contracts and new deals, Human ResourceManagement Journal, vol. 7, no. 1, pp. 38-44.Kickul, J. 9001 ‘Promises made, promises broken: An exploration of employee attraction andretention practices in small business’, Journal of Small Business Management, vol. 39, pp. 320–35.Millward, L.J. & Hopkins, L.J. 1998, Psychological contracts, organizational and jobcommitment, Journal of Applied Psychology, vol. 28, pp. 1530-56.1-49.Sims, R.R. 1994, Human resource managements role in clarifying the new psychologicalcontract, Human Resource management, vol. 33, pp. 373-82.Mills ,Daniel Quimm,1994Labour-Management Relations .McGraw-Hill.Robinson, S.L. 1996, ‘Trust and breach of the psychological contract’,AdministrativeScienceQuarterly, vol. 41, pp. 574–99.Millward, L.J. & Herriot, P. 2000, The psychological contract in the UK, in PsychologicalContracts: Cross-National Perspectives, eds. D.M. Rousseau & R. Schalk, Sage, London, pp. 23Olive M. Mugenda and Abel G. Mugenda ,. 1999. Research Methods .Qualitative andQuantitative Approaches.ACTS pressRobinson, S.L. 1996, ‘Trust and breach of the psychological contract’,AdministrativeScienceQuarterly, vol. 41, pp. 574–99.Robinson, S.L. 1996, ‘Trust and breach of the psychological contract’,AdministrativeScienceQuarterly, vol. 41, pp. 574–99. 19
  20. 20. Rousseau, D. M. 1995. Psychological Contracts in Organization: Understanding WrittenandUnwritten Agreement.Sage PublicationsRobinson, S.L., & Morrison, E.W. 1995. Psychological contracts and organizationalcitizenship behavior: The effects of unfulfilled obligations. Journal of OrganizationalBehavior, 15, 245-259.Sims, R.R. 2004, Human resource managements role in clarifying the new psychologicalcontract, Human Resource management, vol. 33, pp. 373-82.Vroom, Victor H. 1990.Manage people, not personnel: motivation and performanceappraisal.Harvard Business School Press. 20