Psychoogical Contract

INTRODUCTION TO SOCIAL CONTRACT

What is a 'Social Contract'?

Social contract theory (or contractarianism) is a concept used in various fields such as philosophy, political science, and sociology to denote an implicit agreement within a state regarding the rights and responsibilities of the state and its citizens, or more generally an agreement between a group and its members, or between individuals. Thomas Hobbes, John Locke and Jean-Jacques Rousseau are the most famous philosophers of contractarianism.

Violation of Social Contract

To be a member of society is to accept responsibility for following its rules, along with the threat of punishment for violating them. Hence all members within a society are assumed to agree to the terms of the social contract by their choice to stay within the society without violating the contract. The rights given to an individual could be negative or positive obligations and both are essential to be enforced to protect our interests.

Families of Social Contract

Social contract theories can be divided into two broad concepts. An external logic which says that some goal can be attributed to all social contract theories. Second is internal logic which deals with the manner of argumentation in which the goal can be supported.

The three families of social contract are:

a. Classical Social Contract - This characterizes the State and the political framework within the state. The parties involved here are the individual citizens of the state and it focuses on resolving the lack of political order in the State. The internal logic of problem solution frame looks at reconciling political order with individual freedom.

b. Modern Social Contract - This deals with basic institutions of society and aims to provide social justice. The parties involved are individuals in the society. It focuses on resolving the problem of lack of starting positions in distribution of cooperative surplus. Hence the contract says that the society should be organized in terms of its principal institutions so that the cooperative surplus was be fairly distributed among the various stakeholders who are a part of the added value resulting from human productive cooperation. The internal logic of problem solution frame is designing an endowment-insensitive, ambition-sensitive distributive scheme.

c. Contractarian Business Ethics - This talks about system of corporate production and moral norms of business. The parties involved are business and society. The focuses on the problem of lack of moral norms mutually binding all stakeholders affected by corporate action. The internal logic involved in problem resolution is accommodation and collective action. The background conditions required is a system of production cooperation and a sanctioning authority.

The social contract model hence forms a good framework which can be applied to some of the present political, social and corporate structures.

INTRODUCTION TO PSYCHOLOGICAL CONTRACT

What is a 'Psychological Contract'?

The term 'psychological contract' was first used in the early 1960s, but became more popular following the economic downturn in the early 1990s. It has been defined as '...the perceptions of the two parties, employee and employer, of what their mutual obligations are towards each other'. These obligations will often be informal and imprecise: they may be inferred from actions or from what has happened in the past, as well as from statements made by the employer, for example during the recruitment process or in performance appraisals. Some obligations may be seen as 'promises' and others as 'expectations'. The important thing is that they are believed by the employee to be part of the relationship with the employer.

Psychological Contract vs. Legal Contract

The psychological contract can be distinguished from the legal contract of employment. The later will in many cases offer only a limited and uncertain representation of the reality of the employment relationship. The employee may have contributed little to its terms beyond accepting them. The nature and content of the legal contract may only emerge clearly if and when it comes to be tested in an employment tribunal.

The psychological contract on the other hand looks at the reality of the situation as perceived by the parties, and may be more influential than the formal contract in affecting how employees behave from day to day. It is the psychological contract that effectively tells employees what they are required to do in order to meet their side of the bargain, and what they can expect from their job. It may not - indeed in general it will not - be strictly enforceable, though courts may be influenced by a view of the underlying relationship between employer and employee, for example in interpreting the common law duty to show mutual trust and confidence.

In outline, the Guest model suggests that:

 The extent to which employers adopt people management practices will have a major influence on the state of the psychological contract.

 The state of the contract will be reflected in employees' sense of fairness and trust and their belief that the employer will deliver on the 'deal' between them.

 A positive psychological contract will lead to greater employee commitment and satisfaction.

Formation of a Psychological Contract

During the recruitment process, the employer and interviewee discuss what they both can offer in the prospective relationship. If agreement is reached, most employers impose a standard form contract and the rest of the details are clarified on job. The first year of employment is critical as actual performance of the employee can be measured against claims and promises made during the interview, and the management establishes a track record in its relationship with the employee at supervisor and manager level. Feldhiem reflects these two strands by dividing the psychological contract into:

 Transactional psychological contract: this is the economic or monetary base with clear expectations that the organization will fairly compensate