SHRM2

Human resource management
J. Coyle-Shapiro, K. Hoque, I. Kessler, R. Richardson

MN3075, 2790075
2011 Undergraduate study in Economics, Management, Finance and the Social Sciences
This is an extract from a subject guide for an undergraduate course offered as part of the University of London International Programmes in Economics, Management, Finance and the Social Sciences. Materials for these programmes are developed by academics at the London School of Economics and Political Science (LSE). For more information, see: www.londoninternational.ac.uk
This guide was prepared for the University of London International Programmes by: J. Coyle-Shapiro, PhD, Lecturer in Industrial Relations, LSE K. Hoque, Bsc (Econ), PhD, Senior Lecturer in Human Resource Management, Nottingham University Business School I. Kessler, BA, MA, PhD, Fellow in Human Resource Management, Templeton College, University of Oxford and Said Business School R. Richardson, BSc, MA, PhD, Deputy Director, Reader in Industrial Relations, LSE. This is one of a series of subject guides published by the University. We regret that due to pressure of work the authors are unable to enter into any correspondence relating to, or arising from, the guide. If you have any comments on this subject guide, favourable or unfavourable, please use the form at the back of this guide.
University of London International Programmes Publications Office Stewart House 32 Russell Square London WC1B 5DN United Kingdom Website: www.londoninternational.ac.uk Published by: University of London University of London 2008 Reprinted with minor revisions 2011 The University of London asserts copyright over all material in this subject guide except where otherwise indicated. All rights reserved. No part of this work may be reproduced in any form, or by any means, without permission in writing from the publisher. We make every effort to contact copyright holders. If you think we have inadvertently used your copyright material, please let us know.
Contents
Contents
Introduction ............................................................................................................ 1 Style of the guide .......................................................................................................... 1 Aims ............................................................................................................................. 1 Learning outcomes ........................................................................................................ 2 Syllabus......................................................................................................................... 2 Using this subject guide ................................................................................................. 3 Essential reading ........................................................................................................... 3 Further reading.............................................................................................................. 4 Online study resources ................................................................................................... 5 How the reading is listed ............................................................................................... 6 Structure of the guide .................................................................................................... 6 Examination advice........................................................................................................ 7 Chapter 1: Human resource management: theoretical frameworks and organisational performance ................................................................................... 9 Learning outcomes ........................................................................................................ 9 Essential reading ........................................................................................................... 9 Further reading.............................................................................................................. 9 Works cited ................................................................................................................... 9 Introduction ................................................................................................................ 10 Why is HR policy so complicated? ................................................................................ 10 The importance of getting HR policy right..................................................................... 12 How, in general terms, do HR policies work? ................................................................ 13 Human resource strategies........................................................................................... 17 What is an HR strategy? .............................................................................................. 18 Is there one best HR strategy? ..................................................................................... 20 High performance work practices or high commitment practices ................................... 21 Possible contingencies ................................................................................................. 22 Summary ..................................................................................................................... 23 A reminder of your learning outcomes.......................................................................... 24 Chapter 2: Individual performance: attitudes and behaviour .............................. 25 Learning outcomes ...................................................................................................... 25 Essential reading ......................................................................................................... 25 Further reading............................................................................................................ 25 Works cited ................................................................................................................. 25 Introduction ................................................................................................................ 27 What is performance? ................................................................................................. 27 Conceptualisation of performance................................................................................ 28 Task and contextual performance ................................................................................. 29 Organisational Citizenship Behaviour as contextual performance .................................. 29 Consequences of OCB ................................................................................................. 32 Antecedents of OCB .................................................................................................... 33 Personality/individual differences ................................................................................. 34 Social exchange constructs .......................................................................................... 34 Commitment ............................................................................................................... 36 Summary ..................................................................................................................... 39
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75 Human resource management
A reminder of your learning outcomes.......................................................................... 40 Sample examination questions ..................................................................................... 40 Guidelines for answering a Sample examination question ............................................. 40 Chapter 3: Psychological contracts ...................................................................... 41 Learning outcomes ...................................................................................................... 41 Essential reading ......................................................................................................... 41 Further reading............................................................................................................ 41 Works cited ................................................................................................................. 42 Introduction ................................................................................................................ 43 Definitions of psychological contracts ........................................................................... 43 Social exchange theory ................................................................................................ 44 Are psychological contracts changing? ......................................................................... 45 With whom does an employee have a contract? ........................................................... 47 Categorising employer relationships with employees .................................................... 48 Types of contracts ........................................................................................................ 50 How are transactional and relational contracts related?................................................ 51 Measurement of psychological contract........................................................................ 52 The key features of the psychological contract .............................................................. 54 Creation and management of the psychological contract .............................................. 55 Development of contract breach and violation .............................................................. 56 Consequences of the psychological contract breach...................................................... 59 Human resource practices and psychological contracts ................................................. 61 Summary ..................................................................................................................... 61 A reminder of your learning outcomes.......................................................................... 62 Sample examination questions ..................................................................................... 62 Guidelines for answering a Sample examination question ............................................. 62 Chapter 4: Organisational justice ......................................................................... 65 Learning outcomes ...................................................................................................... 65 Essential reading ......................................................................................................... 65 Further reading............................................................................................................ 65 Works cited ................................................................................................................. 65 Introduction ................................................................................................................ 66 Different conceptualisations of justice .......................................................................... 67 Procedural justice ........................................................................................................ 69 Why does procedural justice matter?............................................................................ 71 Outcomes of justice ..................................................................................................... 72 Procedural justice applied to motivation ....................................................................... 75 Organisational justice and HR practices ........................................................................ 75 Organisational justice and performance appraisal ......................................................... 77 Summary ..................................................................................................................... 79 A reminder of your learning outcomes.......................................................................... 79 Sample examination questions ..................................................................................... 79 Guidelines for answering a Sample examination question ............................................. 79 Chapter 5: The size of the workforce, the flexibility of labour and the use of internal labour markets........................................................................................ 81 Learning outcomes ...................................................................................................... 81 Essential reading ......................................................................................................... 81 Works cited ................................................................................................................. 81 Introduction ................................................................................................................ 81 The standard theory explaining the firms demand for labour ........................................ 82
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Contents
Refinements to the standard theory ............................................................................. 84 Internal labour markets ................................................................................................ 89 The HR implications of ILMs ......................................................................................... 92 Summary ..................................................................................................................... 93 A reminder of your learning outcomes.......................................................................... 93 Sample examination questions ..................................................................................... 93 Chapter 6: Recruitment and selection .................................................................. 95 Learning outcomes ...................................................................................................... 95 Essential reading ......................................................................................................... 95 Further reading............................................................................................................ 95 Works cited ................................................................................................................ 96 Introduction ................................................................................................................ 96 The importance of recruitment and selection ................................................................ 97 Recruitment................................................................................................................. 98 Initial screening ......................................................................................................... 102 Final selection ........................................................................................................... 104 Is there an ideal, or one best way approach to final selection? .................................. 109 A reminder of your learning outcomes........................................................................ 110 Sample examination questions ................................................................................... 110 Chapter 7: Training and development ................................................................ 111 Learning outcomes .................................................................................................... 111 Essential reading ....................................................................................................... 111 Further reading.......................................................................................................... 111 Works cited .............................................................................................................. 112 Introduction .............................................................................................................. 113 Definitions of training and development ..................................................................... 113 Why is training and development becoming an increasingly important issue? ............. 114 Considerations in the design of training programmes ................................................. 115 Implementing training ............................................................................................... 117 International comparisons of training activity ............................................................. 119 Explaining the different levels of training activity in different countries ........................ 120 External factors: systems of national vocational education and training ....................... 121 VET initiatives in UK in the 1990s .............................................................................. 123 Answers to comparity of training activity .................................................................... 126 A reminder of your learning outcomes........................................................................ 127 Sample examination questions ................................................................................... 127 Chapter 8: Reward systems and motivation ...................................................... 129 Learning outcomes .................................................................................................... 129 Essential reading ....................................................................................................... 129 Further reading.......................................................................................................... 129 Works cited ............................................................................................................... 129 Introduction .............................................................................................................. 130 Definitions and classifications .................................................................................... 130 Selecting a pay scheme .............................................................................................. 134 Pay schemes in operation........................................................................................... 137 Reward outcomes ...................................................................................................... 139 Principalagent theory ............................................................................................... 140 Motivation theory ...................................................................................................... 141 Process theories ........................................................................................................ 142 Pay, attitudes and behaviours..................................................................................... 144
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A reminder of your learning outcomes........................................................................ 146 Sample examination questions ................................................................................... 146 Guidelines for answering a Sample examination question ........................................... 147 Chapter 9: Job redesign and teamworking ........................................................ 149 Learning outcomes .................................................................................................... 149 Essential reading ....................................................................................................... 149 Further reading.......................................................................................................... 149 Works cited ............................................................................................................... 150 Introduction .............................................................................................................. 151 Taylorism and Scientific Management......................................................................... 151 Job enlargement ........................................................................................................ 152 Herzberg and job enrichment ..................................................................................... 153 Hackman and Oldhams job characteristics model....................................................... 154 Teamworking ............................................................................................................ 159 Management teams................................................................................................... 164 A reminder of your learning outcomes........................................................................ 167 Sample examination questions ................................................................................... 167 Chapter 10: Employee involvement and participation....................................... 169 Learning outcomes .................................................................................................... 169 Essential reading ....................................................................................................... 169 Further reading.......................................................................................................... 169 Works cited ............................................................................................................... 169 Introduction .............................................................................................................. 170 Definitions and classifications .................................................................................... 170 Approaches to employee involvement and participation ............................................. 177 Employee participation: objectives and patterns at the micro and macro levels ............ 178 Changing patterns of employee involvement and participation ................................... 180 Employee involvement and participation in practice .................................................... 182 Impact and outcomes ................................................................................................ 185 A reminder of your learning outcomes........................................................................ 187 Sample examination questions ................................................................................... 187 Guidelines for answering a Sample examination question ........................................... 187 Chapter 11: Performance appraisal and management ....................................... 189 Learning outcomes .................................................................................................... 189 Essential reading ....................................................................................................... 189 Further reading.......................................................................................................... 189 Works cited ............................................................................................................... 190 Introduction .............................................................................................................. 190 Definitions and classifications .................................................................................... 190 Selecting an approach ............................................................................................... 191 Design features ......................................................................................................... 195 A reminder of your learning outcomes........................................................................ 202 Sample examination questions ................................................................................... 203 Guidelines for answering a Sample examination question ........................................... 203 Chapter 12: Women, HRM and equal opportunities ........................................... 205 Learning outcomes .................................................................................................... 205 Essential reading ....................................................................................................... 205 Further reading.......................................................................................................... 205 Works cited ............................................................................................................... 206 Introduction .............................................................................................................. 207
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Contents
What is the current position of women in the labour market? ..................................... 207 How can we explain the disadvantaged position faced by women?............................. 209 Equal opportunities policies ....................................................................................... 212 The business argument for equal treatment ................................................................ 214 The role of the government in promoting equality of opportunity ................................ 218 The role of trade unions ............................................................................................. 220 Self-employment ....................................................................................................... 221 A reminder of your learning outcomes........................................................................ 221 Sample examination questions ................................................................................... 222 Chapter 13: The state of HRM in contemporary organisations .......................... 223 Learning outcomes .................................................................................................... 223 Essential reading ....................................................................................................... 223 Further reading.......................................................................................................... 223 Works cited ............................................................................................................... 223 Introduction .............................................................................................................. 223 The changing context of HR decisions ........................................................................ 223 The growing importance of HR strategies ................................................................... 225 Greater HR flexibility and the implication for HR strategy ............................................ 231 A reminder of your learning outcomes........................................................................ 232 Sample examination questions ................................................................................... 232 Appendix 1: Full list of Further reading for the course ...................................... 233 Books........................................................................................................................ 233 Journal articles .......................................................................................................... 233 Appendix 2: Sample examination paper ............................................................ 237
Notes
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Introduction
Introduction
This subject guide is about human resource (HR) policies and practices. These are the actions taken by commercial firms and other organisations to recruit and then to manage their employees. In other words, they are the procedures which the organisation adopts in its attempt to make full use of the labour it employs. They include everything from recruitment and selection techniques (which initiate the relationship between firm and employee), to the mass of rules that determine how people are treated as current employees, and all the way to policies on separation (which determine whether, and in what circumstances, an employee is to be let go). This guide takes, as its starting point, the management of individual employees. The opening chapters focus on the individual employee in terms of their performance, how they view the employment relationship, and how they are treated within the context of this relationship. The later chapters concentrate on the main areas of human resource management (HRM) policy and practice used to manage the employment relationship. The guide follows the perspective adopted in most HRM textbooks and looks at the subject from an organisational point of view, but it also acknowledges that a range of other factors shape the use of HRM policies and practices, including government and regulatory frameworks.
Style of the guide

The study of HRM is multidisciplinary, and should be looked at from a range of perspectives. To reflect that, this guide has been written by four academics from different disciplines. A number of the chapters have been written by an economist, while others are written from a traditional HRM perspective. What this means is that you will receive a range of viewpoints on the subject as a whole. You may also notice a difference in approach from chapter to chapter.
Aims
The aims of this course are to: give you an introduction to the key elements of human resource management demonstrate how the social sciences can assist in understanding the management of human resources examine and evaluate human resource policies and practices of organisations help you to examine the different theories which try to explain the relationship between HRM and organisational performance develop your ability to analyse and critically evaluate HR policies and practices.
Learning outcomes
By the end of this course, and having completed the Essential readings and activity, you should be able to: describe the relationship between HRM and organisational performance and be able to critically evaluate the empirical evidence critically evaluate alternative perspectives on HR practices analyse the relationship between HR practices and their outcomes for the individual and the organisation. evaluate the effectiveness of different HR practices comment upon the limitations of the theories covered.
Syllabus
The syllabus draws on the following theories: human resource strategy; psychological contracts; organisational commitment; motivation; organisational justice. These theories are used as a basis for examining the following traditional human resource areas: recruitment and selection; employment appraisal; pay, benefits and performance incentives; job redesign; training; management development and promotion; industrial relations and collective bargaining. The syllabus examines current theoretical perspectives on the relationship between human resource practices and organisational performance. These include universalistic, contingency and configurational frameworks that offer different explanations of how HRM practices impact on organisational performance. Organisational commitment, defined as an individuals emotional attachment to an organisation, is central to understanding the effects of HRM practices on employees. The syllabus focuses on the antecedents and consequences of employees commitment to their employing organisation. Organisational justice is also covered as it provides an alternative theoretical framework for assessing the implications of human resource practices for employees. The psychological contract captures the exchange relationship between employees and the employer, and can be viewed as a complement or alternative to a collectivist approach to employment relationships (collective bargaining). Students are expected to always go beyond description and simple prescription. They will be required to know and understand the major theoretical frameworks and examine the empirical evidence supporting them. Different human resource policies will be assessed by discussing the underlying theories (for example, human resource practices such as payment systems and job redesign are based on particular theories of motivation). These theories will then provide the basis for considering the conditions under which HRM practices are more or less likely to achieve their hypothesized outcomes. From this, the potential limitations of each theory, and the subsequent implications for organisational practice will be assessed.
Introduction
Using this subject guide

This subject guide presents a basic introduction to the main topics in the study of human resource management. As with any guidebook, this subject guide is designed to help you find your way around the subject matter. It seeks to outline, explain and clarify the central concerns of the study as well as provide information about studying for your examinations. On the other hand, because it is a guide, it cannot go into detail and there are bound to be omissions and over simplifications. Wider reading is, therefore, essential. You should not treat this subject guide as a textbook. If you place too much emphasis on the subject guide without doing additional reading, you will find it exceedingly difficult to pass the examination. You should also develop your own set of notes as you work through the subjects, which will help you engage with the material in a critical way.
Essential reading
Your Essential reading for this course comes from three places: textbooks, journal articles and one chapter of a textbook available in the virtual learning environment (VLE). Textbooks Five textbooks are recommended for this course. These are general textbooks that are useful for most chapters in this guide. You should buy, or have regular access to, these textbooks as a number of the Essential readings are taken from them. Please remember that the more you read, the better your understanding of the subject area will be. The essential textbooks are:
Bach, S. Managing Human Resources. (Oxford: Blackwell, 2005) fourth edition [ISBN 9781405118514]. Claydon, T. and J. Beardwell Human Resource Management: A Contemporary Approach. (Harlow: Prentice Hall, 2007) fifth edition [ISBN 9780273707639]. Folger, R. and R. Cropanzano Organisational Justice and Human Resource Management. (Thousand Oaks, CA: Sage, 1998) [ISBN 9780803956872].
EITHER
Marchington, M. and A. Wilkinson Human Resource Management at Work. (London: CIPD, 2008) fourth edition [ISBN 9781843982005].
OR
Bratton, J. and J. Gold Human Resource Management: Theory and Practice. (Basingstoke: Palgrave, 2007) fourth edition [ISBN 9780230001749]. Torrington, D., L. Hall and S. Taylor Human Resource Management. (FT/Prentice Hall, 2008) seventh edition [ISBN 9780273710752].
Detailed reading references in this subject guide refer to the editions of the set textbooks listed above. New editions of one or more of these textbooks may have been published by the time you study this course. You can use a more recent edition of any of the books; use the detailed chapter and section headings and the index to identify relevant readings. Also check the VLE regularly for updated guidance on readings. Journal articles As part of your Essential reading, you also need to access eight journal articles from the Online Library. To help you read extensively, all International Programmes students have free access to the University of
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London Online Library where you will find the full text or an abstract of some of the journal articles listed in this guide. (See Online study resources below).
Allen, N.J. and T.D. Hecht The romance of teams: Toward an understanding of its psychological underpinnings and implications, Journal of Occupational and Organizational Psychology 77 (2004), pp.43961. Ambrose, M., R.L Hess and K.S. Law The relationship between justice and attitudes: An examination of justice effects on event and system related attitudes, Organizational Behavior and Human Decision Processes 103(1) 2007, pp.2136. Bettencourt, L.A., K.P . Gwinner and M.L. Meuter A comparison of attitude, personality, and knowledge predictors of service-oriented organizational citizenship behavior, Journal of Applied Psychology 86(1) 2001, pp.2941. Coyle-Shapiro, J.A-M. and L. Shore The employee-organization relationship: Where do we go from here?, Human Resource Management Review (17) 2007, pp.16679. Available online from http://eprints.lse.ac.uk/ Cullinane, N. and T. Dundon The psychological contract: A critical review, International Journal of Managment Reviews 8(2) 2006, pp. 11329 Kelly, J. Does job redesign theory explain job redesign outcomes?, Human Relations 45(8) 1992, pp.75374. Mueller, F., S. Procter and D. Buchanan Teamworking in its context(s): antecedents, nature and dimensions, Human Relations 53(11) 2000, pp.1387424. Parker, S., T.D. Wall and J.L. Cordery Future work design research and practice: Towards an elaborated model of work design, Journal of Occupational and Organizational Psychology 74, 2001, pp.41340. Podsakoff, P .M., S.B. Mackenzie, J.B. Paine and D.G. Bachrach Organizational Citizenship Behaviors: A critical review of the theoretical and empirical literature and suggestions for future research, Journal of Management 26(3) 2000, pp.51363.
Further reading
Please note that as long as you read the Essential reading you are then free to read around the subject area in any text, paper or online resource. You will need to support your learning by reading as widely as possible and by thinking about how these principles apply in the real world. To help you read extensively, you have free access to the VLE and University of London Online Library (see below). A full list of all Further reading for this course is given in Appendix 1 on page 233. Other useful texts for this course include:
Boxall, P ., J. Purcell and P . Wright Oxford Handbook of Human Resource Management. (Oxford: Oxford University Press, 2007) [ISBN 9780199282517]. Leopold, J. and Watson T. Harris The Strategic Managing of Human Resources. (Harlow: Prentice Hall, 2005) [ISBN 9780273674306]. Storey, J. (ed.) Human Resource Management: A Critical Text. (London: Thomson Learning, 2007) third edition [ISBN 9781844806157].
Journals The following journals are also particularly useful and a number of readings are taken from them: Human Resource Management Journal International Human Resource Management British Journal of Industrial Relations
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Introduction
Online study resources

In addition to the subject guide and the Essential reading, it is crucial that you take advantage of the study resources that are available online for this course, including the VLE and the Online Library. You can access the VLE, the Online Library and your University of London email account via the Student Portal at: http://my.londoninternational.ac.uk You should receive your login details in your study pack. If you have not, or you have forgotten your login details, please email: uolia.support@ london.ac.uk quoting your student number.
The VLE
The VLE, which complements this subject guide, has been designed to enhance your learning experience, providing additional support and a sense of community. It forms an important part of your study experience with the University of London and you should access it regularly. The VLE provides a range of resources for EMFSS courses: Self-testing activities: Doing these allows you to test your own understanding of subject material. Electronic study materials: The printed materials that you receive from the University of London are available to download, including updated reading lists and references. Past examination papers and Examiners commentaries: These provide advice on how each examination question might best be answered. A student discussion forum: This is an open space for you to discuss interests and experiences, seek support from your peers, work collaboratively to solve problems and discuss subject material. Videos: There are recorded academic introductions to the subject, interviews and debates and, for some courses, audio-visual tutorials and conclusions. Recorded lectures: For some courses, where appropriate, the sessions from previous years Study Weekends have been recorded and made available. Study skills: Expert advice on preparing for examinations and developing your digital literacy skills. Feedback forms. Some of these resources are available for certain courses only, but we are expanding our provision all the time and you should check the VLE regularly for updates.
Making use of the Online Library

The Online Library contains a huge array of journal articles and other resources to help you read widely and extensively. To access the majority of resources via the Online Library you will either need to use your University of London Student Portal login details, or you will be required to register and use an Athens login: http://tinyurl.com/ollathens The easiest way to locate relevant content and journal articles in the Online Library is to use the Summon search engine.
If you are having trouble finding an article listed in a reading list, try removing any punctuation from the title, such as single quotation marks, question marks and colons. For further advice, please see the online help pages: www.external.shl.lon.ac.uk/summon/about.php
How the reading is listed

The reading for each of the chapters in this guide is divided into Essential reading, Further reading and Works cited.
Essential reading
For each chapter you are required to do some reading that is essential. This Essential reading is listed at the start of each chapter. It is also listed in this Introduction. It is from this material that the majority of your knowledge will be gained, so it is important that you read as much of it as you can. Most of the time, you should read the subject guide chapter first, then move on to the Essential reading. However, please note that in some chapters you will be advised to do the reading at certain points in the chapter.
Further reading
At the beginning of each chapter, a list of possible Further readings will be offered. A selection is always offered, but none of them is compulsory. You can select from the list for each chapter if you wish to. Therefore, you should not be worried about the length of this list as this is only to give you a choice should you want one! You may find it helpful to look at the Further readings if you are particularly interested in a particular subject. However, we do encourage you to do as much reading as possible.
Works cited
Books and journals that have been referred to in this subject guide are listed at the start of each chapter. You do not need to read these materials unless you wish to; they are there for reference purposes only.
Structure of the guide

The guide is divided into 13 chapters, each focusing on a different topic. Every chapter includes a number of features: the Learning outcomes for the chapter the Essential and Further reading lists a list of Works cited in the chapter an Introduction to the topic of the chapter a chapter Summary or Conclusion section at the end of each chapter a range of Sample examination questions to help you to test what you have learnt.
Activities
In addition to these key features of every chapter, Activities have been provided throughout the guide to help you engage and interact with the material you are studying. Although these are not assessed, it is strongly recommended that you complete these Activities as you work through
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Introduction
the course. Taking an active role from the beginning of this course and developing this throughout, will give you confidence in your knowledge, ability and opinions.
Examination advice
Examination format
Important: the information and advice given in the following section are based on the examination structure used at the time this guide was written. Please note that subject guides may be used for several years. Because of this we strongly advise you to check both the current Regulations for relevant information about the examination, and the VLE where you should be advised of any forthcoming changes. You should also carefully check the rubric/instructions on the paper you actually sit and follow those instructions. The assessment for this course is through a three-hour unseen written examination. You will be expected to write three essays of your choice from a selection of eight questions. These essays need to present an argument that expresses your considered opinion on the subject. They should not repeat the notes written in this subject guide. Instead the essays should show independent, reflective and critical thought about the issues involved. Remember, it is important to check the VLE for: up-to-date information on examination and assessment arrangements for this course where available, past examination papers and Examiners commentaries for the course which give advice on how each question might best be answered.
Examiners commentaries
The Examiners commentaries, which are provided annually, are a very good resource. The reports provide you with two sources of information: how students have performed in the previous years examination what the Examiners are looking for in the answers. A consistent comment in the last few Examiners commentaries, is that answers to examination questions were generally far too descriptive. The analysis, if any, was left to the last paragraph, but more commonly the argument was only stated in the last sentence. A significant proportion of candidates have tended to reproduce theories relating to the topic of the question regardless of what the question was asking. Some candidates, on seeing a familiar word or concept, write everything they know about that word or concept and do not address the terms of the question asked. Overall, too many candidates are trying to fit a revised standard answer into the question asked. The consequences are that candidates are giving strong signals to Examiners that they do not know what the question is asking for. A critical learning point from the Examiners commentaries is that describing particular theories is not what the question is looking for the key is to use the theories, recognising their strengths and limitations to help address the issues raised by the question. Ensure that you refer to the Examiners commentaries frequently throughout your study. As you cover topics, you should attempt to answer previous examination questions and understand the Examiners comments
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on those particular examination answers. Take time to attempt to fully understand the Examiners comments and the mistakes made by previous students. This should be done topic by topic, and you should not progress from one topic to the next until you have: a. attempted to answer a previous examination question on that topic b. read the Examiners comments on that question c. thought about ways in which you could improve your own answer.
Chapter 1: Human resource management: theoretical frameworks and organisational performance

Learning outcomes
By the end of this chapter, and having completed the Essential reading and Activities, you should be able to: explain why human resource issues are complex, both as a subject to study or an activity to practise discuss the basic purpose of human resource policies, and explain why it is important to get HR right describe the notion of human resource strategies, explaining why it is different from just any collection of HR policies and practices.
Essential reading
There is no truly Essential reading for this chapter. It will, however, be very useful to help your understanding of the first section if you could look at the following texts:
Marchington, M. and A. Wilkinson Human Resource Management at Work. (London: CIPD, 2008) Chapter 3 High commitment HRM and performance. Torrington, D., L. Hall and S. Taylor Human Resource Management. (FT/Prentice Hall, 2008) Chapter 1 The nature of Human Resource Management and Chapter 2 Strategic human resource management.
Further reading
Books
Claydon, T. and J. Beardwell Human Resource Management: A Contemporary Approach. (Harlow: Prentice Hall, 2007) Chapter 1 An introduction to HRM and Chapter 2 Strategic human resource management.
Journal articles
Huselid, M. The impact of human resource management practices on turnover, productivity, and corporate financial performance, Academy of Management Journal 38(3) 1995, pp.64570.
Works cited
Below, I give full references of the studies quoted in the text. Note that I do not press you to read these, but this is only because some are very technical and others are now hard to get hold of.
Macduffie, J. Human Resource Bundles and Manufacturing Performance, Industrial and Labor Relations Review 48(2) 1995, pp.197221. Miles, R. and C. Snow Designing Strategic Human Resources Systems, Organizational Dynamics Summer 1984, pp.3652. Porter, M. Competitive Strategy. (New York: The Free Press, 1980) [ISBN 0684841487] especially Chapters 1 and 2. 9
75 Human resource management Schuler, R. and S. Jackson Linking Competitive Strategies with HRM Practices, Academy of Management Executive 1(3)1987, pp.20719. Walton, R. From Control to Commitment in the Workplace, Harvard Business Review 63(2) 1985, pp.7784.
Introduction
This chapter starts with an introduction to the field of Human Resources (HR), in which three questions are posed: Why is HR policy such a complicated area of management decisionmaking? Why is it important to put in place the right HR policies? How, in general terms, do HR policies work? We then consider the emerging central issue in the field, which is the realisation that all the individual HR policies should be firmly framed in a strategic context.
Why is HR policy so complicated?

The effective management of an organisations employees (i.e. its human resources) is arguably the single most difficult, most complex and most ambiguous task that managers face. It is also an area of management policy-making that is neither very well developed intellectually nor heavily permeated by rigorous professional standards. This is true for at least four reasons: HR policies refer to human behaviour, which is messy. There are very many HR policy instruments. Individual HR policies are difficult to evaluate. Too many managers believe that people management is just common sense.
HR policies refer to human behaviour

Because HR policy deals with managing people, it involves human behaviour and relationships that are inherently complex, potentially conflictual and problematic. Machines or money markets are so much easier to deal with than people, so that (contrary to much popular opinion) being a production engineer or a finance officer is far easier and more straightforward than being responsible for people management. In order to understand HR policy properly, whether as an analyst or as a practitioner, you need to acquire many skills. You need to know how and why organisations make the choices they do and behave the way they do; this means you need a theory of the firm.1 But you also need to know how and why workers behave and react in the ways they do, whether as individuals or in groups; and you need to be able to judge how they might behave and react if circumstances (e.g. the HR policies) were to alter; this means, among other things, that you need effective theories of motivation. These are formidable requirements, and they imply that you need to blend together the different social science disciplines, for example, economics, sociology, and psychology. HR policy is therefore inherently multidisciplinary, which might make it more interesting for some but definitely makes it more difficult for everyone.
In this guide we will use the terms rm and company interchangeably, reecting American and British usage.
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You also need to know more than just the theory; you need to know the empirical work too. This requires a grasp of research design, a store of complex information, and the ability to manipulate and interpret that information, which is why statistical expertise is becoming part of the HR professionals job description. So, to understand and design HR policies properly is not a trivial intellectual task.
Many HR policy instruments

A second reason why HR policy is hard to get right comes from its multiplicity of policy instruments. Policy-makers in all fields have policy instruments. One problem for HR policy-makers is that there are so many HR instruments available to them: hiring policy, induction policy, training policy, employee development policy, pay and rewards policy, job design decisions, career or promotion policies, and so on. Even worse, each area of HR policy is likely to have some impact on the others. This means that it is unwise to analyse any single policy in isolation from the others. One should instead see it in the context of the whole, which means having a sense of possible HR strategies, or groups of policies. The very multiplicity of policies makes the whole subject ambiguous.
HR policies are difficult to evaluate

A third reason why HR policy is so difficult is that HR policies are very hard to evaluate properly, so that managers cannot easily establish whether their policy choices are wise. Neither can outside analysts easily find out whether a firms policies, or those of a set of firms, are working optimally. Natural scientists can conduct controlled experiments to assess the full consequences of a course of action. Social scientists (or HR managers) cannot usually do this, and when they can it is normally possible only in the artificial environment of the social science laboratory. Running controlled experiments in the real world of work is exceedingly hard, and very rare. So HR policy evaluations have to be done indirectly, and with much less precision. The result is that no one can be at all confident that managers are in fact doing the right thing, even if their HR policy choices look plausible by the standards of common sense or some theory.
People management is just common sense

The fourth reason why HR is so hard to get right is the prejudice shared by so many managers that people management can be done by almost anyone, and requires only common sense rather than special training. Even worse, HR is sometimes seen to be an area of management that should be done by those who are not quite good enough to do the other more demanding management tasks (it is sometimes referred to as a dustbin or trashcan management activity). You may have seen The Enforcer, one of the movies in which Clint Eastwood plays a hard-nosed and insubordinate San Francisco cop, and is reassigned duties after a particularly flamboyant bloodletting. Instead of catching violent criminals he has to suffer the ignominy of doing personnel work (Personnel? he complains, but thats for assholes.) The irony is that in his role as personnel manager he is a failure. He votes against promoting someone (a woman!) who is then made his partner, shows exemplary qualities and saves his life. The real moral of this episode is that Eastwoods cop was good at his principal job but useless as a personnel officer, and that common sense is not enough personnel issues are truly for professionals. Nevertheless, the belief that personnel is for wimps makes for problems.
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The importance of getting HR policy right

Having suggested some reasons why HR policy is difficult, I now want to say why it is nevertheless very important to get it right, and from there to consider the principal objectives or purposes of HR policy. I want to consider two linked questions here: What leads to organisational success and what is the role of HR? What is the underlying objective of HR policy?
What leads to organisational success and what is the role of HR?

Commercial success depends on many things, central among which is that a firm must offer to the market the right products on the right terms. This requires a range of competencies, for example, sensible product development, the right choice of production technology and shrewd marketing. But it also requires the right cost structure. Firms that do not control their costs tend to fail and this is where HR comes in. Cost control is obviously necessary in highly competitive activities. Globalisation and more extensive international trade have almost certainly increased competitive pressures, so cost control is arguably becoming ever more important. Nor is international competition confined to manufacturing industries. There is intense international rivalry in services too, for example in banking, professional services, consultancies, and tourism. Nor, with the coming of privatisation and the reality of widespread pressures on public sector budgets, is cost consciousness confined to the private sector. If a government agency has its budget squeezed, it is put under greater pressure to meet its statutory obligations by increasing its efficiency. This is just another way of saying that it must control its cost base ever more stringently.
What is the underlying objective of HR policy? The special role of labour costs
So far I have emphasised the importance of controlling costs, but which costs are central? There are many sources of costs, for example the costs of labour, the costs of capital, and the costs of components or supplies. All of these are worth controlling, but labour costs are worth special attention, for at least two main reasons. First, for many firms, they are the largest single element of costs. This is most obviously true for many firms in the service sector, where labour costs can comprise 80 per cent or more of total costs. Second, even where labour costs are not the largest cost element, they are often the largest element over which the firm has much potential control. So, for example, a manufacturing firm may spend a lot of money on buying in components, but so too will most of its competitors and all will generally face more or less the same component prices. The implication is that the costs of components will be surprisingly similar across the rival firms and be something over which they have only limited control. The situation is often different with respect to labour costs. It is here that each firm can institute distinctive policies which reduce its costs and give it a durable competitive advantage.
The meaning of the term labour costs

The meaning of the term labour costs can best be seen by an example. Assume a firm has the following situation: 1. it produces a total output of 10,000 units per week 2. it employs 100 workers
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3. it pays each worker $400 per week. In this firm, therefore, 1. labour productivity (or output per worker) is 100 units per week, (10,000/100) 2. total labour costs are $40,000 per week, ($400x100), and most interestingly, 3. unit labour costs are $4.00 ($400/100). It is this last notion of unit labour costs that we mean when we talk about controlling labour costs. Fundamentally, the firm is interested in minimising its unit labour costs for each level of output. This is, by far, the main underlying objective of HR policy. Activity Are there any other objectives of HR policy apart from controlling unit labour costs? Make notes on your own thoughts before reading further. Answer First, at the detailed level, each different area of HR policy has its own specific objectives. For example, the specific objective of hiring policy is to ensure that the firm selects suitable employees; training policy is directed towards improving employee skill levels; pay and rewards policy is designed to provide the right incentives to secure performance; and so on. It should be obvious that all of these area-specific objectives are fully consistent with the overall objective of controlling costs, and that indeed each tells you the particular way any individual HR policy can help in cost control. At a more general level, there might be additional overall objectives, though controlling costs will always be central. For example, some organisations feel that it is important to be, in some sense, a good employer. This means that they choose to act to a degree in the interests of their employees even if this does not minimise labour costs. Another way to say this is that some organisations choose to act paternalistically. In principle, this might be seen by the corporations themselves as a way to reduce unit labour costs; in practice, they surely also reflect some degree of ethical concern over the interests of the employees. No one can deny that such concerns exist and influence many aspects of HR policy. It is true, however, that they are nearly always subordinate to the goal of controlling costs.
How, in general terms, do HR policies work?

If the core HR policy objective is to control unit labour costs, how can this be achieved? To answer this I will recall the definition of unit labour costs and contrast attempts to reduce wages and to enhance productivity. I shall then look at how productivity can be enhanced.
Controlling wages
For many people, the obvious way to control unit labour costs is to keep wages down; as an alternative the firm can also attack fringe benefits (like holiday entitlements or private pension arrangements). In fact, wage cutting is rarely central to HR policy in reality. This is not to suggest that firms are indifferent about wage levels, nor to deny that some firms choose to locate their activities in places where they think wages are low. But most firms realise that their success is not generally based on driving wages down.
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All firms operate in labour markets which generate typical wage rates for the different kinds of labour they might want to hire. Within any local or occupational labour market there is normally a range of wage rates for any grade of labour and that range is often relatively narrow. A firm offers a wage from within that range but it faces certain consequences of its choice. If it chooses to pay, say, in the top 25 per cent of the wage distribution it will tend to attract somewhat better applicants (i.e. people who will normally be more productive on the job). Similarly, if it chooses to offer a wage from the lower part of the distribution it will tend to attract rather poorer quality labour. So any cost gain from the choice of paying lower wages will have to be balanced against the resulting loss of performance from the less effective labour; and a cost burden from the high wage choice will produce an offset from the better performance of the better quality labour. It is an empirical question as to where the best choice lies (and it may depend on how important labour quality is to the firms more general business strategy), but choosing the lowest wage is not always beneficial. More generally, firms have limited room for manoeuvre on the wage front.
Raising productivity
If wages were all that mattered, all the worlds production would gravitate to low-wage countries in the developing or underdeveloped world. This is not what we observe, which means that their low-wage advantage is offset by something else. The obvious offset is their low level of labour productivity. This takes us on to the second and much more important route by which low-unit labour costs might be secured, that of raising output per worker. The higher the output per worker, the lower the unit labour costs. Most HR policies can be understood as ways of trying to reduce labour costs by raising output per worker. Thus, better hiring policies offer the prospect of finding more suitable, more productive workers; effective appraisal schemes can raise productivity by providing better feedback; performance-related pay can improve performance through better incentives; and so on. Another way to express this is to say that value-for-money HR policies result in lower unit labour costs. My interpretation, that HR policy is basically about controlling unit labour costs by raising labour performance, is controversial. Many think it is out of date and that we should pay more attention to newer emphases, say, on innovation or learning. In my view, thats to misunderstand whats being said. Innovation and learning are, of course, important. From the firms point of view their prime importance is that they make the employee more productive (and hence reduce labour costs and improve the firms competitive position). They can also raise the quality of the product, whether it is a tangible product or a service. Expressed another way, this means that the firm can produce higher quality at a lower cost. So these other ways of looking at the task of HR policy are not in conflict with my view rather, they are particular ways by which the fundamental objective can be reached. How can productivity be raised? Most studies of productivity growth at the level of the overall economy conclude that it stems mainly from technical change and accumulations of human capital. This seems to leave little role for HR policy. That may be deceptive, but let us start with these two arguments.
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Technical progress means that new inventions and new technology are embodied in new capital equipment and are beginning to be used in production processes. The obvious example from the past 20 years is the growing use of computers throughout most economies. Human resource issues are rarely the cause of new technology, but new technology often carries implications for HR policy. For example, new processes will frequently change the kind of labour a firm wants to hire, or the amount of training it wishes to provide, or the way in which it organises its production. HR policy is therefore affected by and responds to technological choices, and for new technology to work as it should HR policies have to be properly integrated into production decisions. Accumulations of human capital refer to the fact that, over time, people generally have more and more resources invested in them. This is most obviously true for training and education investments, but it might also refer to such things as better health levels. These investments clearly raise peoples average productivity levels and contribute to economic growth. Some part of it may reflect firms HR policy decisions but most of it results from the choices made by governments or parents or the individuals themselves. If these two factors explained all of the growth in labour productivity there would be much less reason for you to study HR policy. But they dont. A neat way to show this comes from the fact that, in the real world, we observe large differences in productivity even amongst similar workers employed in a given firm. A common finding is that the best worker on any given task in a firm is more than twice as productive as the worst. Very little of this variation is likely to be due to different technology, because all the firms workers will be using the same technology. We therefore have to consider two other parts of the productivity story, both of which relate centrally to HR policy: 1. the way in which production is organised, which we may call job design, and 2. policies designed to secure the competence and generate the motivation of the workforce.
Job design
Every firm has a range of products, and each must choose between available technologies when producing those products. This involves combining different types of capital and different types of labour. Over time, firms have tended to adopt increasingly capital-intensive technologies, a fact which has complex implications for the firms typical skill mix. Newer, more capitalintensive technologies are often believed to reduce the demands for some skills and increase the demand for others. The choice of technology leads on to an equally important one, which may be called job design, task specification or work organisation. It is important to see that, even with a given technology, every firm still has some choice of job design. Consider my own department at LSE.2 Our product range is teaching plus research, the production of which requires the intermediate output of administration. Our most important input into this complex production process is high-quality labour; our job design issue, therefore, involves the choice between a. specialised researchers plus specialised teachers plus specialised administrators and b. staff who each do all three tasks.
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2
London School of Economics.
In other words, in designing the jobs, or specifying the tasks which the labour force is expected to do, we have to make a decision on how wide a range of duties each employee is expected to perform; in HR jargon, we have to decide on the appropriate degree of functional flexibility. This decision is likely to affect productivity levels, and the bias in recent years in many countries and in many industries seems to have been to go for greater functional flexibility (which means a wider range of tasks and, therefore, diminished specialisation). Not only does the decision affect productivity, but it also has implications for the content of a firms HR policy. For example, emphasising functional flexibility will generally change the firms hiring decisions because it means that the firm now wants to hire more able and better educated workers; and it will usually affect the firms training policy, in that the firm will probably need to organise more training to make functional flexibility succeed. The choice of production process and the details of the design of jobs are therefore important for us, both because they affect productivity and because they are at the heart of a whole set of HR policies.
Achieving productive potential by harnessing competence and motivation

Whatever the decision on the production process, it is obviously in the interests of the firm to capitalise fully on the productive potential of its workforce. This means that its employees should be both able and willing. Able means that they are both competent and aware of what is required of them. These two requirements have messages for HR policy. Competence says something about, for example, hiring decisions and training policy; awareness of what is required says something about policies towards, for example, supervision, performance monitoring, appraisal, feedback and goal setting. Employee willingness is even more complex and takes us on to the critical and mysterious area of motivation. Workers are not automata. The workplace is a locus of complex psychological and sociological factors which operate at both the individual and the group level. Even when we have a situation where a superior can give orders which more or less have to be obeyed (in the military or police forces, for example), the problem of morale (and with it performance) remains a real one. For more typical workplace situations, workers individually or collectively always have a zone of discretion, where they can choose to supply more or less effort, and therefore to be more or less productive. The larger that zone of discretion the more the firms policies should be geared to induce their willingness to give effort and improve performance. Managers can adopt a whole range of policies in an attempt to induce this willingness, or to motivate their workforce, and the sensible specific things to do depend on the context. Broadly, however, the firm can emphasise: extrinsic satisfaction and extrinsic rewards intrinsic satisfaction and intrinsic rewards. If the firm emphasises extrinsic rewards it will place great weight on its payment system so as to offer its people appropriate incentives. This is motivation via money and it rests on the widespread view that money is a highly effective motivator. Many people believe this. But before you accept it as the complete solution to the problem of motivation, you might
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wonder why so few employees have a large part of their total salary tied to their immediate and individual performance level. I am not suggesting that payment systems are unimportant; I am arguing instead that motivation is much more complicated than many people believe. It seems clear that many workers are not motivated as powerfully or as exclusively by material rewards as some think. They might, for example, have strong professional or occupational standards and values (think of nurses) or strong personal standards (some people always like to do a good job whatever the situation). For such people the intrinsic satisfaction of the job is very important and the employer is wise to attend to it carefully. This leads to the philosophy that the organisation should seek to secure a more complex relationship with its workforce than just the money one. This has many possible ramifications. For example, the firm might design jobs with an eye to improving job satisfaction; or it might introduce policies seeking to develop a sense of trust, obligation, loyalty or commitment amongst its workforce. The underlying belief would be that such feelings would reflect intrinsic satisfaction and, in one way or another, lead to higher performance levels and greater organisational success. We may explore these ideas further by using Waltons contrast between control and commitment. This refers to the degree to which a firm gives its employees discretion and power over how things at the workplace are done. Managers may wish to retain tight control and direct workers (i.e. control). Alternatively, they might believe that it makes sense to give employees considerable leeway, because they believe that doing this will motivate employees to perform better; to this end they might therefore seek to engender a sense of commitment or loyalty to the firm. In policy terms, this might lead them to stress the importance of such things as retaining workers in lean times, engaging in conscious communication policies, and attempting to generate a particular climate or culture within the firm. All this would be designed to build up trust relations, which has fundamental implications for HR policy.
Human resource strategies

Having provided a brief introduction to the field of HR, I can now turn to a more focused discussion of a centrally important development of recent years, that of a growing concentration on what are called HR strategies. Until fairly recently, HR discussions were mostly piecemeal. The usual focus was on particular policy areas such as hiring or training. More recently, starting about 15 years ago and steadily gathering pace since, there has been a growing tendency to see HR issues as a coherent collection of activities, where the links and interactions between the individual policies are just as important as the policies themselves. This meant looking at HR strategies. By the late 1990s, HR strategies became a hot topic, mostly because of a series of empirical studies which claimed to find dramatic links between certain HR strategies and objective performance outcomes like profit levels or labour productivity. These seemed to demonstrate with authority that HR really is important and can contribute powerfully to the bottom line. Perhaps the single best-known study is by Huselid (1995); it is based on a large sample of US companies, and it concludes that an uncompromising use of a particular HR strategy is associated with (a) much higher sales levels per employee (by more than $27,000 per annum), and (b) much
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greater profits (for example, shareholder value that is about 14 per cent higher). These are impressive numbers, large enough to grab the attention of people who would not normally be very interested in the detail of HR policies. Rather than looking at the technical detail of these studies (about which a considerable controversy continues to rage), I want to lay some groundwork and provide a context for subsequent chapters. I have four considered topics: 1. What is an HR strategy? 2. Is there one best HR strategy? 3. High performance work practices or high commitment practices. 4. Possible contingent factors.
What is an HR strategy?
I want to discuss this in three stages, first asking what a strategy is and then consider more specifically what an HR strategy is. I will then discuss an example of an HR strategy.
Strategy: definition
Strategy is a tricky word that people take whole books to define. Given that I am providing only an introduction to the topic I take a more prosaic view and say that any strategy is a result of a combination of analysis and action. The analysis part addresses at least three elements: 1. What is the organisation trying to achieve? In other words what are its mission, goals or objectives? 2. What stands in the way of it achieving what it wants? This might cover various aspects of the external environment as well as what the organisation is itself already doing. 3. What can it do to improve its chances of achieving what it wants? The action part flows from the analysis and results in policies and practices; it consists of: 1. The organisation making its choices from the various possibilities on offer. 2. Its attempt to implement that choice (the actual implementation, whether of individual policies or strategies, is nearly always complex and problematic). I could elaborate on all this at great length. I could explore the differences between mission, goals, objectives etc., could discuss the different time frames for different elements in the strategy, could explore the strategymaking process, or could consider whether strategies can be rational. But none of that would be useful for our present purposes. Let me just note that not every firm has a strategy for anything; not all strategies are successful; and a strategy might be long term or short term, partial or comprehensive.
What, more specifically, is an HR strategy?

I now want to turn from strategies in general to HR strategies in particular. Applying what I have said so far, an HR strategy is a set of HR policies and practices (the actions) designed and implemented by the firm to help
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overcome the obstacles it sees as standing in the way of its achieving its HR or organisational objectives (like minimising unit labour costs). This is helpful but it does not take us far enough. Every organisation has a policy for every important HR area, whether it be hiring policy, pay policy, training policy or whatever. In many instances the choice is not to have an active policy (e.g. many firms choose not to train their employees or not to have a formal policy of frequent communication with them). But a policy (in some sense) exists, if only by its absence. Having an HR strategy, therefore, is not merely having a position on each HR policy area. If it did mean this, every firm would have a strategy and the term would have no useful meaning. So firms have HR positions, and make HR choices, even if they dont have an HR strategy. Where firms differ is in the content of and the reason for their HR policies, as well as in the process they go through when arriving at them. When we define HR strategy, therefore, we should also focus on its content and rationale. In particular, we should look at whether the parts meet certain criteria. Consider the following example.
An example of an HR strategy
Pfeffer has recently advocated an HR strategy with seven elements: 1. Employment security 2. Careful hiring 3. Self-managed teams and decentralised decision-making as basic principles of organisational design 4. Comparatively high pay which is also contingent on organisational performance 5. Extensive training 6. Low-status distinctions and barriers 7. Extensive sharing of financial and performance information throughout the organisation. In what sense is Pfeffers approach a strategy at all? Its most obvious claim to being a strategy is that all seven elements look to be re-enforcing one another. They are said to make a harmonious whole in the jargon, they are said to display internal fit; and the firm is said by Pfeffer to require all seven elements if it is to reach its profit potential. Fit turns out to be an important criterion in the literature when deciding whether a set of HR policies and practices constitutes a strategy.
Internal coherence
Let us underline this by imagining a firm that operates an internal labour market, in other words it has a series of job ladders, only hires people at the bottom rung of each ladder, and relies heavily on internal promotion to fill vacancies further up the ladder. Imagine too that it provides little or no training to its people but relies instead on them as individuals to develop their own skills. You might think that these two policies would be contradictory, that they would not be consistent with one another, and that the internal labour market needed to be complemented by a complex training regime. If so, you would say that the firms arrangements did not display internal fit. In that sense, they could not be part of a strategy (unless one wanted to talk about an incoherent strategy). In a strategy, the constituent policies should display coherence or internal fit.
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Let us probe a little further and ask in what precise sense do Pfeffers seven policies display internal coherence? I have already suggested that the way HR generally helps to minimise unit labour costs is by managing to get employees who are both able and willing (i.e. are competent and properly motivated). Pfeffer suggests that his package is indeed the way to deliver the desired combination of competence and motivation. Of the seven, 1, 4 and 6 look to be designed to motivate; 2 and 5 to secure competence; 3 and 7 are designed to do both. It is in this sense that the package might be thought to display internal fit because of its underlying rationale. For many people, then, a strategy has to have both a consistency and an interdependence between the constituent parts; if one item is neglected there will be a disproportionate failure; very high values for, say, 2, 3 and 5 wont compensate enough for a very low value of, say, 1. This suggests a role for well-thought-out bundles of policies which generate a synergy. So we might modify our definition and say that an HR strategy is a set of interdependent HR policies chosen to display internal fit and generate the appropriate amounts of competence and motivation amongst the workforce.
Is there one best HR strategy?

Pfeffer is one of those who claims that the evidence provided by studies like those of Huselid shows that there is, in some sense, a one best HR way, a universal best HR approach; that his seven steps are clearly the best way to secure competent and motivated employees. The more traditional approach to HR strategy is that what firms do, and should do, depends on their circumstances; in the jargon, the optimal choice of HR strategy is contingent on those circumstances. As an example, universities do not generally use Pfeffers arrangements for their academic staff. They do normally offer high job security, but the seriousness and sophistication of the hiring process varies hugely (and often depends heavily on an interview, which is notoriously unreliable). Self-managed teams are not common, and decentralisation (academic freedom) is extreme. Profit sharing is non-existent. Training provision by the university is usually small or non-existent. Status distinctions are simultaneously large and small, and information sharing varies (and may be largely irrelevant). Pfeffer might reply that universities are making systematic and huge mistakes with their HR. But maybe not. Maybe competence and motivation can be achieved through a variety of different policy routes. Academics, for example, usually organise and pay for their own training; this means that competence can be hired rather than internally developed so universities may not need to provide training programmes for their faculty. Academics motivation might come from a complex pattern of intrinsic motivation to do with the nature of the work and the search for promotion, often external (they work in a market where they can readily transfer their skills from one employer to another). This suggests that there is a range of potentially successful HR strategies, the virtues of each depending on the context within which they are used. Many analysts do indeed still claim this. Would you, they ask, pursue the same HR strategy (and therefore the same HR policies) for, say, the Civil Service as for, say, finance houses? In each case you would surely be trying for an optimal combination of competence and motivation, but you might think that you would want different HR policies to elicit these responses
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from the two very different groups of employees (e.g. because they are thought to be differently motivated). Pfeffer seems to disagree. It is worth looking at his position in greater depth because he is representative of many of those who are at the heart of modern HR.
High performance work practices or high commitment practices

Pfeffer claims that his package has internal fit and can deliver employee competence and motivation. A further argument that some people would make is based on the possibility that ordinary employees can have knowledge, for example about their part of the production processes, which managers do not have. In other words, ordinary employees can have competencies that can easily stay hidden and under-used. These competencies may be potentially valuable. If they can be harnessed they might be a basis of durable competitive advantage. It is in this sense that firms might genuinely describe their workforce (at least potentially) as their most important asset. But this competence may well stay hidden unless the workforce is somehow encouraged or motivated to reveal it. Employees will not do this automatically. The hypothesis is that managers need to pursue certain (HR) policies if the firm is to take advantage of their employees full competencies. Pfeffer might claim that his policies 1, 3, 4 and 6 are likely to be precisely such policies. Another way of stating this is to say that you need your employees to be committed to the organisation, which means that you must develop a more complex and trusting relationship with them than the traditional armslength relationship between employer and employee. This distinction takes us back to Waltons notions of control and commitment. So Pfeffers universalist position (i.e. his claim that there is a one-best way) can rest on a high commitment view.3 Other analysts think that the world is much more complicated. What firms do, and should do, they say, depends on the circumstances. First, they might reject the starting point by claiming that there are many work situations where ordinary employees have little or no hidden knowledge. Here, they say, the expert or manager can accurately know how work should be organised, and how workers should be directed or controlled. Workers certainly have to be appropriately trained but competence is not too great an issue. Nor is motivation; performance in these circumstances can come from a combination of precise task definition, effective supervision and the incentive provided by the appropriate wage arrangements (which may or may not be linked to individual or organisational performance). Competence and motivation are still important but, say those who prefer a contingent approach, the emphasis is often much more on effective task definition and control than on innovative, subtle, and intangible HR arrangements directed at generating commitment and trust. This is the Control HR strategy. It would not use Pfeffers seven elements and say those who see its merits it is optimal for many situations. Managers must choose the approach that suits their own situation. Those who take a contingency approach would certainly not deny that there are circumstances where Pfeffers package will pay off; but they would also say that there are circumstances where it would be an expensive waste of time.
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3
The high commitment label is generally used in the UK. In the USA the usual label is high work performance practices but that doesnt reveal why they might be high performance practices.
HR policies or practices?
There is a final issue, one that raises a distinction between HR policies and HR practices. Pfeffer and his colleagues do not claim that all firms should have HR policies that are identical in detail. Each of his seven elements covers a range of possible detailed practices; so, for example, it is not enough to announce a policy to make pay contingent on organisational performance; you also have to make decisions on such matters as what percentage of the total rewards on offer should be at risk, and what are the precise rules of the system (e.g. does it matter whether people are paid in share options or in cash)? As another example, precisely what do you look for when you hire, and precisely which battery of selection techniques should you employ? So a practice is the narrow specification or embodiment of a policy. The dividing line is not always clear, but the intuitive distinction should be easy to grasp. So neither Pfeffer nor anyone else can claim to have truly settled the content of optimal HR strategy. Everyone would allow for considerable variation in HR practices (i.e. the precise concrete form of HR policies) under their broader strategic umbrellas. Nevertheless, the Pfeffers of this world still claim that there is, let us call it, an orientation to HR issues that should be followed everywhere.
Possible contingencies
If some think that optimal HR strategy depends on certain contingencies, what do they have in mind (apart from the control versus commitment issue). A lot of the literature talks about the notion of external fit, or the integration between HR and the organisations policy choices in other areas. There are two areas of external fit that the literature has identified, and I will discuss these in turn: 1. Links with product market strategy 2. Links with production arrangements.
Links with product market strategy

A starting point is the well-known analysis of Porter, which suggests three generic business strategies that can be adopted: Cost leadership requires aggressive construction of efficient-scale facilities, vigorous pursuit of cost reductions from experience, tight cost and overhead control, avoidance of marginal customer accounts, and cost minimisation in areas like Research and Development, service, sales force, advertising, etc. Differentiation means creating a unique design or brand image, or technology, or customer service, or dealer network. Differentiation usually implies a trade-off with costs, and may preclude a high market share. Focus means concentrating on a particular buyer group, segment of the product line or geographic market. It has many forms. Other approaches use other labels for not dissimilar categories. One, for example, talks of three business strategies: Defender, Prospector and Analyser (see Miles and Snow, 1984). These too are product market driven. Defenders have narrow and relatively stable product markets; prospectors continually search for new product and market opportunities; analysers are hybrids but in their innovative capacities they watch the
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pioneers and feed off them. Each of these product market strategies is said to have implications for other functional areas of strategy such as HR. Yet another study emphasised the links with HR by claiming that different product market strategies required different complexes of behaviour from employees. Schuler and Jackson (1987) came up with the labels Cost reduction, Quality enhancement and Innovation. They said that, for example, innovators want a bundle with a lot of creativity, a long-term focus, a lot of cooperation, a taste for risk-taking and a high tolerance for ambiguity. Cost reducers want very different bundles. If true, this means that different HR policies and strategies are in order for the three different product market approaches.
Links with production arrangements

Some research focuses on the choice of production arrangements rather than on the product market. In a widely quoted (and very technical) paper, MacDuffie (1995) looked at production choices in the car industry, as follows. In mass production arrangements various disruptions to production are very costly. One response is to build in buffers (large inventories, product rectification sections, etc); these too are costly but they are an insurance against disruption. Another response is to design out the disruptions, thus saving on insurance. You therefore have a fundamental choice in production between mass systems and flexible production systems. The former lives with buffers, the latter tries to find another way. Flexible production systems reduce inventories and other buffers; but they also increase production interdependencies, and highlight problems (which might then receive the attention they need, because they are otherwise obscured). But, and this is central, in order to use such systems, the firm needs workers who are specially motivated, skilled and adaptable. To get the most out of flexible production systems, says MacDuffie, you need a complementary bundle of HR practices which gives you workers with these qualities. MacDuffie is therefore claiming that, in particular contexts, a particular production strategy may pay off, and that this requires a complementary HR bundle. He is not saying that all production strategies require this HR bundle, nor that this production strategy is necessarily appropriate in all contexts. These choices are empirical questions. But they imply that different production choices lead to different HR strategies.
Summary
There are a number of unresolved questions on HR strategy. But nearly all commentators agree that the issue of the choice and composition of HR strategies is now central to the study of HR. There is growing evidence to support the existence of robust links between profits (or labour productivity) and internally coherent bundles of HR policies which also link with other decisions made by the firm. This means that we have to ask additional questions when looking at individual HR policy areas. It is no longer sufficient to ask whether the firm is, say, putting enough into its training activities and getting an appropriate return on them. It is now also necessary to ask whether those activities support the rest of the HR package in the right way, and to ask similar questions for all the many other HR policy areas.
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A reminder of your learning outcomes

Having completed this chapter, and the Essential reading and Activities, you should be able to: explain why human resource issues are complex, both as a subject to study or an activity to practise discuss the basic purpose of human resource policies, and explain why it is important to get HR right describe the notion of human resource strategies, explaining why it is different from just any collection of HR policies and practices.
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Chapter 2: Individual performance: attitudes and behaviour

Learning outcomes
By the end of this chapter, and having completed the Essential reading and Activities, you should be able to: discuss the concept of performance through the framework of task and contextual performance describe organisational citizenship behaviour (OCB) and its antecedents define organisational commitment and explore its antecedents explain how human resource practices might be used to enhance employee commitment to their employing organisation.
Essential reading
The Essential reading for this chapter is two journal articles that are available in the Online Library.
Bettencourt, L.A., K.P . Gwinner and M.L. Meuter A comparison of attitude, personality, and knowledge predictors of service-oriented organizational citizenship behavior, Journal of Applied Psychology 86(1) 2001, pp.2941. Podsakoff, P .M., S.B. Mackenzie, J.B. Paine and D.G. Bachrach Organizational Citizenship Behaviors: A critical review of the theoretical and empirical literature and suggestions for future research, Journal of Management 26(3) 2000, pp.51363.
Further reading
Journal articles
Bolino, M.C., W.H. Turnley and B.P Niehoff The other side of the story: Re-examining prevailing assumptions about organizational citizenship behavior, Human Resource Management Review 14(2) 2004, pp.22946. Li-yun, S., S. Aryee and K.S. Law High performance human resource practices, citizenship behaviour and organizational performance: A relational perspective, Academy of Management Journal 50(3) 2007, pp.55877
Works cited
Barnard, C.I. The Functions of the Executive. (Cambridge, MA: Harvard University Press, 1938; thirtieth anniversary edition 1968) [ISBN 0674328035]. Bateman, T.S. and D.W. Organ Job satisfaction and the good soldier: The relationship between affect and employee citizenship, Academy of Management Journal 26 (1983), pp.58795. Borman, W.C. and S.J. Motowidlo Expanding the criterion domain to include elements of contextual performance in Schmitt, N. and W.C. Borman (eds) Personnel Selection. (San Francisco, CA: Jossey-Bass, 1993) [ISBN 1555424759] pp.7198. Eisenberger, R., P . Fasolo and V . Davis-LaMastro Perceived organisational support and employee diligence, commitment, and innovation, Journal of Applied Psychology 75 (1990), pp.5159. 25
75 Human resource management Eisenberger, R., R. Huntington, S. Hutchison and D. Sowa Perceived organisational support, Journal of Applied Psychology 71 (1986), pp.50007. Folger, R. and M.A. Konovsky The effects of procedural justice, distributive justice, and reactions to pay raise decisions, Academy of Management Journal 32 (1989), pp.115130. Graham, J. An essay on organisational citizenship behaviour, Employee Responsibilities and Rights Journal 4, 1991, pp.24970. Katz, D. and R. Kahn The social psychology of organisations. (New York: Wiley and Sons, 1978) [ISBN 0471460419]. Konovsky, M.A. and S.D. Pugh Citizenship and social exchange, Academy of Management Journal 37 (1994), pp.65669. Locke, E.A. The nature and causes of job satisfaction in Dunnette, M.D. (ed.) Handbook of Industrial and Organisational Psychology. (Chicago: Rand McNally, 1976) pp.1297349. MacKenzie, S.B., P .M. Podsakoff and R. Fetter Organisational citizenship behaviour and objective productivity as determinants of salespersons performance, Organisational Behaviour and Human Decision Processes 50 (1991), pp.12350. MacKenzie, S.B., P .M. Podsakoff and R. Fetter The impact of organisational citizenship behaviour on evaluations of salesperson performance, Journal of Marketing 57 (1993), pp.7080. Malatesta, R.M. and Z.S. Byrne The impact of formal and interactional procedures on organisational outcomes. Paper presented at the twelfth annual conference of the Society for Industrial and Organisational Psychology, St Louis (1997). Moorman, R.H. Relationship between organisational justice and organisational citizenship behaviours: Do fairness perceptions influence employee citizenship?, Journal of Applied Psychology 76 (1991), pp.84555. Moorman, R.H., B.P . Niehoff and D.W. Organ Treating employees fairly and organisational citizenship behaviour: Sorting out the effects of job satisfaction, organisational commitment, and procedural justice, Employee Responsibilities and Rights Journal 6 (1993), pp.20925. Moorman, R.H. and G.L. Blakely Individualismcollectivism as an individual difference predictor of organisational citizenship behaviour, Journal of Organisational Behaviour Vol. 16 (1995), pp.12742. Morrison, E.W. Role definitions and organizational citizenship behaviour: The importance of the employees perspective, Academy of Management Journal 37 (1994), pp.1543567. Motowidlo, S.J. and J.R. Van Scotter Evidence that task performance should be distinguished from contextual performance, Journal of Applied Psychology 79 (1994), pp.47580. Motowidlo, S.J., J.S. Packard and M.R. Manning Occupational stress: Its causes and consequences for job performance, Journal of Applied Psychology 71 (1986), pp.61829. Organ, D.W. A reappraisal and reinterpretation of the satisfaction-causesperformance hypothesis, Academy of Management Review 2 (1977), pp.4653. Organ, D.W. Organizational Citizenship Behaviour. (Lexington, Mass.: Lexington Books, 1985)[ISBN 0669117889]. Organ, D.W. and M.A. Konovsky Cognitive versus affective determinants of organisational citizenship behaviour, Journal of Applied Psychology 74 (1989), pp.15764. Organ, D.W. The motivational basis of organisational citizenship behaviour in Staw, B.M. and L.L. Cummings (eds) Research in Organizational Behaviour. Vol. 12. (Greenwich, CT: JAI Press, 1990) [ISBN 1559380292] pp.4372. Organ, D.W. and K. Ryan A meta-analytic review of attitudinal and dispositional predictors of organisational citizenship behaviour, Personnel Psychology 48 (1995), pp.775802. 26
Chapter 2: Individual performance: attitudes and behaviour Park, O.S. and H.P . Sims Beyond cognition in leadership: Prosocial behaviour and affect in managerial judgement, Working Paper, Seoul National University and Pennsylvania State University (1989). Podsakoff, P .M., S.B. MacKenzie and C. Hui Organisational citizenship behaviours and managerial evaluations of employee performance: A review and suggestions for future research in Ferris, G.R. and K.M. Rowland (eds) Research in Personnel and Human Resources Management. Vol. 11. (Greenwich, CT: JAI Press 1993) [ISBN 155938557X] pp.140. Podsakoff, P .M., M. Ahearne and S.B. MacKenzie Organisational citizenship behaviour and the quantity and quality of workgroup performance, Journal of Applied Psychology 82 (1997), pp.26270. Podsakoff, P .M., S.B. MacKenzie, R.H. Moorman and R. Fetter Transformational leader behaviours and their effects on followers trust in leader, satisfaction, and organisational citizenship behaviours, Leadership Quarterly 1 (1990), pp.10742. Walton, R.E. From control to commitment in the workplace in Steers, R., L. Porter and G. Bigley (eds) Motivation and Work Behaviour. (New York: McGraw-Hill, 1991) [ISBN 007660956X] fifth edition. Walz, S.M. and B.P . Niehoff Organisational citizenship behaviours and their effect on organisational effectiveness in limited menu restaurants, Academy of Management Best Paper Proceedings (1996), pp.30711.
Introduction
Chapter 1 explored the relationship between human resource management strategies and organisational performance and also, how individual performance is affected through the mechanisms of competence and motivation. This chapter explores what is meant by individual performance and examines employee attitudes and treatment by the organisation as antecedents to individual contextual performance.
What is performance?
Activity Think about what performance means for the following types of jobs: a. a teacher b. a scientist c. a car assembly worker. How would you judge their performance? Since the 1930s, industrial psychologists have attempted to link employee attitudes with performance. Despite complicated theories and refined measures, the relationship between attitudes and performance was, at best, very weak. The stimulus for this work stemmed from the Human Relations School that put forward the proposition that a happy worker is a productive one (that is, there is a relationship between individual attitudes in this case, job satisfaction and how well an individual performed). However, the empirical evidence did not support such a link. Turning to the satisfaction performance link, there is a small positive correlation of 0.14 between satisfaction and performance (correlation measures the association between two variables, for example, smoking and cancer, job satisfaction and performance). In other words, there is a very small positive association between how satisfied an individual is and how they perform in their job. In other words, there is a very small tendency for happy employees to be more productive.
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In most instances, performance has been narrowly defined in terms of quantity or quality of output. If you think about it, there are a number of aspects of performance that are not under an individuals control (e.g. raw materials, equipment, rules and procedures) that may have a greater impact on performance than an individuals satisfaction. Activity Think about the jobs outlined above and give some examples of factors that individuals may not be able to control but that may affect their performance. This realisation led to greater scrutiny of how performance was defined and the recognition that individuals contribute to organisations in ways other than doing their tasks more efficiently. Hence, an individuals performance was conceptualised in a much broader manner to include a task and contextual component (which will be elaborated on shortly). An individuals task performance is influenced by their skills, ability, experience and training. Constraining factors on an individuals task performance may include job design and the effects of technology. Given the type of factors that affect task performance, it is not surprising that there is not much of a relationship between an individuals attitudes and task performance. However, contextual performance (as you will see shortly) is discretionary behaviour that is under the control of the individual and is not subject to the same constraints as task performance. Consequently, one would expect an individuals attitudes to affect whether an individual chooses to engage in discretionary behaviour or not.
Conceptualisation of performance
What does individual performance mean? How should individual performance be conceptualised? When we look at how an individual is performing, what elements are we taking into account? Katz and Kahn (1978) developed a basic way to partition job performance into a three-way division: Joining and staying with the organisation. Dependably meeting or exceeding standards of performance prescribed by organisational roles (in-role performance). Innovatively and spontaneously going beyond prescribed roles to perform such actions as cooperating with others, protecting the organisation from harm, offering suggestions for improvement and representing the organisation favourably to outsiders (extra-role performance). Activity Think about how the Katz and Kahns (1978) conceptualisation of job performance would be applied to the following: a. a teacher b. a scientist c. a car assembly worker.
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Task and contextual performance

This strand of research was further developed by Borman and Motowidlo (1993), and Motowidlo and Van Scotter (1994) attempted to dissect what constitutes performance. A key aspect of their work is the separation of performance into two elements: task performance and contextual performance. Task performance consists of activities that directly transform raw materials into goods and services that the organisation produces (e.g. selling merchandise, teaching in a school, performing surgery in a hospital and selling newspapers). In addition, it includes other activities that service and maintain the technical core by replenishing the supply of raw materials, supervising, coordinating activities and any staff functions that enable the technical core to function effectively and efficiently (for example, nurses who look after patients before and after surgery, the school principal who coordinates and oversees the teachers, or editors who approve what journalists write before publication). Thus, task performance behaviours bear a direct relation to the organisations technical core by either executing its technical processes or maintaining and servicing its technical requirements. In contrast, contextual performance behaviours do not support the technical core as much as they support the broader organisational, social and psychological environment in which the technical core must function.
Five categories of contextual performance

Borman and Motowidlo (1993) identified five categories of contextual performance: volunteering to carry out task activities that are not formally part of the job persisting with extra enthusiasm when necessary to complete own-task activities successfully helping and cooperating with others following organisational rules and procedures even when it is personally inconvenient endorsing, supporting and defending organisational objectives. Therefore, task performance captures proficiency in performing specific work tasks while contextual performance encapsulates behaviours that support the broader organisational, social and psychological environment in which the technical core must function. (Motowidlo and Van Scotter, 1994, p.476.) Activity Give an example of what task performance and contextual performance would be in any job that you are familiar with.
Organisational Citizenship Behaviour as contextual performance

Although the historical roots of current Organisational Citizenship Behaviour (OCB) research can be traced to the work of Barnard (1938), the Hawthorne Studies and, subsequently, the work of Katz and Kahn (1978), it was not until the publication of Organs (1977) initial essay that the term organisational citizenship behaviour was used.
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The conceptualisation of OCB has evolved over time, based on rather different starting points. In the main, these include the works of: Organ (1988) Graham (1991) Van Dyne, Graham and Dienesch (1994) Williams and Anderson (1991). Subsequent work on OCB has for the most part drawn heavily from this foundation. Organ1 defines OCB as:
behaviour that is discretionary, not directly or explicitly recognized by the formal reward system, and that in aggregate promotes the effective functioning of the organizationthe behaviour is not an enforceable requirement of the role or the job descriptionthe behaviour is a matter of personal choice.
1
Organ (1988, p.4).
In operationalising OCB, Bateman and Organ (1983)2 began by:

enumerating a list of employee behaviours that managers typically appreciate but are ill equipped to demand
Organ (1983, p.46).
Thus, a key influencing factor on the conceptualisation of OCB was to fill the gaps left by traditional performance measures. Although the initial measure developed by Bateman and Organ (1983) emerged as a unidimensional construct, subsequent work and refinement culminated in a five-dimensional measure to include: conscientiousness punctuality in attendance, use of work time and adherence to rules altruism helping others who have been absent or are behind in their work (any voluntary action that helps another person out at work) sportsmanship putting up with minor inconveniences, or not always finding fault with the organisation courtesy consulting people who may be affected by a decision or at the very least informing other people in advance of such actions civic virtue keeping up with developments happening in the organisation (being constructively involved in the political process of the organisation). Organs (1988) definition implies that the behaviour is voluntary and not prescribed as part of an individuals job responsibilities, is largely unconstrained by organisational systems, has positive consequences and the organisation is the beneficiary of such behaviours. Graham (1991) recognised that one of the challenges of Organs definition is its unequivocal specification of behaviour that is extra-role. In other words, Organs definition states that citizenship behaviour is voluntary but who defines what is voluntary or discretionary behaviour? Individuals may vary in whether they see citizenship behaviours as discretionary or not. Graham (1991) overcomes the problem of defining the boundaries of in-role and extra-role and presents OCB not as a complement to task performance but rather as a global measure of individual behaviour at work (p.251). Thus, OCB is conceptualised as a broad range of behaviours that may otherwise fall through the cracks of defining performance in narrow terms.
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Graham draws on political theory to conceptualise OCB. Research in political theory has identified active citizenship syndrome as comprising: obedience respect for orderly structures and processes and obeying the law loyalty serving the interests of the community as a whole and volunteering extra effort for the good of the community, and participation active and responsible involvement in community self-governance: keeping well informed about issues affecting the community. Applying this to organisational settings, the authors present the following dimensions of citizenship behaviour: Obedience. This dimension captures an individuals respect for rules and policies and includes for example, conscientiousness at work, not wasting organisational resources. Loyalty. Loyalty embodies allegiance to and promotion of the organisation and includes for example, representing the organisation in a favourable manner to outsiders and defending the organisation when employees criticise it. Participation, which has three dimensions: Social participation involves participation in the form of interpersonal and social contact. This dimension involves noncontroversial forms of participation such as attending meetings, and interactions with other individuals. Advocacy participation is characterised by innovation and the challenge of the status quo. Behaviours that involve innovation, making suggestions for change and reflecting a willingness to be controversial. Functional participation focuses on activities that involve individual self-development and work activities that add values to the organisation. In contrast to the work of Organ (1988) and Van Dyne et al. (1994), Williams and Anderson (1991) begin from the position of the target beneficiary or recipient of citizenship behaviour. They arrive at two broad categories: organisationally directed citizenship behaviours (compliance and conscientiousness) that directly benefit the organisation, and interpersonally-directed behaviour (altruism) that immediately benefits specific individuals within the organisation. This categorisation is based on the direct and immediate target of citizenship behaviours and recognises that while a specific behaviour may directly benefit the organisation, it may have indirect benefit for individuals and vice versa. The latter category would include an employee helping out a co-worker or supervisor who had been absent or who has a heavy workload. Although this behaviour indirectly is of benefit to the organisation, the direct benefit is towards the focal individual. Citizenship behaviours directed at the organisation include, for example, working late to finish a job and making suggestions for improvement. These behaviours are of direct benefit to the organisation and are not directly oriented towards other individuals. The implication of the distinction between organisationally and interpersonally focused citizenship behaviours is that different factors may predict each category of behaviour.
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Consequences of OCB
There are a number of important consequences of OCB for the individual and the organisation.
Consequences for the organisation

The driving force behind the interest in OCB is its effect on organisational or group functioning and its concurrent effect on the individual. The implications of citizenship-type behaviour for effective organisational functioning was recognised long before the term OCB was introduced (Barnard, 1938; Katz and Kahn, 1978). Since then, a number of studies have examined and confirmed the link between OCB and organisational effectiveness. Podsakoff, Ahearne and MacKenzie, (1997) tested whether OCB actually improved the effectiveness of machine crews in a paper mill. They found that helping behaviour and sportsmanship had a significant effect on performance quantity and helping behaviour had a significant effect on performance quality. Overall, the authors were able to identify that a quarter of the variance in quantity and one-fifth of the variance in quality was accounted for by OCB. Another study by Walz and Niehoff (1996) investigated the relationship between OCB and the effectiveness of fastfood restaurants. They found that different dimensions of OCB were positively related to different indicators of organisational effectiveness: OCB explained 15 per cent variance in operating efficiency, 39 per cent variance in customer satisfaction and 43 per cent variance in food cost percentage (the cost of food, taking into account wastage). Overall, the empirical evidence that exists supports a link between employees engaging in OCB and workgroup/organisational performance. However, what has not been empirically explored is why OCB would affect group or organisational performance. In other words, we know that OCB affects organisational performance but we dont know the mechanisms through which this effect occurs. Below are some potential explanations of why OCBs may be expected to relate positively to organisational effectiveness: OCBs may help co-worker productivity. When experienced employees help less experienced employees to solve work-related problems or find more efficient ways of performing the job, this is likely to enhance the quantity and quality of the less experienced employees performance. Related to this, helping behaviour may help spread best practices throughout the workgroup. OCBs may help managerial productivity. If employees exhibit sportsmanship, it frees the manager from having to spend too much time dealing with trivial issues. The more willing employees are to go along with changes in the work environment, the less energy a manager will need to spend in getting their cooperation thereby freeing up managerial time to be devoted to other activities. Employees who exhibit conscientiousness require less managerial supervision and allow the manager to delegate more responsibility to them. OCBs may enhance organisational performance. Helping behaviours may enhance morale and group cohesiveness, which may in turn enhance group performance. Altruism (helping others who have been absent or who have heavy workloads) can help reduce the variability, and increase the stability, of workgroup performance. Conscientious employees are more likely to maintain a consistently high level of
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output, thereby reducing performance variability. Employees who engage in civic virtue may assist the responsiveness of the organisation to changes in the external environment.
Consequences for the individual

A number of studies have demonstrated that citizenship-type behaviours are considered in performance evaluations (MacKenzie, Podsakoff and Fetter, 1991; Motowidlo and Van Scotter, 1994). Of greater significance are studies suggesting that OCB accounts for greater variance in evaluation ratings than occurs as a result of objective measures (Podsakoff, MacKenzie and Hui, 1993; MacKenzie, Podsakoff and Fetter, 1993). Furthermore, acts of citizenship behaviour are found to influence whether individuals are considered for promotion (Park and Sim, 1989). Therefore, the evidence suggests that an individuals decision to engage in OCB may affect their performance rating and also whether they are considered for promotion. Why might OCBs influence managerial evaluations of performance evaluation? Some possible factors can be summarised as follows: Norm of reciprocity. If OCBs have positive effects for the manager and the organisation, the manager may repay employees who engage in OCB by giving them higher performance evaluations. OCB behaviours are distinctive. When managers are asked to make evaluations, they search for distinctive information. As OCB is not formally prescribed as part of an individuals job, managers may remember these behaviours more readily in the evaluation process. Association. If a manager implicitly believes that citizenship behaviour and overall performance are positively related and the manager sees an employee engage in citizenship behaviour, they may be more likely to infer that the employee is a high performer. The above discussion has highlighted the positive consequences of engaging in OCB both for the organisation and for the individual. The next step is to explore why individuals engage in OCB? Activities Give examples of why OCB might affect organisational performance. Make sure before continuing that you understand: a. the difference between contextual and task performance b. what OCB is. You must be able to give examples of different types of citizenship behaviour and be able to present some potential explanations of how OCB affects individual and organisational performance.
Antecedents of OCB
There are a number of categories of antecedents of OCB. These can be roughly categorised into the following categories: personality/individual differences social exchange constructs organisational commitment.
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Personality/individual differences
To what extent is OCB based on an individuals personality? Research on peoples dispositional factors has tended to focus on conscientiousness, agreeableness, negative and positive affectivity as having an effect on OCB. Organ and Ryan (1995) found that conscientiousness does have a positive effect on OCB. Nonetheless, the empirical evidence supporting a link between personality variables and OCB is at best weakly supported. One view is that the effect of personality on OCB is not a direct one. In other words, personality may not lead to employees engaging in OCB but, rather, personality may affect work attitudes which in turn affect whether an employee engages in OCB. There is an established link between personality and work attitudes. In addition, there is empirical support for the link between work attitudes and OCB. Therefore, personality may affect work attitudes which in turn affects OCB. There is some evidence linking individualcollectivism to OCB (Moorman and Blakely, 1995). Individualcollectivism captures whether individuals are more oriented toward self-interest and reaching their own goals, or oriented towards the collective with more of an emphasis on the group than themselves. Thus, an individualistically-oriented individual would consider his or her own personal interests to be more important; he or she would look out for themselves and consider the attainment of their own goals as being of greater importance. A collectivist would greatly value group membership, would look out for the group at the expense of their own self-interest. OCBs are behaviours which help support the group or organisation and hence collectivists are more likely to put the groups interest before their own and engage in behaviours that help the group achieve its goals. Overall, at present there is some but not a lot of evidence linking personality to OCB and it could be the case that the right personality dimensions have not been discovered yet. It would seem that the way personality affects OCB is through work attitudes.
Social exchange constructs

In operationalising social exchange (for more detail, see the chapter on psychological contracts), researchers have utilised constructs such as job satisfaction, organisational justice and perceived organisational support.
Job satisfaction
Job satisfaction is defined by Locke (1976) as a pleasurable emotional state resulting from the appraisal of ones job or job experiences (p.1300). Implicitly, job satisfaction derives from comparisons and is inherently referential (Folger and Konovsky, 1989) reflecting some judgement about the comparison of actual expectations and met expectations. Despite numerous studies supporting a link between job satisfaction and OCB (Bateman and Organ, 1983; Motowidlo, Packard, and Manning 1986; Organ and Konovsky, 1989), the relationship has been questioned. With this in mind, Organ (1990) argues that the relationship between OCB and job satisfaction may be heavily affected by the sizable fairness component in responses to satisfaction scales (p.60). Moormans (1991) initial study examined the role of fairness of procedures and outcomes in relation to job satisfaction in predicting OCB and concluded that when perceptions of fairness are measured separately from
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job satisfaction, job satisfaction was not related to citizenship behaviour. Therefore, the conclusion that seems to be emerging from the research is that job satisfaction is capturing elements of organisational justice and it is this that is predicting why employees engage in OCB.
Justice3
Briefly, justice is conceptualised as an individuals perceptions of the fairness of outcomes (distributive justice), procedures (procedural justice) and interpersonal treatment (interactional justice). There is promising evidence supporting the link between procedural and interactional justice and OCB, however the results are not altogether consistent. Depending on which dimension of OCB is being examined, formal procedural justice is sometimes the stronger predictor while in other studies, interactional justice is stronger (Konovsky and Pugh, 1994; Moorman, 1991; Moorman, Niehoff and Organ, 1993). Some researchers have begun to argue that the effects of fairness vary depending on the type of justice being investigated. For example, Malatesta and Bryne (1997) found that procedural justice was a predictor of citizenship behaviour directed at the organisation whereas interactional justice was better at predicting citizenship directed at the supervisor. The conclusion that can be drawn is that both procedural and interactional justice are important in predicting OCB but that individual significance may vary dependent upon which dimension of citizenship behaviour is investigated. Perceived organisational support Eisenberger, Huntington, Hutchison and Sowa (1986) developed the construct of Perceived Organisational Support (POS) to capture an organisations commitment to employees as individuals. In other words, POS captures an employees global beliefs about the extent to which the organisation employing them values their contributions and cares about their well-being (Eisenberger et al., 1986). The following illustrates how POS has been measured. Employees are asked to indicate the extent of their agreement or disagreement with the following statements about their organisation: My organisation really cares about my well-being. My organisation cares about my opinions. My organisation values my contributions to its well-being. My organisation strongly considers my goals and values. My organisation cares about my general satisfaction at work. My organisation shows a lot of concern for me. My organisation is willing to help me when I need a special favour. If I did the best possible job, my organisation would notice. If an individual agrees strongly with the above statements, this would tell you that they feel that their organisation supports them. Based on the norm of reciprocity, high levels of POS create a felt obligation to care about the welfare of the organisation and assist the organisation in achieving its outcomes. Employees could repay the organisation through strengthening their attachment (organisational commitment) and/or engaging in behaviours that benefit the organisation (OCB). Employees who feel that their organisation supports them as
For a detailed discussion of justice, see Chapter 4.
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individuals are likely to reciprocate the organisation by increasing their commitment to the organisation and engaging in behaviours that support the organisation such as OCB. There is some empirical evidence demonstrating that when organisations have human resource practices that show recognition of employee contributions (practices such as job security, autonomy, training and payment systems), this is likely to lead to employees perceiving that their organisation is supportive. Overall, if employees perceive that their organisation is supportive, they are likely to repay the organisation by having more positive attitudes and also by engaging in behaviours that help the organisation. Activity If you work or have worked, think about whether you would agree or disagree with the above statements on organisational supportiveness.
Commitment
Significant relationships between affective commitment (a psychological attachment to the organisation) and OCB have been observed in a number of studies (Moorman, Niehoff and Organ, 1993; Organ and Ryan, 1995). The argument presented is that employees who feel emotionally attached to the organisation will have a greater motivation or desire to make a meaningful contribution to the organisation (Meyer and Allen, 1997). Thus, it appears the balance of evidence favours the interpretation that commitment is significantly related to discretionary behaviour. Individuals who are highly committed to the organisation are more likely to take steps to contribute to the organisation in meaningful ways. Another explanation put forward as to why people engage in OCB is because they have defined those behaviours as part of their role or job. This explanation starts from the premise that individuals are likely to vary in how narrowly or broadly they define their jobs. An individual who defines his or her job in narrow terms is more likely to see behaviours that are typically assumed to be OCB as falling outside their job, whereas another individual who views their job in broad terms may be more likely to see many traditional aspects of OCB as part of their job. Employees are more likely to perform an activity that they define as in-role rather then extra-role. Therefore, employees who define their jobs more broadly are more likely to engage in OCB than employees who define their jobs in more narrow terms. Morrison (1994) explores this and empirically finds support for the proposition that job definition presents an important motivational basis to understanding why employees engage in OCB. She then looks at what factors affect how broadly individuals define their job and finds that organisational commitment causes employees to define their job responsibilities more broadly and thus committed employees are more likely to engage in what others may see as OCB. Overall, the evidence suggests that individuals who are highly committed to their employing organisation are more likely to engage in organisational citizenship behaviour regardless of whether they define citizenship behaviours as in-role or extra-role.
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Organisational commitment
Walton (1985) presents two approaches to shaping employee attitudes and behaviour. The control approach aims to reduce direct labour costs by forcing employee compliance with specific procedures and rules and rewarding employees based on measurable output criteria. The commitment approach, in contrast, shapes employee attitudes and behaviour by forging psychological links between organisational and employee goals. In view of the importance of employees organisational commitment to Human Resources Management (HRM), this section focuses on: 1. the definition of organisational commitment 2. its antecedents 3. its consequences.
Definition of organisational commitment

Commitment is viewed as having three forms: Affective commitment is an affective orientation towards the organisation: a psychological attachment to the organisation. Individuals stay with the organisation because they want to. Continuance commitment involves a recognition of the costs associated with leaving the organisation. Individuals stay with the organisation because they need to. Normative commitment is a moral obligation to remain with the organisation. Individuals stay with the organisation because they feel they should. Of particular importance to HRM is affective commitment and this aspect of organisational commitment is the most heavily investigated. The following outlines how commitment has been measured in empirical studies. Individuals are asked to indicate the extent to which they agree or disagree with the following statements, giving responses on a 17 scale from strongly disagree to strongly agree. Note that the responses marked are reverse scored so that a high score means that an individual is not committed to the organisation. Affective commitment: a. I would be happy to spend the rest of my career in this organisation. b. I enjoy discussing my organisation with people outside it. c. I really feel as if this organisations problems are my own. d. I think I could easily become as attached to another organisation as I am to this one. e. I do not feel like part of the family at my organisation. f. I do not feel emotionally attached to this organisation. g. This organisation has a great deal of personal meaning for me. h. I do not feel a strong sense of belonging to my organisation. Continuance commitment: a. I am not afraid of what might happen if I quit my job without having another one lined up. b. It would be very hard for me to leave my organisation right now, even if I wanted to.
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c. Too much of my life would be disrupted if I decided I wanted to leave my organisation right now. d. It wouldnt be too costly for me to leave my organisation in the near future. e. Right now, staying with my organisation is a matter of necessity as much as desire. f. I believe that I have too few options to consider leaving this organisation. g. One of the few negative consequences of leaving this organisation would be the scarcity of available alternatives. h. One of the major reasons I continue to work for this organisation is that leaving would require considerable personal sacrifice; another organisation may not match the overall benefits I have here. i. If I had not already put so much of myself into this organisation, I might consider working elsewhere. Normative commitment: a. I do not feel any obligation to remain with my current employer b. Even if it were to my advantage, I do not feel it would right to leave my organisation now c. I would feel guilty if I left my organisation now d. This organisation deserves my loyalty e. I would not leave my organisation right now because I have a sense of obligation to the people in it f. I owe a great deal to my organisation. Activity If you work or have worked, use the statements above to assess how committed you were or are to your employing organisation.
Antecedents of organisational commitment

Research has focused on three broad categories of antecedents affecting the development of organisational commitment: organisational characteristics person characteristics organisational policies and practices. The chapter by Meyer (1997) reviews the empirical evidence of the link between HR practices and organisational commitment. Activity What does the empirical evidence suggest in terms of the relationship between HR practices and organisational commitment? Make sure you think about this question when you read the subsequent chapters that examine different HR practices. Ask yourself whether there is empirical evidence that supports a positive relationship between the different HR practices and organisational commitment.
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Consequences of organisational commitment

The underlying rationale for studying organisational commitment is that it has an important influence on employee behaviours. The argument is that individuals who are emotionally attached to an organisation are more likely to engage in behaviours that benefit the organisation. These behaviours can include employee turnover, absenteeism, in-role job performance and extra-role performance such as organisational citizenship behaviour. Chapter 3 by Meyer and Allen (1997) reviews the empirical evidence on the behavioural consequences of commitment. Individuals who are highly committed to an organisation are less likely to leave the organisation (this holds true for affective, continuance and normative commitment). The positive relationship between affective commitment and attendance at work is supported; however, no relationship between continuance commitment and attendance at work has been found and the consequences of normative commitment on attendance at work has not received much empirical attention. This chapter reviews the evidence examining the relationship between the different components of organisational commitment and in-role performance and OCB. Overall, the empirical evidence suggests that there is a positive relationship between organisational commitment and a number of behaviours. Consequently, organisations may reap benefits from having affectively committed employees. Activity What are the positive consequences of having employees who are highly committed to the organisation?
Summary
The distinction between task and contextual performance is important in terms of understanding how individual performance is conceptualised. OCB falls into the category of contextual performance and hence is more under an individuals discretion. Consequently, there is a greater relationship between an individuals attitudes and contextual performance than task performance. There are a number of antecedents of OCB. The research suggests that the direct effect of personality on OCB is weak (individualcollectivism seems to be an important individual difference). Stronger evidence exists for the effect of organisational justice and perceived organisational support on OCB. Finally, highly committed employees are more likely to engage in OCB. As highly committed employees are more likely to engage in behaviours that benefit the organisation, the key issue for organisations is how they can manage employees commitment to the organisation through its human resource practices.
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Having completed this chapter, and the Essential reading and Activities, you should be able to: discuss the concept of performance through the framework of task and contextual performance describe organisational citizenship behaviour (OCB) and its antecedents define organisational commitment and explore its antecedents explain how human resource practices might be used to enhance employee commitment to their employing organisation.
Sample examination questions

1. What can managers do to increase employees citizenship behaviour? 2. Critically evaluate the relationship between human resource practices and organisational commitment?
Guidelines for answering a Sample examination question

1. What can managers do to increase employees citizenship behaviour? The following are the issues that need to be addressed: definition and conceptualisation of OCB antecedents of OCB can managers control or manage the antecedents? The antecedents of OCB can be categorised into the following: personality, social exchange constructs and organisational commitment. It will be difficult for managers to change an individuals personality so it is not possible for managers to influence OCB by changing an individuals personality. However, managers have more control over the remaining antecedents such as justice, perceived organisational support and organisational commitment. Therefore, the answer to the question needs to focus on how managers can influence these antecedents and the supporting empirical evidence.
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Chapter 3: Psychological contracts

Learning outcomes
By the end of this chapter, and having completed the Essential reading and Activities, you should be able to: define the concept of the psychological contract document evidence on whether the employment relationship is changing explain how psychological contracts are created discuss how contract breach and violation occur explain the consequences of contract breach critically evaluate the relationship between HRM practices and psychological contracts.
Essential reading
This chapter is available to download from the VLE:
Cullinane, N. and T. Dundon The psychological contract: A critical review, International Journal of Managment Reviews 8(2) 2006, pp. 11329.
This article is available online from http://eprints.lse.ac.uk/:

Coyle-Shapiro, J. A-M. and L. Shore The employee-organization relationship: Where do we go from here?, Human Resource Management Review (17) 2007, pp.16679.
Further reading
Conway, N. and R. Briner Understanding Psychological Contracts at Work: A Critical Evaluation of Theory and Research. (Oxford: Oxford University Press, 2005). Chapter 3 What is the psychological contract? Defining the concept, Chapter 5 How does the psychological contract affect behaviour, attitudes and emotion? The importance of psychological contract breach
Journal articles
Please note that when you are using the Online Library, be sure to use the journal spelling as listed. If you use the UK spelling organisational or behaviour your search results will not pick up the journals which use US spelling organizational and behavior.
Guest, D. Is the psychological contract worth taking seriously?, Journal of Organizational Behavior 19 Special issue, 1998, pp.64964. Robinson, S.L. and E.W. Morrison The development of psychological contract breach and violation: a longitudinal study, Journal of Organizational Behavior 21(5) 2000, pp.52546. Raja, U., G. Johns and F. Ntalianis The impact of personality on psychological contracts, Academy of Management Journal 47(3) 2004, pp.35067. Restubog, S.D.L., P . Bordia and R.L. Tang Effects of psychological contract breach on performance of IT employees: The mediating role of affective commitment, Journal of Organizational and Occupational Psychology 79, 2006, pp.299306. Tsui, A.S., and J.B. Wu The new employment relationship versus the mutual investment approach: Implications for Human Resource Management, Human Resource Management 44(2) 2005, pp.11521. 41
Works cited
Blau, P . Exchange and power in social life. (New York: Wiley 1964). Cole, J. Is organisational loyalty dead?, Getting results for the hands-onmanager 42(1) 1997. Csoka, A new employer-employee contract?, Employment Relations Today Summer (1995), pp.2131. Gouldner, A.W. The norm of reciprocity, American Sociological Review 25 (1960), pp.16178. Hackett, B. Whats new about the new deal? in Hackett B. (ed.) The new deal in employment relationships. (The Conference Board Rep. No.1162-96-CR) (New York: The Conference Board Inc., 1996) [ISBN 0823706117]. Herriot, P ., W.E.G. Manning and J.M. Kidd The content of the psychological contract, British Journal of Management 8 (1997), pp.15162. Herriot, P and C. Pemberton Facilitating new deals, Human Resource Management Journal 7 (1995), pp.4556. Kotter, J.P . The psychological contract: Managing the joining up process, California Management Review 15 (1973), pp.9199. Laabs, J.J. Embrace todays new deal, Personnel Journal 75 (1996), pp.6066. Levinson, H. Reciprocation: the relationship between man and organisation, Administrative Science Quarterly 9 (1965), pp.37090. Lewis-McClear, K. and S. Taylor Psychological contract breach and the employment exchange: Perceptions from employees and employers. Paper presented at the annual meeting of the Academy of Management, San Diego (1998). Miles, R.E. and C.C. Snow Designing strategic human resource systems, Organisational Dynamics 8 (1980), pp.3652. Millward, L.J. and P . Brewerton Validation of the psychological contract scale in an organisational context. (University of Surrey, Guildford: SPERI publication, 1998). Millward, L.J. and L.J. Hopkins Psychological contracts, organisational and job commitment, Journal of Applied Social Psychology 28 (1998), pp.1631. OLeary-Kelly, A.M. and J.A. Schenk An examination of the development and consequences of psychological contracts. Paper presented at the annual Meeting of the Academy of Management, Chicago (1999). Pugh, D.S., D.P . Skarlicki and B.S. Passell After the fall: lay-off victims trust and cynicism in re-employment. Paper presented at the annual meeting of the Society for Industrial and Organisational Psychology, New Orleans, Louisiana (2000). Robinson, S.L. Trust and breach of the psychological contract, Administrative Science Quarterly 41 (1996), pp.57499. Robinson, S.L., M.S. Kraatz and D.M. Rousseau Changing obligations and the psychological contract: A longitudinal study, Academy of Management Journal 37 (1994), pp.13752. Rousseau, D.M. New hire perceptions of their own and their employers obligations: A study of psychological contracts, Journal of Organisational Behavior 11 (1990), pp.389400. Roehling, M., M. Cavanaugh, L. Moyihan and W. Boswell The nature of the new employment relationship: A content analysis of the practitioner and academic literatures, Human Resource Management 39 (2000), pp.305320. Schalk, R. and C. Freese New facets of commitment in response to organisational change: Research trends and the Dutch experience, Journal of Organisational Behavior 4 (1997), pp.10723. Schein, E.H. Organizational Psychology. (Englewood Cliffs, NJ: Prentice-Hall, 1980) third editon [ISBN 0136413323]. Stiles, P ., L. Gratton, F. Hope-Hailey, P . McGovern and C. Truss Performance management and the psychological contract, Human Resource Management Journal 7 (1) 1997, pp.5766. 42
Chapter 3: Psychological contracts Walton, R.E. From control to commitment in the workplace in Steers, R., L. Porter and G. Bigley (eds) Motivation and Work Behavior. (New York: McGraw-Hill, 1991) fifth edition [ISBN 007060956X].
Introduction
This chapter explores the employment relationship between employees and their employer, using a psychological contract framework. Employers make promises to employees in return for, for example, employees being loyal, exerting effort on the organisations behalf, and high performance. When you read through this chapter, you should keep in mind how an organisations human resource practices may affect what employers and employees contribute to the exchange relationship. Activity Think about a time when someone promised to do something for you and did not do it. a. How did you feel? b. What did you do? c. Why did you do what you did? This chapter explores the above in the context of the employeeemployer relationship. If you work, think about an incidence when your employer promised you something but did not deliver how did it make you feel and did you do anything about it?
Definitions of psychological contracts

A general description of a contract is the belief in obligations existing between two parties an agreement that creates an obligation to do something or not to do something. The essence of contracts are promises about the future. A starting point in thinking about psychological contracts is to look at employment contracts and, in particular, the gaps and vagueness of what is written and agreed in the signing of an employment contract. Most employment contracts can be characterised as incomplete as the employer cannot specify in advance all the exchanges that the contract might cover. Employee obligations are only generally described: for example, at a university, to provide quality teaching and to conduct high-quality research; or, to a customer service employee, to deliver first-class customer service. Similarly, how employers will deliver on we provide excellent training and educational opportunities is often left up to them and employees to figure out later. The longer employment lasts, the more obvious and inevitable is the incompleteness of the initial contract and it is not realistic to expect completeness in such arrangements. Employees faced with uncertainty fill in the blanks with interpretations, guesses and estimations and it is these blanks that the psychological contract fills. Below are some definitions that have been presented by psychological contract theorists: A set of unwritten reciprocal expectations between an individual employee and the organisation. (Schein, 1980) An implicit contract between an individual and his organisation which specifies what each expect to give and receive from each other in their relationship. (Kotter, 1973)
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An individuals belief regarding the terms and conditions of a reciprocal exchange agreement between the focal person and another party. A psychological contract emerges when one party believes that a promise of future returns has been made, a contribution has been given and thus, an obligation has been created to provide future benefits. (Rousseau, 1989) In other words, psychological contracts are an individuals belief regarding reciprocal obligations: what obligations the employee owes the employer and employer obligations to the employee. When individuals believe they are obligated to behave or perform in a certain way and also believe that the employer has certain obligations towards them, these individuals hold a psychological contract. Activity Think about your own employment (or talk to someone about their employment) and ask: a. what do you feel are your obligations to your employer b. what do you think your employers obligations are to you? As the different definitions show, the emphasis has shifted from expectations to obligations and fundamentally, psychological contracts are based on perceived promises where a promise is defined as any communication of future intent (Rousseau, 1989).
Expectations and obligations

Do expectations and obligations represent different levels of engagement of psychological engagement? Is failure to meet expectations the same as failure to meet obligations? Activity Do expectations differ from obligations? Robinson (1996) argues that expectations come from a variety of sources and that those expectations only that result from explicit or implicit promises by the employer are part of the psychological contract. For example, if a new employee believes that they were promised performance-based pay when they were hired, this creates an expectation but also an obligation. So, if expectations and obligations are different levels of engagement, this raises the issue of where expectations end and obligations begin. Is there a clear demarcation between the two concepts? The importance of distinguishing between the two concepts lies in their consequences whereby, in theory, a violation of obligations should produce a more intense and organisationally detrimental response than unmet expectations. Robinson (1996) would argue that violations will produce unmet expectations and their consequences, but that unmet expectations alone do not reflect the totality of the effects of contract violation. Obligations are based on perceived promises whereas expectations can occur for a variety of reasons such as past experience.
Social exchange theory

The theoretical roots of the psychological contract can be traced to the work of Blau (1964) and Gouldner (1960). Blau (1964) differentiates social exchange from economic exchange. Social exchange refers to relationships that entail unspecified future obligations. Social exchange
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(like economic exchange) generates an expectation of a future return for contributions (I do something for you and I expect you to do something in return for me) but, unlike economic exchange, the exact nature of that return is not specified. Economic exchange is based on transactions and is short term. Social exchange is based on an individual trusting that the other party to the exchange will fairly discharge their obligations in the long run. This trust is necessary because, in the short term, there may be some temporary asymmetries in what one party gives and gets from the exchange; that is, one party may feel that they have contributed more to the relationship in the short term and they have to have trust that the other party will contribute more in the future so that in the long term, there is some balance in the contributions of the two parties to the exchange. Consequently, in social exchange relationships, individuals need to have trust that the other party in the longer term will fairly discharge their obligations. Underlying social exchange is the norm of reciprocity (Gouldner, 1960). Gouldner (1960) argues that: a. individuals should help individuals who have helped them, and b. individuals should not injure people who have helped them. Consequently, the norm of reciprocity operates so that when one party benefits another, an obligation is generated on the recipient to reciprocate and he or she is indebted to the beneficiary until he or she repays that obligation. Activity How do relationships based on social exchange differ from those based on economic exchange? Think of some examples of each type of relationship.
Are psychological contracts changing?

The psychological contract is defined by Rousseau (1989) as an individuals beliefs regarding the mutual obligations between him or her and another party. Later in this chapter, some other definitions are presented. The concept has been used to describe the exchange between employees and their employer (identifying what each party contributes to the relationship). Although the concept of the psychological contract has been around since the early 1960s, it was not until the late 1980s that the conceptual and empirical work advanced. This was no doubt influenced by changes occurring in the economic and social environments in which organisations operate that subsequently affected what employers could offer employees in the exchange relationship. The implications of globalisation, organisational restructuring and downsizing on employment relations has led to a renewed interest in the concept of the psychological contract. These trends make it increasingly unclear what employees and organisations owe each other as part of the exchange relationship. As organisations cope with the accelerated pace of change by downsizing, outsourcing and embarking upon various types of efficiency drives, the reported effect has been the demise of the old, and the emergence of a new, psychological contract. In the process, organisations are faced with the challenge of renegotiating and managing the transition from one exchange basis to another as they become unwilling or unable to provide employees with the same inducements.
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There is widespread belief that the nature of the psychological contract is changing together with a view that organisational changes have violated particular aspects of the psychological contract. Particularly in the US there is a belief that the death has occurred of the old psychological contract whereby in exchange for a career with the organisation, employees were expected to be loyal, dependable and comfortable with long-term promotional prospects. In return, the employee would be offered continued employment, annual salary increases and slow but steady advancement. This old contract is supposedly being replaced with a new psychological contract, which in its most naked form, is as follows: There is no job security. The employee will be employed as long as he or she adds value to the organisation and is personally responsible for finding new ways to add value. In return, the employee has the right to demand interesting and important work, has the freedom and resources to perform it well, receives pay that reflects his or her contribution and gets the experience and training needed to be employable elsewhere. Has the UK experienced a demise in the old psychological contract? Guest (1998) would argue that there has been no dramatic increase in executive redundancies and very few managers (according to a UK National Survey and the British Social Attitudes Survey) have personal experience of job loss or are worried about it in the future. Consequently, he warns against making too much out of the notion that the old psychological contract is dead. However, a different picture emerges from other case study research on leading edge companies (Citibank, WH Smith, BT, Hewlett-Packard). The authors (Stiles et al., 1997) conclude that: All jobs are less secure within these organisations than they were before. For older managers, there is little prospect of employment beyond 50. In terms of career progression: there are fewer opportunities for promotion as there are fewer managerial positions in the hierarchy following downsizing. Second, a career would consist of longer periods in a specific position combined with some lateral moves. Third, it is still possible to have a career but the career planning is the responsibility of the individual. For example, in Citibank, the company handbook states that no one at Citibank is guaranteed a career. What you are offered is a chance to pursue one. Consequently, there is some debate in terms of the changing nature of the employment relationship. The following are some examples of conflicting descriptions of the new employment relationship taken from Roehling et al. (2000).
Loyalty
There is an untapped reserve of employee commitment and loyalty Employees want to be loyal. (Hackett, 1996) Bring out the casket. Organisational loyaltyhas finally been laid to rest. (Cole, 1997)
Job security
Examples given of things employers are doing as part of the new employment relationship include giving guarantees of job security. (Schalk and Freese, 1997) Security is a thing of the past. (Herriot and Pemberton, 1995)
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Shared commitment to business objectives

There is no commitment for mutual goals. (Laabs, 1996) Employees provide commitment to business objectives. (Csoka, 1995) Roehling et al. (2000) reviewed the academic and practitioner literature and found that there is some consensus regarding those things that the employer is said to do or provide as part of the new employment relationship. They found that there is a strong consensus that the new employment relationship is characterised by the employer providing employees with: training and education skill development opportunities involvement/empowerment of employees in decision-making. Other characteristics mentioned included providing employee assistance with career management, performance-based compensation and challenging work. On the employee side, frequently mentioned characteristics included employees assuming responsibility for developing and maintaining their work-related skills. Consequently, while there is some debate as to the extent of changes occurring in the employment relationship, there is some consensus that change is occurring. However, it is important to bear in mind that the extent of changes may vary across sector and occupation. In addition, the decline in trade union membership has led to a more individualised approach to understanding the employment relationship and, consequently, the psychological contract is useful in providing a framework for understanding the exchange relationship between employees and their employer. Activity Is the employment relationship changing in your country? If so, how? What kind of evidence supports your view?
With whom does an employee have a contract?

The psychological contract is held by employees and represents their beliefs about obligations between them and their organisation rather than any specific agent of the organisation. Consequently, the organisation assumes an anthropomorphic identity for employees; that is, the organisation is personified (Levinson, 1965). Levinson (1965) argues that employees tend to view actions by agents of the organisation itself as actions of the organisation and this personification of the organisation is abetted by the following factors: a. the organisation has a legal, moral, and financial responsibility for the actions of agents b. organisational precedents, traditions and norms provide continuity and prescribe role behaviours c. the organisation, through its agents, exerts power over employees. Therefore, in the psychological contract, it is assumed that identifying the employer is non problematic. But, who is the employer? In a small, single entity, there is likely to be no doubt regarding who the employer is but in large complex multinationals, employees may hold differing views as to who the employer is. Also, in terms of contractors, while their employer in
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the technical and legal sense is the recruitment agency, at a psychological level, it may be the case that employees think of the host organisation as the employer, albeit in a temporary sense. Although the organisation cannot hold a psychological contract, individual managers can perceive a psychological contract with employees. The employers perspective is important as employers, by and large, dictate the terms of the employment relationship. They exercise varying degrees of choice in how they respond to increased competitive pressures and the associated consequences for the management of the employeeemployer relationship. Managers, as employer representatives, play an important role in conveying the parameters of the exchange relationship with employees. While recognising that managers are not exclusive contractmakers, they have a managerial responsibility to monitor and manage the exchange relationship. Lewis-McClear and Taylor (1998) argue that:
only by studying the interactions between these two parties, and the way these interactions evolve over time, can we begin to understand the essence of the employment exchange.1
Therefore, one contribution of including the employers perspective is that it provides a more complete picture by allowing an investigation of the actions and reactions of both parties to the exchange. A second potential contribution of the employers perspective is to assess the degree of mutuality that exists in the relationship. Obtaining the employee and employer perspectives permits an assessment of the extent to which there is agreement on the obligations of both parties and the fulfilment of those obligations. Any disagreement between the two parties could indicate the potential development of contract breach and potentially give insight into whether incongruence or reneging is the cause of contract breach. Current research generally subscribes to the view that contract breach is a subjective phenomenon perceptions matter. An individual who is highly vigilant may search for confirming evidence that his or her employer has breached their psychological contract and may be more likely to perceive a breach at the hint of a transgression. Consequently, it is difficult to ascertain whether a promise was really broken or whether an obligation existed. As Robinson and Morrison (2000) note, it is the inherent subjectivity that makes the examination of contract breach challenging. Therefore, the inclusion of the employers perspective may improve the accuracy of whether a perceived breach has occurred and the magnitude of that breach.
Lewis-McClear and Taylor (1998).
Categorising employer relationships with employees

Tsui et al. (1997) categorise employer relationships with employees into four types using balance and type of exchange as dimensions. The balanced relationships include economic and social-based exchanges. The unbalanced exchanges involve relationships where the type of exchange is incongruent between the employer and employees (e.g. employer offering social exchange in return for economic exchange from the employee or the employee adopting a social exchange perspective in return for an economic exchange offered by the employer). The four types are illustrated in Figure 3.1 and described in greater detail opposite.
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Employeeemployer exchanges
Balanced exchanges
Unbalanced exchanges
Economic exchanges
Mutual exchanges
Under-exchanges
Over-exchanges
Figure 3.1: Four types of employeremployee relationship.
Balanced exchanges
Economic exchange In this type of relationship, there is balance between the contributions of the employer and employee but these contributions are exclusively economic. The employer offers short-term economic inducements in exchange for specified contributions (e.g. a stockbroker and brokerage firm). The employee is not expected to help colleagues or be concerned about the overall performance of the firm and the employers obligation to employees is confined to rewards. Neither party has an obligation to maintain a long-term relationship. This type of relationship is known as a quasi-spot contract. Mutual investment This type of relationship is based on social exchange and involves longterm investment and is similar to a high-commitment approach advocated by Walton (1985).
Unbalanced exchanges
Underinvestment This type of relationship is characterised by the employee adopting a social exchange view and the employer adopting an economic view of the relationship. In other words, employees are expected to undertake broad and open-ended obligations in return for monetary rewards and no longterm investment (e.g. in job security, career development and training). Employers want full commitment from employees but at the same time they want the flexibility to lay-off employees when necessary. Overinvestment This type of relationship is characterised by employees taking an economic view and employers taking a social exchange view. In this type of relationship, employers provide long-term job security and employees receive investments from the employer in terms of training but employees are not expected to go beyond their immediate job requirements.
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Not only will employers differ in terms of the type of relationship offered to employees, but within organisations, the type of relationship may vary across employees. Employers may develop different relationships with different types of employees (e.g. permanent versus temporary). The authors empirically demonstrate that a balanced social exchange perspective, or an unbalanced exchange in which the employer offers a social exchange, are associated with higher levels of performance and more favourable attitudes than the remaining two relationships. Activity What are the consequences of different types of exchanges for employees and their employer?
Types of contracts
In the study of psychological contracts, two types of contracts have been identified as anchoring opposite ends of a continuum: namely transactional and relational contracts. Transactional contracts have been characterised by Rousseau as, for example, hard work (the employees obligation) in exchange for high extrinsic returns (high pay, rapid career advancement) as the employer obligations. Transactional terms are exemplified by a fair days work for a fair days pay and one can think of students working during the summer vacation as having a transactional view of their relationship with their employer. Similarly, employment agencies offer organisations the opportunity to create purely transactional agreements with employees. At the other end of the continuum are relational contracts, which exchange employee loyalty in return for job security. This type of contract focuses on the long-term investment between the employee and employer; it is open ended, containing socio-emotional elements, broad in scope, governed by values of good faith and fair dealing, and by the motivation to sustain the relationship over time. These types of contracts characterise a wide variety of personal relationships, involving an element of trust, a sense of a relationship and mutual obligations. Relational and transactional contracts have been distinguished from each other along a number of dimensions: Focus. To what extent are the incentives for the employment relationship primarily economic as against economic and emotional? Time frame. Is the relationship perceived to be time-limited or open ended and infinite? Formalisation. How formal is the specification of performance requirements? Inclusion. To what extent is the job perceived to be of limited versus extensive personal involvement (assessing the extent to which the job overlaps with an individuals personal life)? Stability. To what extent is the relationship perceived to be static and unchanging versus dynamic and subject to future change? Rousseau (1995) describes transactional and relational contracts as follows: Transactional: short-term monetisable exchanges specific economic conditions as primary incentive
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limited personal involvement in the job specified time frame commitments limited to well-specified conditions limited flexibility use of existing skills unambiguous terms. Relational: open-ended relationship and time frame considerable investment by employees and the employer high degree of mutual interdependence and high barriers to exit emotional involvement as well as economic exchange dynamic and subject to change pervasive conditions subjective and implicitly understood. Millward and Brewerton (1998) found the following as distinct components of the psychological contracts: Transactional: Transactional orientation: focus on financial gain and on the fulfilment of contractual and job requirements Long-term future: not seeing the organisation as a long-term employer Absence of the extra mile: lack of involvement in work; unwillingness to go beyond job requirements. Relational: Emotional affinity: feeling of organisational membership, identification with the organisations goals Professional development: opportunities for training, development and personal growth Equitability: perceptions of just and fair reward for inputs.
How are transactional and relational contracts related?

Rousseau (1995) proposes that transactional and relational contracts are opposite ends of a continuum and seen as extremes types. These anchors correspond to what Miles and Snow (1980) term buy and make. The former is where organisations buy in employees from employment agencies or on contract, while the latter organisations develop a longterm relationship with employees offering long-term job security and career development in return for loyalty and citizenship behaviour. Relational contracts can engender feelings of commitment; commitment from the employee to the employer; and the employers commitment to the employee would take the form of the provision of training and development and job security. Transactional type contracts would take the form of employees being concerned with money and personal benefit, and the organisation not committing itself to the relationship by providing job security and investing in training and development. There can be movement between these types of contracts; some authors propose that as contracts become less relational, employees perceive their
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contracts as more transactional in nature. The reverse may also hold true, an individual on a temporary contract may hold a transactional view, which may develop into a relational contract as the individual becomes a permanent employee after a probationary period or a contractor whose short-term contracts are continually renewed. However, if relational and transactional contracts are bipolar, one would expect a negative relationship between the two types of contracts. An empirical study by Millward and Hopkins (1998) reports a correlation of 0.2 to 0.3 between transactional and relational contracts suggesting that the relationship between the two types of contracts may be more complex.2 Arnold (1996) has suggested that both types of contracts can operate concurrently; an organisation implementing high commitment HRM may provide high pay, pay for performance as well as career development and job security. Rousseau (1995) elaborated on the types of contract to include two additional types: transitional contracts represent a breakdown in contracts, reflecting an absence of commitment regarding future employment and little explicit performance requirements (typical employee experience during organisational downsizing or a merger), and balanced contracts are open ended and relationship-oriented but have well-specified performance terms that are subject to change (in relational contracts, the performance terms are not specified). Activity a. Give an example of each type of contract: transitional and balanced. b. Using the material covered in Chapter 1, think about what type of human resource management strategy would lead to the development of each type of contract.
If an individual had either an exclusive transactional or relational contract with their employer, one would expect to nd a high negative correlation of 0.80 between both. The correlation of 0.2/0.3 suggests that there is a small positive association between transactional and relational contracts and indicates that individuals may have relational and transactional components to their psychological contract.
Measurement of psychological contract

The following section looks at how the psychological contract has been measured by researchers. Three different measurement approaches have been used, focusing on content, evaluation and features.
Content approaches
This type of research can be either qualitative or quantitative. Herriot et al. (1997) adopted a qualitative research method using critical incidents. Using a representative sample, UK employees were asked to think of an incident or situation where an employee or the organisation went beyond or fell short of what might be reasonably be expected of them in their treatment of the other party. In other words, they asked respondents to report on specific instances where: the organisation offered more than it was obligated to the employee(s) offered more than they were obligated to the organisation offered less than it was obligated to employee(s) offered less than they were obligated to. They asked employees to respond as employees of the organisation and managers to respond as representatives of the organisation. The following are the types of obligations that respondents reported:3 Employee obligations: Hours: to work the hours you are contracted to work. Work: to do a good job in terms of quality and quantity. For
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example, not slowing down to make overtime necessary or night workers sleeping when they should be working. Honesty: to be honest in dealings with clients and the organisation. For example, not claiming expenses for a journey not taken. Loyalty: staying with the organisation, guarding its reputation and putting its interests first. For example, not leaking sensitive information to a tabloid newspaper. Volunteering to take a salary freeze to help the organisation survive. Property: treating the organisations property in a careful way. Self-presentation: dressing and behaving correctly with customers and colleagues. Flexibility: willingness to go beyond ones own job description especially in an emergency. Employer/organisational obligations Training: providing adequate training and induction for employees. Fairness: ensuring fairness of selection, appraisal, promotion and redundancy procedures. Needs: allowing time off to meet personal and family needs. Consultation: consulting and communicating with employees on matters that affect them. Discretion: minimal interference with employees in terms of how they do their job. Humanity: acting in a personally and socially responsible way towards employees; not humiliating employees in front of customers. Recognition: recognising or rewarding special contributions or long service. Environment: provision of a safe and congenial work environment, for example, banning smoking in open plan offices, not giving one person all the nasty jobs. Justice: fairness and consistency in the application of rules and disciplinary procedures. Pay: equitable pay with respect to market values and consistently awarded across the organisation; no difference between departments in terms of what constitutes overtime. Benefits: fairness and consistency in the administration of the benefits system. Security: trying to provide what job security the organisation can. The second content-driven approach is quantitatively driven. Employees were asked what obligations they felt the employer had to them as individuals and what obligations they had to their employer. Employees were asked to indicate the extent to which they believe that their employer is obligated to provide the following on a 15 point scale from not at all to highly obligated: rapid advancement high pay pay based on current levels of performance training long-term job security
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career development support with personal problems. Employees were also asked to indicate the extent to which they felt obligated to provide the following to their employer using the same scale: work extra hours volunteer to do non-required tasks on the job protect proprietary information give advance notice of taking a job elsewhere.
Evaluation driven approaches

These approaches measure the extent to which the employer has fulfilled its obligations to employees using a similar method to that outlined above. The difference is that this approach captures how well the employer has fulfilled its obligations rather than capturing obligations alone.
Features based approach

An alternative to asking employees what they think his or her employer is obligated to provide is to capture particular dimensions of the psychological contract. OLeary-Kelly and Schenk (1999) adopt this approach and ask employees the extent to which their relationship with their employer is based on an economic focus, is time limited, is inclusive and is stable. A number of researchers have captured the psychological contract using a number of different measurement approaches (for a review, see Rousseau and Tirijowala, 1998).
The key features of the psychological contract

Before considering how a psychological contract can be created and managed, study the following summary of the key features we have described above. The psychological contract is perceptual, unwritten and hence not necessarily shared by the other party to the exchange. Psychological contracts are subjective, residing in the eyes of the beholder. Although beliefs in mutual obligations comprise a contract, two parties may not agree for each to believe a contract exists. Thus, employees and employers may hold different views as to the content of the psychological contract; for example, excellent training opportunities may be interpreted differently by employees and employers. There is an important distinction made in the literature between psychological contracts that are transactional in nature and those that are largely relational. The psychological contract is concerned with perceived obligations as distinct from expectations. The creation of a psychological contract may result from implicit means relying on an individuals interpretation of actions and events within the organisation. Thus, two employees hired at the same time into the same position may develop idiosyncratic views of their psychological contract. The exchange relationship is between the individual and the organisation. In a sense the organisation is personified; employees view the actions of agents of the organisation as actions of the organisation itself.
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Creation and management of the psychological contract

Psychological contracts are created through a variety of mechanisms. Most explicitly, they begin during the recruitment process through oral discussions and written documentation. But words or explicit means are not required to create promises organisational actions and the observation of treatment received by other employees can be construed as promises. Social learning through the observation of other organisational members may be a powerful factor in the communication of promises. An old saying is often relevant: a promise is most given when least is said. A number of factors operate in forming the psychological contract: messages and social cues from the organisation and the individuals interpretation of those signals. Messages are conveyed in organisations through a number of means: overt statements, observation of treatment of others, expression of organisational policies and social constructions. Organisational leaders make statements that signal the organisations actions and expressed intentions and this may influence how an individual interprets their psychological contract. For example a leader may explicitly state that the organisation can no longer guarantee job security as a consequence of increased competition; this is likely to affect whether an employee sees job security as part of the employers obligations to them as individuals. Observations of how others are treated are a readily available source of information regarding ones own relationship with the organisation. How co-workers are treated can influence employees beliefs about what the organisation owes them. Expressions of policy which may include documents (e.g. handbooks), compensation systems and promotion practices all signal to employees what the organisation is willing to offer as part of the exchange relationship. Social cues from co-workers provide messages for how the contract is created and shape how individuals interpret the terms of the contract. All these signals are external to the individual and in order to understand how individuals interpret these signals, it is necessary to look at individual predispositions. Rousseau (1995) outlines two: cognitive biases motives. Cognitive biases relate to how individuals process information individuals have unrealistically positive views of the self, unrealistic optimism and exaggerated perceptions of personal control. These tendencies will lead to individuals believing that they have fulfilled their side of the exchange. An individuals motives for taking a job (a stepping stone to another job or a long-term career with the organisation) are also likely to influence their interpretation of the psychological contract. Individuals who see their current job as a stepping stone to another job are more likely to think of their psychological contract as involving high salary in exchange for hard work, whereas those individuals who see their current job as a long-term career are more likely to see the exchange as involving job security in return for loyalty.
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Change to contracts
Rousseau (1995) also presents several ways in which contracts may change. Factors that affect change can be internal or external. Internal change in an individuals psychological contract occurs without any formal effort to change the contract (e.g. an individuals interpretation of their psychological contract changes as a result of longer tenure within the organisation; changes in individuals personal lives may modify how they view their relationship with their employer). External change can lead to either a. accommodation, making adjustments within the framework of existing contracts or b. transformation, a fundamental shift in the nature of the contract between the two parties. Successful change through accommodation has the following features (existing adjustments within an existing contract): the change occurs in the context of the existing contract there is a positive relationship between the two parties the changes affect the non-core elements of the contract (the extras leaving the core terms of the contract unchanged) there is participation in the change by the two parties few changes are made. Essentially, successful changes take the form of isolated changes (such as changes in working hours or changes in benefits) so that employees think the old deal continues or remains largely intact despite the changes. Transformation (radical forms of change) may include percentage loss of pay, loss of long-term career ladder etc; or changing from job security to employability. Rousseau (1995) outlines a process which involves: a. challenging the old contract create need for change and justification for the change b. creating credible signs of change c. contract negotiation involves people. Activity Read Cullinane and Dundon (2006). a. Give examples of how a psychological contract may be managed. b. What are the problems facing organisations in managing employees psychological contracts?
Development of contract breach and violation

Robinson and Morrison (2000) present a theoretical model of how contract violation develops. Breach or perceived breach have been operationalised as the perception that ones organisation has failed to fulfil one or more obligations comprising the psychological contract. A perceived breach has occurred when one cognitively calculates what one has received relative to what one was promised. The important issue is that an individual perceives a contract breach; in some cases this may arise from a real breach and in others, it may be less clear whether a real breach has occurred. For example, a recruiter may make a clear promise to an employee that he or she will be promoted in three years and, when this
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does not happen, the employee perceives a breach of contract. In another situation, the recruiter may make a vague statement that people in this organisation tend to get promoted rapidly. When the promotion does not happen, the employee may perceive a breach of contract. Activity Give some examples of when employees may think that their employer has breached their psychological contract. The term violation suggests a strong emotional experience; feelings of anger, resentment, bitterness and even outrage resulting from the perception that one has been betrayed or mistreated. Violation may or may not result from perceived breach. One can judge that a contract has been breached yet at the same time not experience the feelings of outrage, injustice and so on. Two conditions may eventually give rise to violation: reneging and incongruence.
Reneging
Reneging occurs when the organisation knowingly breaks a promise to the employee. This may occur because the organisation is unable to fulfil a promise or because it is unwilling to do so. Inability The organisation may at one point in time have promised job security to new recruits but finds itself in a position of not being able to deliver this due to changes in the external environment. Unwillingness The organisation may make a promise with no intention of fulfilling it or they may have originally intended to keep it but subsequently decided not to fulfil it. Whether an organisation decides to renege depends on the costs and benefits associated with reneging. One factor is the power both parties have; if the employee has critical skills that the organisation is dependent on, the organisation will be less likely to renege than the situation where the employee is easily replaceable. A second factor is how well the employee has fulfilled their contract, the organisation may perceive the costs to be lower when an employee has not fulfilled their contract rather than when the employee is seen as fulfilling their contract. The third factor is the type of contract: the costs of reneging are considered greater when the contract is viewed as relational and reneging will be less likely. Taking these three factors together, if the employee has greater power, is perceived to be fulfilling their contract and the organisation sees the contract as relational, the costs of reneging will be greater than the benefits and hence the organisation will be less likely to renege. However, if the organisation has greater power, the employee is seen as not adequately fulfilling their contract and the organisation sees the relationship as transactional, then the organisation is more likely to renege as the benefits outweigh the costs.
Incongruence
Incongruence occurs when an employee has perceptions of a given promise that differ from the organisation. This may be a consequence of three factors: different schemata, complexity and ambiguity of obligations, and communication.
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Different schemata Schemata are cognitive frameworks that help people process data in order to make sense of events and situations. One schema relates to the employment relationship, which helps individuals define what a typical employment relationship entails. How an individual interprets job security will depend on how job security fits into an individuals schema for employment relationships in general. These schemata are heavily influenced by prior experiences (a Japanese manager may have a different schema from the one held by an American manager). Complexity and ambiguity of obligations The more complex and ambiguous the obligations, the more likely that different perceptions between the two parties will occur. Communication The greater the accuracy and truthfulness of communications, the more likely there will be congruence between the two parties.
The results of reneging or incongruence

Either reneging or incongruence may lead to a discrepancy between what an employee was promised and what they received. Does this discrepancy matter? It depends on: a. Whether the discrepancy is seen by the employee as important. The larger the discrepancy, the more important the promise to the employee and the more vivid the promise in the mind of the employee, the greater the importance of the discrepancy. b. The vigilance of the employee (the extent to which the employee monitors how well the organisation is fulfilling the terms of the contract). The vigilance of employees will depend on uncertainty (in situations of uncertainty, such as downturns or lay-offs, employees will be more vigilant). Employees will be more vigilant when the employment relationship is based on a transactional rather than relational exchange. Will unmet promises lead to perceived breach? This depends on a comparison process whereby the employees compare first what he or she has received to what he or she was promised, and then compares this to what he or she provides the organisation relative to what he or she promised to provide. In other words, the employee compares how well he or she has fulfilled their obligations to the organisation with how well the organisation has fulfilled their obligations to the employee. Some key factors affect the likelihood that a breach will occur: If the employee perceives that their level of contract maintenance is greater than the organisation, then perceived breach is likely to occur. Employees with low self-esteem are more likely to think that their contributions have been inadequate and hence are less likely to believe that an unmet promise represents a breach. Individuals differ in how equity sensitive they are. Individuals who are highly equity sensitive feel that they deserve more than others and they may consider the slightest discrepancy as an indication that a breach of contract has occurred.
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Will perceived breach lead to perceived violation? This depends on four factors: Outcome assessment. The greater the perceived imbalance between the two parties contributions, the stronger the relationship between perceived breach and violation. The greater the valued attached to the outcomes, the more likely it is that violation will occur. Attribution. Who is responsible for the perceived breach? If an employee believes that the organisation purposefully reneged on their promises, employees will experience more intense negative emotions. Process. If an employee feels that they were fairly treated, dealt with honestly and respectfully and received adequate justification, they will be less likely to experience negative reactions. The context in which the perceived breach occurs. The social contract in the employment relationship entails beliefs about exchange, reciprocity, fair dealing and good faith. If for example, lay-offs were unheard of in a particular organisation and an employee was laid off, the breach of contract will lead to greater feelings of violation because it was unexpected and contrary to previous organisational actions.
Managing perceptions of breach

Before we look at the consequences of contract breach, we need to examine what organisations can do to minimise perceptions of contract breach. Given that contract breach can arise from reneging or incongruence, these causes have practical implications for the management of contract breach. First, organisations need to be careful in making promises to employees as they may later find they cannot fulfil. Second, to minimise congruence, organisations may want to increase communication between organisational agents and employees. Furthermore, the use of realistic job previews may minimise subsequent perceptions of contract breach, as employees will have a good understanding of the job prior to hiring. If contract breach does occur, organisations need to ensure that employees are treated fairly (this is covered in the next chapter on organisational justice). Activity a. What is the difference between contract breach and violation? b. How does contract breach occur? Give an example.
Consequences of the psychological contract breach

The consequences of contract breach have been heavily researched and the outcomes examined can be placed into three categories: employee obligations and fulfilment attitudes behaviours.
Employee obligations and fulfilment

Robinson, Kraatz and Rousseau (1994) found in their study of US Master of Business Administration students that when an employer failed to deliver on its obligations to employees, employees reciprocated by lowering their obligations to their employer and were less likely to fulfil those obligations. Similar evidence is found in the UK public sector (CoyleShapiro and Kessler, 2000). Therefore, the empirical evidence that exists
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tends to support the norm of reciprocity that underlies the psychological contract in which employees attempt to maintain balance in the exchange relationship with their employer.
Attitudes
Another strand of empirical research supports the relationship between contract breach and employee attitudes. Robinson (1996) demonstrates that contract breach leads to a reduction of employee trust in their employer and it is this reduction in trust that may lead employees to reduce their contributions to the exchange relationship. When an employee experiences contract breach, he/she interprets this as inconsistency between the employers words and their actions, which causes employees to lose faith in the employer that their contributions will be reciprocated in the future. In other words, if promises are broken, trust is undermined and an employee may be less likely to invest in the relationship and maintain that relationship. Similarly, contract breach is related to employees commitment to the organisation (Coyle-Shapiro and Kessler, 2000). If employees experience contract breach, they are likely to reduce their commitment to the organisation (commitment is explored in a subsequent chapter).
Behaviours
Turnley and Feldman (1999) found that employees who reported higher levels of contract breach were more likely to attempt to leave the organisation, to have neglected their in-role job performance, and would be less likely to represent the organisation favourably to outsiders (be less loyal). Robinson and Morrison (1995) found a positive relationship between contract fulfilment and organisational citizenship behaviour (covered in a subsequent chapter). However, contract breach can have implications for the longer term and have spillover effects from one job to another. Pugh, Skarlicki and Passell (2000) investigated the relationship between contract violation with one employer and the consequences for an individuals trust and cynicism in future employment. The findings of the study indicate that: perceptions of contract violation was negatively associated to trust in an employees new employer perceptions of contract violation was positively related to an employees cynicism in their new employment if an employee experiences contract breach with one employer, they are less likely to trust their subsequent employer.
Will employees exit the organisation when they perceive contract breach?
Turnley and Feldman (1999), based on their empirical study, argue that employees will be more likely to leave the organisation when they have available alternative employment, when justification for contract breach is low and when procedural justice is low. Specifically, the authors found that availability of alternative employment moderated the relationship between contract breach and exit. In other words, when an individual thinks they have alternative employment opportunities, they are more likely to leave the organisation when they perceive contract breach.
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Justification for contract breach moderated the relationship between contract breach and exit such that when employees felt that there was low justification for the breach, they were more likely to exit the organisation. The same holds true for procedural justice when employees feel that procedural justice is low, they are more likely to exit the organisation when they perceive a contract breach. Overall, the relationship between contract breach and employees trying to leave the organisation is stronger when they have available alternative employment, they feel there was low justification for the contract breach and they perceive low procedural justice (see the next chapter on organisational justice). Activity a. What are the consequences of perceived breach of employees psychological contract? b. What can organisations do to minimise the effects of a perceived breach?
Human resource practices and psychological contracts

Human resource practices shape the day-to-day behaviour of employees and signal to employees the terms of their employment. For example, selection, training and reward systems send cues to employees on what the employer is willing to offer as part of the relationship and at the same time signal to employees what their contributions are to the relationship. Overall, the type of strategy an organisation pursues (Miles and Snow, 1984) makes specific demands on human resource management systems, which in turn impact on the contracts that define the employment relationship. Activity Drawing on what you learned from Chapter 1, which reviewed different types of Human Resource strategies, note the key implications of each strategy for the psychological contract of employees.
Summary
There is agreement and debate on some of the issues surrounding the psychological contract. The following are areas of agreement: a. The psychological contract is an individuals belief concerning the reciprocal obligations that exist between him/her and another party. b. Two individuals may hold different interpretations of the same contract. c. Contract breach has significant consequences for the organisation. d. Psychological contracts can change over time. Some of the areas of debate include the following: e. Who is the other party to the exchange with the employee? f. What is the relationship between obligations and expectations? g. Are transactional and relational components the opposite end of the same continuum? h. Are there cross-cultural differences that affect how an individual interprets the psychological contract and how they respond to perceived contract breach?
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Having completed this chapter, and the Essential reading and Activities, you should be able to: define the concept of the psychological contract document evidence on whether the employment relationship is changing explain how psychological contracts are created discuss how contract breach and violation occur explain the consequences of contract breach critically evaluate the relationship between HRM practices and psychological contracts.
Sample examination questions

1. Should organisations take the psychological contract seriously? Please give reasons for your answer. 2. How can organisations minimise the consequences of perceived contract breach? 3. What are the problems in considering the employers psychological contract?
Guidelines for answering a Sample examination question

2. How can organisations minimise the consequences of perceived contract breach? The following are the issues you would have to address in answering the above question: What is contract breach? What are the consequences of contract breach? What can organisations do to minimise consequences of contract breach? Contract breach: unfulfilled obligations/broken promises (recognition that the employer has failed to fulfil one or more obligations). Perceived contract breach occurs either from incongruence or reneging (Robinson and Morrison, 2000). Given that contract breach can arise from reneging or incongruence, these causes have practical implications for the management of contract breach. First, organisations need to be careful in making promises to employees as they may later find they cannot fulfil. Second, to minimise congruence, organisations may want to increase communication between organisational agents and employees. Furthermore, the use of realistic job previews may minimise subsequent perceptions of contract breach, as employees will have a good understanding of the job prior to hiring. Consequences of contract breach: empirical evidence suggests that contract breach is associated with lower employee obligations and the fulfilment of those obligations, attitudes and behaviours. Therefore, to minimise these negative effects, organisations need to ensure that employees are treated fairly in the process of contract breach:
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Procedural justice if employees perceive the procedures used to arrive at a decision are fair, this will minimise the negative consequences of contract breach. Interactional justice if individuals feel they are fairly treated at an interpersonal level, this is likely to reduce the consequences of breach.
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Notes
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Human resource management

J. Coyle-Shapiro, K. Hoque, I. Kessler, R. Richardson

75 Human resource management

75 Human resource management

75 Human resource management

Style of the guide

75 Human resource management

Using this subject guide

75 Human resource management

Online study resources

Making use of the Online Library

75 Human resource management

How the reading is listed

Structure of the guide

75 Human resource management

Chapter 1: Human resource management: theoretical frameworks and organisational performance

Chapter 1: Human resource management: theoretical frameworks and organisational performance

Why is HR policy so complicated?

HR policies refer to human behaviour

Chapter 1: Human resource management: theoretical frameworks and organisational performance

Many HR policy instruments

HR policies are difficult to evaluate

People management is just common sense

75 Human resource management

The importance of getting HR policy right

What leads to organisational success and what is the role of HR?

The meaning of the term labour costs

Chapter 1: Human resource management: theoretical frameworks and organisational performance

How, in general terms, do HR policies work?

75 Human resource management

Chapter 1: Human resource management: theoretical frameworks and organisational performance

London School of Economics.

75 Human resource management

Achieving productive potential by harnessing competence and motivation

Chapter 1: Human resource management: theoretical frameworks and organisational performance

Human resource strategies

75 Human resource management

What, more specifically, is an HR strategy?

Chapter 1: Human resource management: theoretical frameworks and organisational performance

75 Human resource management

Is there one best HR strategy?

Chapter 1: Human resource management: theoretical frameworks and organisational performance

High performance work practices or high commitment practices

75 Human resource management

Links with product market strategy

Chapter 1: Human resource management: theoretical frameworks and organisational performance

Links with production arrangements

75 Human resource management

A reminder of your learning outcomes

Chapter 2: Individual performance: attitudes and behaviour

Chapter 2: Individual performance: attitudes and behaviour

75 Human resource management

Chapter 2: Individual performance: attitudes and behaviour

Task and contextual performance

Five categories of contextual performance

Organisational Citizenship Behaviour as contextual performance

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Organ (1988, p.4).

In operationalising OCB, Bateman and Organ (1983)2 began by:

Organ (1983, p.46).

Chapter 2: Individual performance: attitudes and behaviour

75 Human resource management

Consequences for the organisation

Chapter 2: Individual performance: attitudes and behaviour