Content uploaded by Denise M. Rousseau
Author content
All content in this area was uploaded by Denise M. Rousseau on Nov 07, 2015
Content may be subject to copyright.
Academy of Management
is collaborating with JSTOR to digitize, preserve and extend access to
The Academy of Management
Executive (1993-2005).
http://www.jstor.org
Research Edge: Psychological Contracts in the Workplace: Understanding the Ties That Motivate
Author(s): Denise M. Rousseau
Source:
The Academy of Management Executive (1993-2005),
Vol. 18, No. 1 (Feb., 2004), pp. 120-
127
Published by: Academy of Management
Stable URL: http://www.jstor.org/stable/4166046
Accessed: 07-11-2015 01:42 UTC
Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at http://www.jstor.org/page/
info/about/policies/terms.jsp
JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content
in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship.
For more information about JSTOR, please contact support@jstor.org.
This content downloaded from 128.237.144.74 on Sat, 07 Nov 2015 01:42:39 UTC
All use subject to JSTOR Terms and Conditions
? Academy of Management Executive, 2004, Vol. 18, No. I
..............................................................................................................................................
RESEARCH
BRIEFS
Research Edge
We are proud to introduce our readers to Re-
search Edge, which we hope will inform both our
academic and executive audiences. This feature is
designed to summarize current research in exciting
new areas with an eye toward highlighting key
implications for managerial practice. Leading
scholars who have played important roles in devel-
oping these emerging research areas will author
our Research Edge articles. They will appear in
each issue along with our regular Research Briefs.
Psychological Contracts in the
Workplace: Understanding the Ties
That Motivate
Denise M. Rousseau, Carnegie Mellon University
Modern organizations can't succeed unless the
people they employ agree to contribute to their
mission and survival. But flatter organizations,
geographically dispersed work, and ever-increas-
ing aspiration levels for service and innovation
make it impossible for employers to motivate work-
ers strictly through supervision or monetary incen-
tives. Instead, workers and employers need to
agree on the contributions that workers will make
to the firm and vice versa. Understanding and ef-
fectively managing these psychological contracts
can help organizations thrive. Psychological con-
tracts are beliefs, based upon promises expressed
or implied, regarding an exchange agreement be-
tween an individual and, in organizations, the em-
ploying firm and its agents.'
Workers
and employers need to agree on
the contributions
that workers
will make
to the firm and vice versa. Understanding
and effectively managing these
psychological contracts can help
organizations thrive.
In essence, psychological contracts motivate
workers to fulfill commitments made to employers
when workers are confident that employers will
reciprocate and fulfill their end of the bargain.
These agreements can be limited to the hourly
wage for a temporary worker who ships holiday
packages, or they can be as broad as the generous
support and mutual investment for a biotechnol-
ogy firm's chief scientist. Employers in turn have
their own psychological contracts with workers,
depending upon their individual competence,
trustworthiness, and importance to the firm's mis-
sion. Overall, to make realistic promises that can
be kept, the psychological contracts which employ-
ers and workers create should be consistent with a
well-crafted human resource strategy.
But what are the basic features and dynamics of
psychological contracts? And given those dynam-
ics, how can employers impact psychological con-
tracts in ways that benefit the firm? Likewise, how
do workers shape their own psychological con-
tracts? What advice can we offer to help workers
and employers create mutually beneficial psycho-
logical contracts? Fortunately, by weaving to-
gether findings from recent studies, a clearer pic-
ture emerges about psychological contracts one
that will help answer key questions and provide
some important guidance to management.
Six Features of the Psychological Contract
The dynamics of the psychological contract are
shaped by its defining features. Scholars have
identified six key features, which are described
below.2
Voluntary Choice
Psychological contracts motivate people to fulfill
their commitments because they are based on the
exchange of promises in which the individual has
freely participated. Commitments made voluntar-
ily tend to be kept. An employee who agrees to
work for a firm for at least a year is likely to be
internally conflicted if offered a job elsewhere a
few months after being hired. Indeed, that em-
ployee is more likely to decline the offer than a
colleague who had made no such commitment to
the employer. Explicit voluntary commitments ("I
agree to stay a minimum of a year") have more
powerful effects on behavior than implicit ones ("to
stay a while").
Belief in Mutual Agreement
An individual's psychological contract reflects his
or her own understanding of the commitments
120
This content downloaded from 128.237.144.74 on Sat, 07 Nov 2015 01:42:39 UTC
All use subject to JSTOR Terms and Conditions
2004 Rousseau 121
made with another. Individuals act on that subjec-
tive understanding as if it is mutual, regardless of
whether that is the case in reality. For instance,
consider a new employee who is told that her job
requires two or three days of travel a week. The
employee might interpret that to mean that she
will be traveling no more than three days a week,
although the manager who hired her really meant
that there would be two or three days of travel per
week on average. More experienced recruits are
better at probing for mutual understanding than
rookies are.
Incompleteness
With the exception of short-term, limited transac-
tions (e.g., temporary help), psychological con-
tracts tend to be incomplete and need to be fleshed
out over time. Neither worker nor employer can
initially spell out all the details of a long-term
employment relationship. Indeed, it is impractical
to expect either party to recall all the relevant
details that should be shared with another. More-
over, changing circumstances mean that not all
contingencies can be foreseen. As a result, psycho-
logical contracts tend to become more elaborate
over the course of the employment relationship.
That said, by filling in the blanks along the way,
the parties to a psychological contract can come to
have inconsistent understandings over time-un-
less periodic efforts are made to reinforce mutual-
ity. Interestingly, aspects of employment that
workers find satisfying but that are not part of the
psychological contract (e.g., the camaraderie of
colleagues) can, over time, come to be viewed as
part of the promised status quo.3 In essence, these
aspects morph into the psychological contract, ne-
cessitating attention similar to that given to other
explicit promises.
Multiple Contract Makers
How workers interpret their psychological con-
tracts with employers is shaped by many sources
of information. For instance, information sources
may include top management, human resource
representatives, and, in particular, a worker's im-
mediate boss. The boss consistently sends strong
signals regarding the terms of an individual's psy-
chological contract. Indeed, if their immediate
boss leaves, many workers will view the departure
as a violation of their psychological contract with
the firm. When their boss leaves, many workers
feel they are losing the shared understanding
about their psychological contracts. Coworkers
can also provide information which people use to
determine what they owe employers and vice
versa. Lastly, human resource practices such as
training and performance appraisal processes can
signal promised benefits and required contribu-
tions. And as you might suspect, when information
sources convey different messages, it erodes the
mutuality of the psychological contract.
Managing Losses When Contracts Fail
If workers or employers rely on psychological con-
tracts to guide their actions, then the failure of the
other party to fulfill anticipated commitments re-
sults in "losses" (i.e., promised benefits that fail to
materialize). Such losses are the basic reason why
psychological contract violation generates strong
negative reactions, including anger, outrage, ter-
mination, and withdrawal of support. In essence,
workers and employers must focus both on fulfill-
ing commitments of their psychological contracts
as well as on managing losses when existing
commitments are difficult to keep. For instance,
an employer might offer someone a challenging
project when a promised promotion fails to mate-
rialize. Likewise, a worker who misses a critical
meeting might make special efforts to follow up
with colleagues to ensure that her performance is
unimpaired.
Workers and employers must focus both
on fulfilling commitments of their
psychological contracts as well as on
managing losses when existing
commitments are difficult to keep.
The Contract as Model of the Employment
Relationship
A psychological contract creates an enduring men-
tal model of the employment relationship. This
mental model provides a stable understanding of
what to expect in the future and guides efficient
action without much need for practice. Think about
the way the conventional QWERTY keyboard helps
those of us who type in English to compose a doc-
ument without looking at the keyboard. Having a
psychological contract as a mental model helps
employer and worker function despite having in-
complete information about the other party's inten-
tions or expectations. Subsequent information also
tends to be interpreted in light of the pre-existing
psychological contract. For the most part, this is
functional since new performance demands can be
This content downloaded from 128.237.144.74 on Sat, 07 Nov 2015 01:42:39 UTC
All use subject to JSTOR Terms and Conditions
122 Academy of Management Executive February
incorporated into existing understandings of one's
work role.
But sometimes the old psychological contract is
too out of line with the new reality, and a more
elaborate change process is required. And workers
aren't the only ones who sometimes have trouble
adapting their psychological contracts to changing
circumstances. For example, spillover effects have
been reported among managers of information
technology (IT) workers whose status changed
from regular employee to independent contractor.
Managers continued to believe that their former
workers should fulfill the duties of regular employ-
ees despite the fact that they now worked for a
contracting agency. Interestingly, the IT workers
recognized that the relationship with their former
employer had shifted. Consequently, they had less
trouble revising their psychological contracts than
their bosses did.4
Types of Psychological Contracts
Although psychological contracts share certain
features, they can also take many forms depending
upon the nature of the work, the human resource
strategy in place, and employee motives. Promises
can be very limited, as in the case of the simple
economic transaction that temporary work entails.
On the other hand, psychological contracts can
involve a host of relational commitments. Al-
though the myriad details of a psychological con-
tract can be as unique as each individual, there
are general patterns that differentiate how work-
ers and employers behave toward each other.5
There are general patterns that
differentiate how workers and employers
behave toward each other.
Relational psychological contracts include such
terms as loyalty (worker and employer commit to
meeting the needs of the other) and stability (an
open-ended commitment to the future). Workers
with relational contracts tend to be more willing to
work overtime whether paid or not, to help cowork-
ers on the job, and to support organizational
changes that their employer deems necessary. Al-
though workers with a relational contract are
likely to be particularly upset when it is violated,
the commitment embedded in such contracts often
causes workers to seek remedies that will main-
tain the relationship with the employer. Failure to
remedy the situation typically leads to turnover or,
if the employee remains, to reduced contributions
and further erosion of the employment relation-
ship.6
On the other side of the coin, employers with
relational contracts absorb more of the risk from
economic uncertainties, often protecting workers
from economic downturns. Malden Mills CEO
Aaron Feuerstein, an archetypal employer with a
relational contract, continued to pay his workers
after his factory burned down, to tide them over
until a new facility was built.7 Workers favor em-
ployers who offer them a relational psychological
contract as opposed to the more limited transac-
tional variety discussed below. In turn, employers
are more likely to offer relational contracts to par-
ticularly valued workers than to workers who con-
tribute less.
Transactional psychological contracts include
such terms as narrow duties and a limited or short-
term duration. Workers with transactional con-
tracts tend to adhere to its specific terms and to
seek employment elsewhere when conditions
change or when employers fail to live up to their
agreement. Transactional contracts characterize
workers whose contributions are less critical to the
firm's comparative advantage and employers who
operate in highly unstable markets (e.g., entertain-
ment, fashion). Both worker and employer are
likely to immediately terminate a transactional ar-
rangement that fails to meet their needs. Transac-
tional contracts shift the risk associated with eco-
nomic uncertainties from the employer to workers.
And the risk to workers can be particularly signif-
icant if they have few alternatives elsewhere. The
archetypal transactional employer is a Call Center
where workers who can easily be replaced often
toil anonymously, performing narrow, limited du-
ties. With transactional contracts, workers tend to
perform in ways consistent with the contributions
they are paid to make. Employers receive a spe-
cific level of contribution from workers and incur
few, if any, future obligations to them. Such ar-
rangements can be effective when workers are
individual contributors, performance can be ex-
plicitly monitored, and there is little need to coor-
dinate with others. Transactional contracts are
less functional when they are a by-product of vio-
lated or poorly managed relational contracts. In
such cases, either workers or employers have lost
trust in the other, resulting in a more wary arms'
length relationship.
Finally, "hybrid" or balanced psychological con-
tracts have emerged in recent years. These con-
tracts combine the open-ended time frame and mu-
tual concern of relational agreements with the
performance demands and renegotiation of trans-
actional contracts. Balanced contracts combine
This content downloaded from 128.237.144.74 on Sat, 07 Nov 2015 01:42:39 UTC
All use subject to JSTOR Terms and Conditions
2004 Rousseau 123
commitments on the part of the employer to de-
velop workers (both in the firm or elsewhere if need
be), while anticipating that workers will be flexi-
ble and willing to adjust if economic conditions
change. Balanced contracts entail shared risk be-
tween worker and employer. Moreover, such con-
tracts anticipate renegotiation over time as eco-
nomic conditions and worker needs change.
General Electric represents the classic balanced
contract where workers trade job security for the
opportunity to continually learn valued skills and
make contributions that have economic benefit
both to the employer and themselves (e.g., in the
form of stock ownership, profit sharing, and other
forms of economic participation).
From a distance, assessing which type of psy-
chological contract is operating is difficult-just as
judging a marriage is difficult from the outside
looking in. Employment status, for example,
whether part or full time, of brief duration or long
term, doesn't indicate the type of psychological
contract that workers will have with an employer.
Part-time workers and newcomers can have highly
relational agreements with an employer. Con-
versely, many full-timers and veterans report only
limited commitments between themselves and
their firms. To grasp the nature of the psychologi-
cal contracts in place, it is necessary to drill down
into the beliefs which workers and employers hold
as well as the information sources they use to
interpret the work environment. To increase mu-
tual understanding, managers may want to initi-
ate discussions with employees to share beliefs
and perspectives that shape each side's psycho-
logical contracts.
Agreement between worker and
employer on what each owes the other is
critical to the employment relationship's
success.
Mutuality: The Gold Standard
As noted earlier, a major feature of a psychological
contract is the individual's belief that an agree-
ment is mutual; that a common understanding
binds the parties involved to a particular course of
action. Agreement between worker and employer
on what each owes the other is critical to the em-
ployment relationship's success. Of course, psy-
chological contracts are more likely to be kept
when both parties agree on the terms. Conse-
quently, creating mutuality is the gold standard in
employment relations.
In essence, worker attitudes should be more pos-
itive and their performance better when both par-
ties agree on what the employer has promised the
worker than when a mismatch exists. So if both
worker and employer agree that the contract is
transactional, then satisfaction and performance
will be greater than if one party believes it is
transactional and the other thinks differently. The
same holds for relational and balanced contracts.
In one research organization, for instance, the
highest levels of productivity, career advance-
ment, and worker satisfaction were found when
worker and employer agreed upon a balanced psy-
chological contract.8
That said, workers and employers tend to have
different perceptions of how well each fulfills their
side of the bargain. Employers tend to rate them-
selves more highly on fulfilling their end of the
deal than workers rate employers. Similarly, work-
ers generally rate themselves as having fulfilled
their end of the bargain to a greater degree than
their employer does. This pattern conforms to the
well-established availability bias, where parties
to a relationship are better able to recall their own
contributions than those of their partners.9 The
widespread tendency of husbands and wives to
rate their respective contributions to the marriage
in ways that exceed 100 per cent is a well-known
example of the availability bias in action. But it is
important to note that while workers and employ-
ers might each think they contribute somewhat
more to the relationship than their partner does,
these differences do not necessarily mean that
they believe their contract has been violated. In-
stead, both parties credit themselves with more
than their counterpart typically acknowledges or is
aware of.
However, biases in perceptions of contributions
do create problems in an important aspect of mu-
tuality: agreement on what workers owe the em-
ployer as payback for the employer's contributions
to them. Research shows that reciprocity is more
difficult to establish in balanced contracts where
worker contributions are expected to change with
circumstances and to be renegotiated periodically.
Perhaps because balanced arrangements are rel-
atively new, workers and employers are less famil-
iar with effective ways of managing them. It also
may be that dynamic situations requiring more
flexible responses make paybacks more difficult to
specify upfront. Given the role of negotiation over
time in balanced agreements, difficulty in achiev-
ing mutuality regarding worker obligations sug-
gests that both employer and worker need to keep
each other better informed regarding their inter-
ests, needs, and opportunities for constribution. For
This content downloaded from 128.237.144.74 on Sat, 07 Nov 2015 01:42:39 UTC
All use subject to JSTOR Terms and Conditions
124 Academy of Management Executive February
this reason, firms with balanced contracts should
use HR practices that combine financial and devel-
opmental incentives with open-book management
and opportunities for worker participation in deci-
sion making.'0
Not surprisingly, the more workers contribute
over time, the more likely they are to feel that the
employer has increased the number and level of
promises made, even if the actual number of ful-
filled promises has diminished. Periods of high
contributions by workers tend to make salient the
promises employers have made as well as gaps
between what is promised and what has (so far)
been delivered. The key point is that while sub-
stantial benefits accrue when worker and em-
ployer perspectives are in agreement, mutuality
cannot be assumed, and fulfillment of both sides of
the psychological contract is a work in progress in
the employment relationship over time.
A long list of dysfunctional outcomes is gener-
ated when an employer or worker believes that
the psychological contract has been willfully
breached by the other side.II From the worker side,
anger, quitting, and lower performance, particu-
larly in terms of discretionary contributions such
as citizenship behavior, are the more overt mani-
festations of psychological contract violation. More
subtle can be the mistrust, emotional withdrawal,
and sabotage that also accompany violation, par-
ticularly in circumstances where the violated party
continues in the employment relationship. In such
cases, erstwhile relational contracts can turn
transactional as the aggrieved party monitors
each interaction for signs of exploitation or abuse.
Though more relationally oriented agreements
may withstand threats to the psychological con-
tract, significant breaches or drastic changes that
are poorly managed can create a cycle of escalat-
ing violation over time. Incidents that fundamen-
tally breach valued conditions of employment can
form the basis of contract violation (e.g., the em-
ployer did not respond effectively to sexual harass-
ment complaints). In the aftermath of violation or
poorly managed change, the process of restoring
trust can require the formation of a new relation-
ship, finding ways for veterans to begin feeling
like newcomers in a fresh relationship with the
same employer.'2
How Does the Employer Impact the Psychological
Contract?
Early experiences with an employer, from recruit-
ment to initial work on the job, have powerful af-
fects on the psychological contract. Socialization
events, particularly initial assignments to bosses
and coworkers, can have pervasive effects over
time on beliefs that a worker holds about the em-
ployment relationship. 13 Training and develop-
ment activities are another important source of
beliefs regarding psychological contract terms, as
well as their degree of fulfillment. In particular, the
quality of training shapes whether workers believe
commitments have been made, and kept, regard-
ing career development.'4 So too do broader prac-
tices like promotion from within and informal men-
toring shape the climate of the organization as
developmentally focused and supportive.
But by far the most important aspect of the "em-
ployer's side" is the role that managers play. Man-
agers, both immediate supervisors and higher-ups,
play the central role in shaping a worker's psycho-
logical contract. The presence of a supportive im-
mediate manager can serve to amplify or down-
play messages sent by the firm's HR practices
regarding the nature of the employment relation-
ship.'5 Importantly, managers report actively using
the notion of a psychological contract in the way
they reward, motivate, and otherwise signal to em-
ployees about what to expect from the firm in the
future.'6 For instance, managers can tailor their
recruitment efforts to signal broader (more numer-
ous and munificent) terms in their psychological
contracts with new workers. Likewise, managers
report using top-down communication regarding
the psychological contract to convey the mutual
obligations they seek with workers (e.g., specifying
the performance deliverables required for pay
raises and advancement).
Managers who feel poorly treated by the
employer are less likely to make
extensive commitments to their workers
or to signal that the employer is
trustworthy.
A manager's own psychological contract also in-
fluences the contracts he or she creates with work-
ers. Managers who see their own psychological
contract as promising career development in ex-
change for high performance are likely to signal a
similar psychological contract to their subordi-
nates. In contrast, a manager who views his or her
job as a stepping stone to employment elsewhere
is less likely to encourage staff development.'7
Moreover, managers who believe the employer has
fulfilled its commitments to them are more likely to
believe the employer will honor commitments
made to managerial staff. In contrast, managers
who feel poorly treated by the employer are less
This content downloaded from 128.237.144.74 on Sat, 07 Nov 2015 01:42:39 UTC
All use subject to JSTOR Terms and Conditions
2004 Rousseau 125
likely to make extensive commitments to their
workers or to signal that the employer is trustwor-
thy. Consequently, how employers select, train,
and motivate managers has considerable impact
on the psychological contracts that workers expe-
rience. Indeed, rank-and-file employees appear to
expect that the employer will manage managers in
ways that directly influence their own psycholog-
ical contracts with the firm.
After managers, coworkers are an important
source of information regarding promises that em-
ployers have made and what workers owe in re-
turn (e.g., regarding role responsibilities, job secu-
rity). In one study of social networks in a start-up
firm, workers formed psychological contracts that
were similar to those held by coworkers whom they
viewed as friends and to those held by coworkers
whom they sought out for advice. Such effects were
more powerful early on (where few procedures ex-
isted to socialize newcomers), declining over time
as the firm became more structured.'8
How Do Workers Shape Their Own Psychological
Contracts?
Workers shape their own psychological contracts
in three ways. First, through their career goals,
workers make different commitments to the firm
depending on whether they view it as a long-term
employment possibility or merely a stepping stone
to better opportunities elsewhere. Career-minded
workers with a stepping-stone perspective tend to
adopt a more transactional view of employment,
while workers seeking longer-term employment
tend to embrace relational contracts.'9
Second, personality undeniably plays a role in
psychological contracts. Transactional contracts
are more likely to be created by workers who are
highly neurotic or overly sensitive to fairness is-
sues (e.g., about their pay). In contrast, workers
who are conscientious and possess high self-
esteem are more likely to report having relational
contracts, in part because they behave in ways
that employers value highly.20
Third, workers who have negotiated special em-
ployment arrangements not available to others are
more likely to believe they have relational con-
tracts. This is particularly characteristic of workers
who have negotiated special opportunities for
training and development. Moreover, these special
arrangements (known as "idiosyncratic deals")
have particularly powerful effects on the psycho-
logical contract when created among current em-
ployees as opposed to during the recruiting pro-
cess. Workers who successfully bargain for special
arrrangements during recruitment tend to attribute
them to their market value. In contrast, workers
who receive special arrangements after they have
been on the job awhile believe this treatment sig-
nals something special about their employer.2'
Guidelines for Employers
As firms become flatter and more workers manage
themselves and their own careers, the need for
both workers and employers to carefully commu-
nicate to each other their expectations for the fu-
ture has never been greater. Consequently, em-
ployers should take the proverbial bull by the
horns and embrace the idea of managing psycho-
logical contracts. Granted, this is a tall order given
the complexities involved. Nevertheless, following
the guidelines below may help firms effectively
manage psychological contracts and, in so doing,
increase the odds of achieving important organi-
zational goals.
Strive for Consistent Implementation of
Psychological Contracts
Because there are multiple "contract makers" (e.g.,
managers, HR, co-workers, etc.), employers need
consistent implementation of their psychological
contracts with workers throughout the firm. This
does not mean, however, that one size fits all. In-
deed, the same employer is likely to manage a
variety of distinct psychological contracts with its
workers. Nonetheless, the employer must take re-
sponsibility for the messages that it sends via its
individual managers, coworkers, and array of hu-
man resource practices. It needs to repeatedly clar-
ify what commitments it makes and is asking in
return so that managers, coworkers, and human
resource practices are aligned with respect to an
individual worker's relationship with the em-
ployer.
Establish a Clear Meta-Contract
Despite the existence of multiple psychological
contracts, employers need to establish a clear
meta-contract that can be used across the firm (i.e.,
clear rules about the rules of the contract).22 On the
front end, this meta-contract requires an open ex-
change of information between parties to learn
about each other's interests, goals, and con-
straints. It means acknowledging where different
psychological contracts exist across hierarchical
levels, positions, or functional areas, and the basis
for these differences. On the back end, this meta-
contract specifies how workers and employers
should proceed when perceived psychological con-
This content downloaded from 128.237.144.74 on Sat, 07 Nov 2015 01:42:39 UTC
All use subject to JSTOR Terms and Conditions
126 Acaidemy of Management Executive February
tract violations occur. In essence, this communi-
cates that the employer views violations as a con-
flict that needs effective management. This in turn
signals that such violations can be resolved, which
should help maintain trust over the long haul.
Overall, employers need to develop and spell out
the rules for establishing psychological contracts
within the firm. Ideally, this would include rules
that govern interaction (e.g., openness, mutual re-
spect) as well as steps to be taken should either
side perceive a psychological contract violation.
Employers need to establish a clear
meta-contract that can be used across the
firm.
Build Flexibility into Psychological Contracts
Clearly, psychological contracts must be consis-
tent in terms of promises, expectations, and obli-
gations. Given that the business conditions facing
most firms continue to evolve rapidly, psychologi-
cal contracts must also be flexible enough to allow
the company to adapt (e.g., to changing markets,
technology, etc.). Creating such flexibility may re-
quire some degree of experimentation and a prob-
lem-solving orientation, particularly in the context
of the employer's meta-contract. It may also mean
that firms need to be flexible and creative when
unexpected events or drastic changes cause losses
for employees. Looking for creative ways to offset
such losses (e.g., generous severance packages,
additional training, extensive worker involvement
in developing responses to change pressures) can
pay dividends for the firm by reducing the likeli-
hood that workers will feel that their psychological
contracts have been violated. The Malden Mills
example mentioned earlier underscores this point.
Indeed, the CEO's decision to continue paying em-
ployees after their plant burned to the ground
strengthened worker loyalty and commitment to
the firm.
Overall, the psychological contract is a product
of a complex web of exchanges between worker
and employer, with the latter represented by sev-
eral parties at the same time. Many employers
simply have no clue how many different "contract
makers" shape the beliefs that their workers hold,
implying obligations without fully comprehending
their ramifications. In contrast, employers that de-
liberately formulate and execute consistent psy-
chological contracts are in a position to keep their
commitments and motivate the worker contribu-
tions essentialI to their mutual success. Enterprises
that serve their stakeholders well are sustained by
principled leadership and a highly committed
workforce, and psychological contracts are their
fundamental building blocks.
Endnotes
1
Rousseau, D. M. 1995. Psychological contracts in organiza-
tions: Understanding written and unwritten agreements. New-
bury Park, CA: Sage. See also Rousseau, D. M., & Schalk, R.
(Eds.). 2000. Psychological contracts in employment: Cross-
national perspectives. Thousand Oaks, CA: Sage Publications.
2Ibid.
3Lambert, L. S., Edwards, J. R., & Cable, D. M. (in press).
Breach and fulfillment of the psychological contract: A compar-
ison of traditional and expanded views. Personnel Psychology.
'Ho, V. T., Ang, S., & Straub, D. 2003. When subordinates
become IT contractors: Persistent managerial expectations in IT
outsourcing. Information Systems Research, 14: 66-86.
5 Rousseau.
6Rousseau, D. M., Robinson, S. L., & Kraatz, M. S. 1992. Rene-
gotiating the psychological contract. Paper presented at the
Society for Industrial/Organizational Psychology meetings,
Montreal.
7 The mensch of Malden Mills. CBSNEWS.com, 3 July
2003, http:llwww.cbsnews.com/storiesl2OO3/07/O3/6OminutesI
main 561656.html (downloaded 26 December 2003).
8Dabos, G. E., & Rousseau, D. M. 2004. Mutuality and reci-
procity in the psychological contracts of employee and em-
ployer. Journal of Applied Psychology, in press.
9Fiske, S. T., & Taylor, S. E. 1984. Social cognition. Reading,
MA: Addison Wesley; Rousseau, D. M. 2000. Psychological con-
tract inventory technical report. Heinz School of Public Policy
and Management, Carnegie Mellon University, Pittsburgh, PA.
http:llwww.andrew.cmu.eduluser/rousseau/ -reports!.
10 Rousseau, D. M., & Shperling, Z. 2003. Pieces of the action:
Ownership and the changing employment relationship. Acad-
emy of Management Review, 12: 115-134.
11
Robinson, S. L., & Rousseau, D. M. 1994. Violating the psy-
chological contract: Not the exception but the norm. Journal of
Organizational Behavior, 15: 245-259; Robinson, S. L. 1996. Trust
and breach of the psychological contract. Administrative Sci-
ence Quarterly, 41: 574-599; Bunderson, J. S. 2001. How work
ideologies shape the psychological contracts of professional
employees: Examining doctors' responses to perceived breach.
Journal of Organizational Behavior, 22: 717-742; Turnley, W. H.,
& Feldman, D. C. 2000. Re-examining the effects of psychologi-
cal contract violations: Unmet expectations and job dissatisfac-
tion as mediators. Journal of Organizational Behavior, 21: 25-42.
2 Rousseau, D. M. 1995. Changing the deal while keeping the
people. The Academy of Management Executive, 10(1):
50-61.
3 Thomas, H. D., & Anderson, N. 1998. Changes in newcom-
ers' psychological contracts during organizational socializa-
tion: A study of recruits entering the British Army. Journal of
Organizational Behavior, 19: 745-767; De Vos, A. 2002. The indi-
vidual antecedents and the development of newcomer's psycho-
logical contracts during the socialization process: A longitudi-
nal study. Gent: University of Gent, Ph.D. thesis; Wanous, J. 1982.
Organizational entry: Recruitment, selection, and the socializa-
tion of newcomers. Reading, MA: Addison-Wesley.
14 Nordhaug, 0. 1989. Reward functions of personnel training.
Human Relations. 42: 373-388.
15 Takleab, A. G., & Taylor, M. S. 2001. Aren't there two parties
in an employment relationship: Antecedents and consequences
of organization-employee agreement on contract obligations
This content downloaded from 128.237.144.74 on Sat, 07 Nov 2015 01:42:39 UTC
All use subject to JSTOR Terms and Conditions
2004 Kiewitz 127
and violations. Paper presented at the Academy of Manage-
ment Meeting, Washington DC, August.
16 Guest, D. E., &
Conway, N. 2000. Can an organization have
a psychological contract?
A conceptual and empirical analysis.
Paper presented at the Academy of Management Meeting, To-
ronto, August.
7 Coyle-Shapiro, J. A-M., & Kessler, I. 2002. Exploring reci-
procity through
the lens of the psychological contract: Employee
and employer perspectives. European Journal of Work and Or-
ganizational Psychology, 11:
69-86.
18 Ho,
V.
T., Levesque, L.
L., & Rousseau, D. M.
Social networks
and the psychological contract: Effects of structural holes and
cohesive ties. Paper under review.
9 Rousseau, D. M. 1990. New hire perspectives of their own
and their employer's obligations: A study of psychological con-
tracts. Journal of Organizational Behavior, 11: 389-400.
20 Raja, U., Johns, G., & Ntalianis, F. (in press). The impact of
personality on the psychological contract.
Academy of Manage-
ment Journal.
21 Rousseau, D. M., & Kim, T. G. When workers bargain for
themselves and career advantage. Unpublished manuscript:
Rousseau, D. M. (in press). I-Deals: When workers bargain for
themselves. New York:
M. E. Sharpe.
22 Shore, L. M., et al. (in press). The employee-organization
relationship: A timely concept in a period of transition. Green-
wich CT:
JAI
Press.
Denise M. Rousseau is the
H.
J.
Heinz II Professor of Organ-
izational Behavior and Public
Policy at Carnegie Mellon Uni-
versity. Her research interests
focus upon employment rela-
tions and change management.
She is editor in chief of the Jour-
nal of Organizational Behavior
and in 2004-2005 is president of
the Academy of Management.
Contact: rousseau@andrew.cmu.
edu.
Happy Employees and Firm
Performance: Have We Been Putting
the Cart Before the Horse?
Christian Kiewitz, University of Dayton
Most managers believe that if employees are
happy and satisfied, then the organization is more
likely to perform well. Indeed, most managers
probably feel that having happy employees is a
necessary ingredient for outstanding organiza-
tional performance. But is this conventional wis-
dom really true? What about the possibility that
organizational performance drives employee sat-
isfaction? In other words, maybe it's not that happy
employees make for high-performing firms, but
that when organizations excel, it makes employees
happy. Simply put, this is a classic "cart before the
horse" question that has been the subject of schol-
arly interest for a long time. That said, most re-
search on this question has focused on individual
employee, rather than organizational, productivity.
So can new light be shed on the subject by exam-
ining the connection between employee attitudes
and overall organizational performance? After all,
while individual performance is always a concern,
the big prize is outstanding company performance.
The prevailing view is that employee
attitudes drive organizational
performance while performance itself
doesn't drive much of anything.
Recognition of this fact was part of the impetus
behind a recent study conducted by Benjamin
Schneider, Paul Hanges, D. Brent Smith, and Amy
Salvaggio, all from the University of Maryland.
Schneider and his colleagues began wondering
about the causal direction between employee atti-
tudes and firm performance after looking at finan-
cial and employee data from about 25 of America's
most admired companies. Clearly, the prevailing
view is that employee attitudes drive organiza-
tional performance while performance itself
doesn't drive much of anything. Nevertheless,
some recent studies have implied that the opposite
can occur. These studies suggest that firm perfor-
mance drives employee attitudes just as much as,
if not more than, the other way around.
But do these studies mean that managers should
just throw up their hands when it comes to em-
ployee attitudes? And does that imply that manag-
ers now have a green light to junk costly employee
attitude surveys and focus exclusively on the bot-
tom line? According to Schneider and his col-
leagues, the answer is "no." While this might dis-
appoint managers facing tight budgets, it tums out
that the relationship between employee attitudes
and firm performance is complex and defies easy
answers.
For their study, Schneider and his colleagues
obtained eight years' worth (1988-1995) of em-
ployee attitude data from a group of large corpo-
rations, most of which were part of the Fortune 500.
These firms represented a diverse set of industries
(e.g., automobile manufacturing, telecommunica-
tions, financial services) and were part of a con-
sortium that required them to administer attitude
surveys to their employees on an annual basis (on
average 450 people per company were surveyed).
The surveys focused on several aspects of em-
ployee satisfaction, including their satisfaction
with job security, benefits, pay, and the job as a
whole.
This content downloaded from 128.237.144.74 on Sat, 07 Nov 2015 01:42:39 UTC
All use subject to JSTOR Terms and Conditions
