Individual Critical Review

  • Category:
  • Document type:
  • Level:
  • Page:
  • Words:

Performance Management and Psychological Contract: 3

Performance Management and Psychological Contract.

Performance Management and the Psychological Contract.

One of the most important element in the field of Human Resource is Psychological Contract. It is an increasingly relevant aspect of relationships in workplaces (Conway, Briner, and web-support, 2016). The concept of Psychological Contract emerged in the 1960s. It was cited mostly in the work of Chris Argyris and Edgar Schein, who were behavioral theorists. It has different definitions, but the primary one, refers to the employer and employee relationship, with a focus on expected inputs and outputs in the organization ( Beardwell, Holden, and Claydon, 2004). Employees just define it as the balance or fairness between the employer and the staff. Institute of Personal Development in the UK defines Psychological Contract as the perceptions of two entities, in this case, the employer and the employee, and their mutual obligations to one another.

Literature collected and studied over time points out that PC is adaptable to several elements of the society. The location also plays a significant role in its content changes as the elements changes. It regards to the difference in societal factors (Thomas et al., 2003).

The relationship between the employer and the employee is substantially determined by HR processes and practices within the company. Performance management, in particular, is vital and plays a significant role in building a framework that establishes the psychological contract. According to Guest & Conway, (2002), the relationship is alternated between the employees and the agency and is based on responsbilities and anticipations perceived from one another.

Performance management is a unique component that comprehensively creates a system that incorporates different variables, i.e., one on one meetings through processes that controls and manages underperformance. It, therefore, can be defined as the practice that ensures that the goals of a particular organization are consistently being met. It focuses on performance, promotions, enumeration, terminations, transfers and development and lastly, outlines the procedures followed when disciplining an employee (Nerve and Eisenberger, 2012). Managers and staff continuously work together to plan, review and monitor the work objectives of the employees, and their contribution to the organization. The fundamental aim of performance management is promoting and improving employee effectiveness and achieving the organization’s business objectives (Mone and London, 2014).

Potential sources and factors such as human behavior and attitude are paramount in having a functioning performance management system in any agency (Rousseau, 2001). How employees connect, interact and communicate with other staff and their bosses directly affects the quality of work thereby influencing directly or indirectly the rate of achieving the agency’s goals and aims. Discontentment from an employee may cause an imbalance, which may lead to poor conduct of employee hence affecting the growth of the body negatively.

Herriot (1992) stated in his model of PC that an employee will construct the PC according to internal and external factors. The influence of the management in employing people is classified as an internal element and is the obvious one among the other internal factors. All factors that affect the behavior and attitude of the staff should be considered since the factors impact on the performance outcomes (Marthur and Gupta 2012). The factors include mental attitude, family background, values, and expectations.

The kind of relationship between the employer and the employee can be defined according to their particular characteristics, by two distinct types of contract, namely, transactional and relational contracts. The relational contract is structured based on less tangible rewards, emotional attachment, utmost trust, and employment on a long-term basis. They were commonly used before the recent market shifts and the changes in the business world. Due to drastic changes experienced in the business world, many companies have changed to the transaction type of employment.The transaction contract states direct exchange of commitment and emphasizes on material rewards having short-term durations.

It is crucial to know the type of relationship the parties might take in any case. Ideally, employees may request for a transactional-type of contract, yet the organization was offering a relational kind of contract (Yadav and Dabhade, 2013). Confusion may arise in the agency due to the disorder of the type of contract signed. The organization can in such instances, decide to combine the two and form a hybrid type of PC (Guzzo and Noonan, 1994). This will raise the credibility of the company in handling both the transactional and relational deals.

Some arguments contest whether the Psychology Contract (PC) is considered as a contract. Guest (2004) suggests that regarding PC as a ‘contract’ compromises the scaffolding of theory of PC. Legally, a contract means to have an agreement. However, PC entails perceptions that are subjective, therefore, two parties, coming to an ‘agreement’ is inherently problematic. In simpler terms, pinning down exactly the point the PC might be negotiated successfully, is tough ( Guest, 2004). Contrarily, a legal contract has specific parameters, for example, it is written down on paper, and verbalized. It also has stipulated content. Both the parties can read and agree to the terms of the contract. A contract, therefore, cannot be easily changed without the knowledge of any of the parties (Robinson and Rousseau, 1994).

Change in the context of the psychological contract, according to theory, suggests that some members or employess might perceive that the organization is not meeting its obligations, therefore resulting in the employee’s expectations not being met. The loyalty and overall performance hence is affected (Beardwell et al., 2004). The above description is referred to as the violation of the PC (Rousseau, 1995) and therefore, a violation should be avoided at all costs. The violation is as a result of a breach. Anger, betrayal, and disappointment, all effects of violation, worsens the performance of people (Reery, Iverson and Walsh, 2006). The performance can be affected by how the staff will react. Some will exit the company; others will speak out and resolve the problem while others will neglect the indifference hence portray counterproductive behavior.

In conclusion, since the entrance of psychological contract into the HR sphere, the employment relationship has widely spread its legs beyond the limiting right frame. An enormous amount of knowledge regarding the subject has been relied on like Rousseau (2001). Rousseau outlines the strengths and the consequences of the issue. However, Guest (2004) claims that more needs to be done for the PC to be maximally put to use as a viable framework in HR.

Secondly, facts about PC’s definition and the expectations of the workforce of an organization, including the managers has been stated in the contemporary literature. It lacks other conceptual and empirical information relevant in presenting PC. The literature is more about workers and managers in relatively large companies as opposed to small firms (CIPD, 2003). Researchers, therefore, should consider conducting studies on smaller businesses to have a holistic picture of the PC in both large and small businesses. The research should be qualitatively and quantitatively carried out to produce comparative studies to overcome contextual differences in other sectors. By doing this, complexities that arise from small businesses will be minimal.

Finally, psychological contract is influenced by two elements, namely external and internal. Relationships between two conveyed parties that have been exposed to these influences have unique characteristics that cause the parties to utilize the PC. This can help leaders to align their staff’s objectives with those of the company. It will also influence the team mentalities and welfare (Coyle-Shapiro and Kessler, 2000).


Beardwell, I., Holden, L. and Claydon, T. (2004) Human resource Management: A Contemporary Approach, Essex: Prentice Hall.


Conway, N. and Briner, R.B., 2005. Understanding psychological contracts at work: A critical evaluation of theory and research. Oxford University Press.

Conway, N., Briner, R.B. and web-support (2016) Understanding psychological contracts at work: A critical evaluation of theory and research. Available at: (Accessed: 26 April 2016).

Coyle-Shapiro, J. and Kessler, I. (2000) ‘Consequences of the psychological contract for the employment relationship: A large scale Survey*’, Journal of Management Studies, 37(7), pp. 903–930.


Guest, D.E. and Conway, N., 2002. Communicating the psychological contract: an employer perspective. Human resource management journal, 12(2), pp.22-38.

Guzzo R. A. and Noon, K. A. (1994) ‘Human Resource Practices as Communications and the Psychological Contract’, Issues in People Management, 16, London: IPD.

Herriot, p. and Pemberton, C. (1995) ‘ A new deal for middle managers’, People Management, 15 June, pp. 32-34


Mathur, S.K. and Gupta, S.K., 2012. Outside Factors Influencing Behavior of Employees in Organizations. International Journal of Information and Education Technology, 2(1), p.48.

Mone, E.M. and London, M. (2014) Employee engagement through effective performance management: A practical.

Neves, P. and Eisenberger, R. (2012) ‘Management communication and employee performance: The contribution of perceived organizational support’, Human Performance, 25(5), pp. 452–464.

Robinson, S.L. and Rousseau, D.M., 1994. Violating the psychological contract: Not the exception but the norm. Journal of organizational behavior, 15(3), pp.245-259.

Yadav, R.K. and Dabhade, N., 2013. Performance management system in Maharatna Companies (a leading public sector undertaking) of India–a case study of BHEL, Bhopal (MP). International Letters of Social and Humanistic Sciences, 4(49), pp.49-69.