Harvard Business School9-474-159Rev. April 30, 1985Note on Managing the Psychological Contract

The purpose of this note is to consider the individual-organization relationship and itsimplications for the manager of a functional unit (a sales force, manufacturing plant, controller’sdepartment). Since most business organizations are built on functional units, managers at this levelare centrally involved in managing the interface between the work of the organization and the skillsof the employee. Managers are responsible not only for insuring that the technical resources forperforming tasks are available (the necessary equipment, raw materials) but also for managing themotivation of their employees. They must facilitate a relationship between employees and the firmthat encourages their subordinates to willingly expend energy on organizational tasks.

The Relationship

Dynamics of Reciprocation

In the relationship between the individual employee and the organization, each partyparticipates only because of what it expects to receive in exchange for participation.1 An individual,like an organization, constitutes a system with particular needs. These two systems enter into a jointcooperative relationship only when it offers opportunities for the fulfillment of their respective needs.The organization employs the individual because his or her services are essential for the achievementof its goals; similarly, the individual contributes services only when it leads to the fulfillment of his orher personal needs.

The Psychological Contract

The basis of this reciprocal relationship is the psychological contract, which may be definedas the mutual expectations of the individual and the organization as articulated by its managers.2Both parties bring to the relationship a set of expectations of what each will give and receive. (TableA provides examples of areas in which the organization and the individual are likely to have1 Discussion of the psychological contract is based primarily on: Harry Levinson et al., Management and MentalHealth (Cambridge: Harvard University Press, 1966), pp. 22-38 and David J. Lawless, Effective Management: SocialPsychological Approach (Englewood Cliffs, New Jersey, Prentice-Hall, Inc., 1972), pp. 144-164.

2 Levinson et al., p. 36; Lawless, p. 147.

Assistant Professor R. Roosevelt Thomas, Jr., prepared this note as a basis for class discussion.

Copyright © 1974 by the President and Fellows of Harvard College. To order copies or request permission toreproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go tohttp://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system,used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying,recording, or otherwise—without the permission of Harvard Business School.1

474-159Note on Managing the Psychological Contractexpectations.) When each party enters into the relationship, it tacitly accepts the expectations of theother. The set of both the individual’s and the organization’s expectations becomes the basis of thepsychological contract.

Table AExamples of Expectations

What the individual may expect to give and theorganization may expect to receive:

1. An honest day’s work

2. Loyalty to organization

3. Initiative

4. Conformity to organizational norms

5. Job effectiveness

6. Flexibility and a willingness to learn and to developWhat the individual may expect to receive and theorganization may expect to give: 1. Salary 2. Personal development opportunities 3. Recognition and approval for good work 4. Security through fringe benefits 5. Friendly, supportive environment 6. Fair treatment

7. Meaningful or purposeful job

Source: Adapted from John Paul Kotter, “The Psychological Contract: Managing the Joining-Up Process,” CaliforniaManagement Review (Spring, 1973): p. 93.

The individual-organization contract is termed psychological because much of it is oftenunwritten and unspoken. There are several reasons why this may be so:

1. Both parties may not be entirely clear about their expectations and how they wish

them to be fulfilled. They may wish to avoid defining the contract until they have

a better feel for what they want. This may be one explanation of the tendency of

management recruiters and applicants to define their expectations in very

general terms. Frequently recruiters see themselves “buying brains” which will

adapt to some as yet undefined job, while applicants want to maintain as much

latitude as possible in specifying the type of jobs which interest them.

2. Employees and the organization’s representative may not be aware of some of

their expectations. For example, organizations frequently are not explicitly aware

of how much loyalty they demand of their employees. Similarly, employees are

not always aware of the extent to which social interactions on the job are

important to them. The fact that the parties are unaware of these needs does not

make them any less real, for if they are not fulfilled, both parties will quickly

become aware of their reality.

3. Some expectations may be perceived as so natural and basic that they are taken

for granted and left unstated. Two examples would be the expectations of no

stealing and an honest day’s work for a day’s pay.

4. Connected to the above, cultural norms may inhibit verbalization. Wanting to be

perceived in the “Horatio Alger” tradition of self-starters may prevent an

employee from probing too deeply into what is expected of him or her; similarly,

norms against violating an individual’s privacy may make an organization’s

management cautious about expressing its expectations of loyalty on and off the

job.

Though the psychological contract is largely unstated and unsupported by legal sanctions, ithas a commanding quality. It represents each party’s expectations for the relationship’s continuedexistence. At any given time, there will be some relatively fulfilled and unfulfilled expectations;however, each party has a minimum acceptable level of fulfillment. If either party concludes that thefulfillment of its needs is below this minimum level, it will view the contract as having been violated.2

Note on Managing the Psychological Contract474-159Three options are open to the dissatisfied party: (1) attempt to renegotiate the contract, (2)continue the relationship in an alienated state, and/or (3) sever the relationship. Once one of theparties becomes dissatisfied, a signal will be sent to the other expressing a desire that the contract berenegotiated. Such signals may vary from a disgruntled attitude to a violent wildcat strike or acts ofsabotage. Often, a complaining employee will attempt to enlist others in the cause. These efforts maylead to collective bargaining arrangements or even to the creation of social movements. The Californialettuce workers provided an example. Unable to prevail on their own, they sought the support ofsociety. Similarly, the federal government, the civil rights movement, and the women’s liberationmovement have acted to renegotiate psychological contracts between minorities and organizations.This phenomenon works both ways. Corporations may join together to form a single bargaining unit;they may also appeal for public support as contracts (both psychological and legal) come up forrenegotiation. In sum, both parties may seek help as they adjust to changing relationships.

If renegotiation fails or does not take place, either discontented party may become alienated,yet continue the relationship, but at the minimum acceptable level. Alienation of employees may beseen in the restriction of output and sabotage attributed to blue-collar workers.3 Alienation on thepart of the employer may be seen in the way top managers in some companies respond to anemployee who fails to accept a promotion requiring a move. Some corporations have a series ofexperience jobs designed to foster the development of upwardly mobile employees. Occasionally, anindividual on the way up will develop a strong liking for an experience job and refuse to accept apromotion. When this happens, the developmental program is blocked. This can cause seriousproblems for his or her superiors, for they will have to find a replacement for the slot in the programand are left with uncertainty about the employee’s commitment to the company. A consequence ofthe individual’s refusal to move is usually a decrease in opportunities for promotion or significantsalary increase.

A state of alienation may persist for years if neither party is moved to change the offendingconditions. (An apocryphal quotation describes the situation: “We have too many people here whoare no longer with us.”) If renegotiation fails, or when alienation becomes too uncomfortable, therelationship may be severed. But in our society managers are generally reluctant to fire individuals;instead, many organizations prefer to ease people out or move them into a “corner.” If thesealternatives are not available, either because the individual refuses to cooperate or because theorganization lacks convenient corners, then the corporation will have to face its situation. It may dothis by changing the standards of what it will accept from the employee or by firing him or her.

The individual’s willingness to sever the relationship is a function of his or her availablealternatives, which must offer rewards at least equal to those provided by the present employer. If theindividual concludes that the situation is par for the course and that alternatives do not offersignificant advantages, he or she will be reluctant to quit. If the alternatives are viewed as lessrewarding, the willingness to endure alienation and dissatisfaction will be strengthened. Theimplication here is that the capacity of the organization and the individual to endure anunsatisfactory relationship may be considerable and may depend heavily on factors in theenvironment. An economic downturn, for example, brings pressure to clear out the deadwood fromcorporate corners and, at the same time, reduces the number of alternatives available to theindividual.

The psychological contract is dynamic and changes as the needs of the two parties change.For example, a company’s needs may change as it moves from a small dynamic firm to a large matureone. Similarly, the individual’s needs change as he or she moves through the various stages of life.

Changes in the psychological contract may also be caused by dramatic shifts in theenvironment. Public concern and legislation about occupational safety and health have caused many3 See “Sabotage at Lordstown?” Time, February 7, 1972, p. 76.

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474-159Note on Managing the Psychological Contractfirms and their employees to rethink these aspects of their psychological contracts. And publicacceptance of the women’s liberation movement has encouraged more and more women to demandmeaningful and challenging positions. In response to these demands and expectations, one largecorporation instituted a “project mobility” program designed to facilitate the upward mobility of itswomen clerical workers. Again, the net effect is an alteration in the psychological contract.

Nature of the Individual’s Needs

The type of psychological contract an individual is likely to find attractive depends on theneeds embedded in his or her personality. For decades, management has assumed that fulfillment ofimportant needs would motivate employees to work; however, during this period several successiveviews of the individual have been popular with managers. The following discussion is basedprimarily on Edgar Schein’s concept of the “organizational man and the process of management.”4

The rational-economic view of the individual, popular since the turn of the century, assumedthat the individual’s basic motivation was economic. Operating on a rational basis, human beingswould do whatever resulted in the greatest economic gain. Individuals had feelings (emotions),however, that were largely irrational and had to be neutralized. The implied managerial strategy wasone of reward and control. Workers were rewarded with economic gains and controlled so that theywould not fall victim to irrational feelings.

In the 1940s and 1950s the social-man model was advocated. Here, the individual wasmotivated primarily by a desire for social contact at work and performed at work according to howwell this need was met. The employee was viewed as being more responsible to social forces than tomanagement’s incentives and controls. An effective manager had to meet the social needs ofemployees.

In the self-actualization model, next to come into vogue, the individual was seen as having ahierarchy of needs: (1) survival needs, (2) social needs, (3) self-esteem needs, (4) needs for autonomy,and (5) need for self-actualization in the sense of maximum use of all his or her resources. Individualswere considered to be self-motivated and self-controlled and capable of voluntarily meshing theirgoals with those of the organization. Here, the role of the manager was to make the work challengingand interesting; the manager’s job was to define the task so that a person who desired challenge,autonomy, and opportunity for self-discipline would find the task attractive. In exchange for goodperformance, the organization was to provide opportunities for self-actualizing.

Each of the above schools of thought attempted to set forth a universal model of theindividual. The complex-man model, which seems to better capture the nature of human personality,suggests that universal approaches to the individual are much too simple and that a person is muchmore complex than implied in any of the above perspectives. The complex-man model recognizesthat the individual may have a variety of needs (e.g., self-esteem, identity, competence, achievementaffiliation, power) with a variety of strengths. This is because each individual has a history ofdifferent developmental experiences and genetic configurations.

To use this model, a manager must have a diagnostic perspective and must be sensitive todifferences among employees. The complexity is reduced, however, because of the tendency ofindividuals with similar need patterns to be attracted to a given organizational unit. This is probablya result of both the organization’s selection process and career choices by the individual.Nevertheless, it is still possible to have a mixture of significantly different individual need patterns inone multiunit organization. Take the employees of a university, for example, who may be dividedinto four groups: physical plant staff, clerical staff, administrators, and faculty. In a research effort4 Edgar Schein, Organizational Psychology (Englewood Cliffs, New Jersey, Prentice-Hall, Inc., 1970), pp. 50-79.4

Note on Managing the Psychological Contract474-159this case writer found that each of these groups had similar, but yet unique, sets of needs andexpectations, centered around the nature of their jobs, pay, fringe benefits, and relationships withpeers.

The most important aspect of work for physical plant workers was fringe benefits; the natureof their tasks was very much secondary. The clerical staff were much more concerned with theintrinsic nature of their tasks, although fringe benefits were still significant to this group. The facultywas primarily interested in maintaining the autonomy and support necessary for effective teachingand research, while administrators expressed a need for more professionalism. The relative weightsassigned to individual expectations thus varied significantly from group to group.

Implications for the Functional Manager

Role of the Functional Unit Manager

Because most organizations are built around functional units, the manager of such units isfrequently the person most responsible for representing the organization and implementing thepsychological contract. The manager’s task is that of fulfilling the organization’s end of the contractand reminding individual employees of their contractual obligations. This requires that the functionalmanager provide an organizational design that facilitates the performance of organizational tasks,while ensuring that employees have opportunities to realize their expectations at work.

Research suggests that maintaining a psychological contract that accomplishes these endsinvolves achieving a fit among the nature of the unit’s task, the personalities of its members, and theunit’s organizational design. When such a fit exists, the unit gains effective results and the individualmembers gain feelings of competence that lead to a continuing motivation to perform their jobs well.

For example, in manufacturing plants it was found that management and

professional employees had relatively low tolerance for ambiguity, preferred to work

more closely with colleagues, and preferred stronger direction from their superiors.

The tasks upon which they were working were short term, relatively repetitive and

predictable, and highly independent. However, only in the effective plants (lower

costs, more on time deliveries, high quality, etc.) did the design of the organization fit

both the personalities of members and the nature of their work. In these plants there

was an organizational design which provided relatively tight control and

coordination, established routines for how to conduct the work, and measured short

term results.

Similarly in research laboratories, scientists and managers had a higher

tolerance for ambiguity, preferred to work more alone, and without close

supervision. Here the task was highly uncertain with little interdependence required

and results were achieved only over a long time span. Again, only in effective

laboratories (more innovations contributing to company products and processes) was

there an organizational design which matched these factors. In these laboratories the

organization allowed a great deal of autonomy and influence for individual

scientists, and placed emphasis on measuring results over the long term.55Jay Lorsch and John Morse, Organizations and Their Members: A Contingency Approach (New York: Harper &Row, 1974).

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474-159Note on Managing the Psychological ContractAs Figure A suggests, such a consistency among organization, task, and human variablesseems to lead to a psychological transaction benefiting both the organization and the individual. Thisdiagram also emphasizes the often neglected point that the very act of performing the job well canalso be an important motivational force.

Figure A

Members'

Source: Adapted from Jay Lorsch and John Morse, Organizations and Their Members: A Contingency Approach (New York:Harper & Row, 1974).

From this perspective, the functional manager concerned with maintaining a viablepsychological contract with subordinates must arrange the available organizational design variablesto fit the task and individual factors in the unit. The following sections review four of the principaldesign tools available to functional managers as they work toward a good fit and fulfillment of thepsychological contract: measurement practices, rewards, structure, and selection and development.Measurement Practices

Measurement systems are multipurpose; for example, they can provide data that are usefulfor decision making and future planning. The use focused on here will be their role in evaluating theindividual’s performance, for it is in that respect they have the most direct impact on thepsychological contract.

The unit of measurement used to evaluate performance may be any of a variety of indices. Ina sales department, possibilities include volume, size of volume, increase, number of sales returns,number of visits to customers, number of new contracts, or the size of individual orders. In amanufacturing operation, quality and quantity of output, timing of output, and the size of backorders are possible units of measurement. Regardless of the measurement used, it must be congruentwith task requirements and the individual’s expectations and predispositions; otherwise, uniteffectiveness and individual motivation will suffer. The two examples described below illustrate whatmay take place when an inappropriate measurement scheme is used.

1. A research laboratory in a large corporation had as its primary mission basic or

pure research, as opposed to applied research. The primary unit of measurement

for the lab was the completed project. Performance was evaluated informally on

a quarterly basis and formally on an annual basis. At each evaluation, the

emphasis was on the number of completed projects. The rationale for this

measurement system was that while the corporation was interested in basic

research, it also wanted ideas brought to fruition as soon as possible. The

measurement system was an attempt to get around the academic inclination of

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Note on Managing the Psychological Contract474-159scientists to drag projects out. As a result of this practice, many scientists became

quite unhappy, while others designed narrowly focused projects that could be

more readily completed; both behaviors were undesirable from the corporation’s

perspective. The dissatisfaction led to a decrease in the unit’s productivity; also,

the narrowly focused projects were usually applied research. Several of the top

scientists left and others were threatening to do so in search of a place where

research was understood.

2. A reputable eastern liberal arts college had a faculty that had done relatively little

research or writing. Though the president often stressed the importance of

research, research output was not used as a criterion in promotion or salary

decisions. Instead, teaching effectiveness and length of service were more crucial.

The college’s president was puzzled as to why the faculty was not publishing

more. Using the concept of fit, however, the nature of the problem was clear: The

use of teaching and length of service as measurements of performance signaled

that research was relatively unimportant despite the president’s rhetoric. If

research was truly a part of the psychological contract, or if the president wished

that it be included, then it should have been reflected in measurement system.

Management by objectives.Hoping to minimize the frequency of such misfits, many companieshave turned to management by objectives (MBO) as a performance appraisal device. In theory, aproperly functioning MBO system should result in measurements congruent with the taskrequirements and the employees’ personalities.

Alva Kindall has suggested that ideally there should be five steps in the MBO process.6 (1)The employee develops a position description and outlines areas of responsibilities andaccountability. This is done in discussions with his or her immediate superior. Once agreement hasbeen reached between the superior and subordinate on the employee’s position and the results forwhich one is responsible and accountable, the process may proceed to step two. (2) The individualprepares a list of goals which he or she believes represent acceptable performance in the areas ofresponsibility. This list should be prepared in the context of the organization’s objectives and includethe individual’s plans for self-development. (3) The subordinate seeks agreement from a superior onthe list of goals. Here the superior is to act as a questioner, advisor, counselor, trainer, developer, andeven “warner”; however, in no case is the supervisor to act as god or judge. (4) The individual andmanager jointly determine which standards (measurements or checkpoints) will be used in evaluatingthe subordinate’s success in attaining the objectives. (5) This is a review of the individual’s results.

Depending on the objectives of the manager, MBO may be used for a variety of purposes; forexample, Levinson has suggested that MBO may be used for the following:

Measure and judge performance.Relate individual performance to organizational goals.Clarify both the job to be done and the expectations of accomplishment.Foster the increasing competence and growth of the subordinate.Enhance communications between superior and subordinate.Stimulate the subordinate’s motivation.Serve as a device for organizational control and integration.

In sum, MBO may be described as a means of establishing measurements congruent with thefunctional unit’s objectives and the individual’s own expectations. Although, as Levinson points out,6 Alva F. Kindall, Personnel Administration: Principles and Cases (Homewood, Ill.: Richard D. Irwin, Inc., 1969), pp.411-415.

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474-159Note on Managing the Psychological Contractthere have been problems in making MBO operational, this note is based on the assumption that theconcept is implementable under the conditions spelled out below.7

MBO attempts simultaneously to signal to the individual what is desired behavior and tomake provisions for the realization of individual expectations. It may be described as an effort toverbalize parts of the psychological contract and to establish measurements for evaluating the qualityof its implementation. The MBO process will only be useful, however, when it fits the taskrequirements and individual employees’ personalities; MBO is no panacea. It works best where thetask is inherently rewarding, allows employee discretion and judgment, and where the employeesand their superiors are predisposed to utilize such a consultative and participative process. In taskswhere minimum discretion is allowed and the work is repetitive and routine, the objectives are oftenpredetermined and little is gained by asking an employee to list the obvious. Furthermore, someemployees are not comfortable with their role in an MBO program. They do not feel they should takethe lead in identifying their areas of accountability and responsibility; instead, they prefer being toldwhat to do by their superiors. Where employees hold this view, implementation of MBO would bedifficult. Similarly, there are some managers who do not feel comfortable allowing their subordinatesto set goals. For this group, MBO will not be a suitable tool. Where the task calls for individualjudgment and discretion, and where subordinate autonomy is welcomed by subordinates andsuperiors, the concept of MBO would be more appropriate.

Rewards

The rewards that managers have available as tools for implementing the psychologicalcontract may be categorized as intrinsic (inherent in the job) and extrinsic (external to the job).Challenge, responsibility, and a sense of doing something worthwhile are examples of intrinsicrewards. Included in the extrinsic category are pay, promotional opportunities, fringe benefits, officespace, and similar manifestations of status and prestige. The functional manager must develop fromall reward possibilities the combination that will help bring about realization of the unit’spsychological contract. Intrinsic rewards are considered later in the section on structure and jobdesign. Pay and promotions are discussed immediately below.

Pay.Frequently, pay is the first possibility considered by managers when thinking about rewards,yet until very recently there have been very few guidelines concerning rewards. Porter and Lawlerhave provided one such set of criteria for thinking about rewards in general and compensation inparticular.8 They suggest management should insure that:

1. Rewards provided are those most desired by the employee in return for performing the job

well. This means that the pay system must be designed and administered in a

manner that will allow individuals to realize their expectations. Other provisions

should be made for expectations that cannot be realized through the pay system.

For example, employees’ expectations of friendly interactions with peers cannot

be met through the pay system; instead, spatial arrangements are a more relevant

means for fulfilling this expectation. Similarly, the employees’ expectations of

advancement as a reward for good past performance can only be met through

rewarding and meaningful career paths. A critical job for managers, therefore, is

that of accurately determining employees’ expectations. An abundance of

rewards that are not most desired by employees can result in employee

dissatisfaction. The classic example of this was the reaction of paternalistic7 Harry Levinson, The Great Jackass Fallacy (Boston: Division of Research, Harvard University Graduate School ofBusiness, 1973).

8 Lyman W. Porter and Edward E. Lawler III, “What Job Attitudes Tell About Motivation,” Harvard BusinessReview (January-February 1968): pp. 118-126.

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Note on Managing the Psychological Contract474-159companies to unionization attempts. Having provided the employees with an

abundance of material needs (company houses, good pay, fringe benefits, etc.),

the top managements of these companies were often puzzled when their

employees began to press for unionization; however, they had failed to recognize

and fulfill the individual’s expectations of being treated like adults, not children.

2. Superior performers are given more extrinsic rewards and are provided with more

opportunities to gain intrinsic rewards than inferior performers. The implication here

is that pay must differentiate between high and low performers and between

desirable and undesirable behavior. Failure to do this will result in the

communication of incorrect signals to employees. Here, a prerequisite is a

measurement system capable of differentiating between high and low performers

and between desirable and undesirable behavior.

3. Reward practices lead individuals in the organization to see and believe that good

performance leads to both extrinsic and intrinsic rewards. The pay system must be

understood and believed by the employees. In sum, the pay system’s credibility

must be maintained.

Within such broad guidelines for the design of a pay system, specific aspects will be dictatedby how the manager plans to use financial compensation. For example, the manager may desire touse pay to meet only the employee’s economic needs. The managerial problem would then be to setpay at a level compatible with the employees’ economic expectations; also, pay differentials would becomparatively small and only marginally related to performance. In these circumstances, however,the manager must insure that the individual’s remaining expectations are addressed in other ways.An example of this approach may be found in the higher grades of the civil service. A Business Weekarticle stated that the government’s small differentials for these civil servants were criticized for notoffering enough monetary incentive and rewards; however, another explanation would be thatgovernment did not view the pay system as the major reward device at the super grade level.9 Thedesigners of the system may have felt that at this level the major rewards were inherent in theperformance of the work itself and the opportunity for public service.

A manager may wish to use pay as a means of fulfilling the competence needs of employeesand as a signal of what is desired behavior. Here, pay differentials would be larger among differentjob levels and between high and low performers. The relationship between pay and performancewould also be emphasized. In essence, the extent to which compensation is tied to performance andthe differentials established among jobs must “fit” the nature of the task and employees’ expectations.

In administering and designing the pay system, the manager must also be cognizant of whatleads to satisfaction with pay on the part of employees. Lawler’s “model of the determinants of paysatisfaction” suggests that there are several relevant variables.10 Such satisfaction is a function of thegap between individuals’ perception of what they should get and their perception of the amount ofpay received. Employees’ perception of what they should receive is based on their personal attributes(skill, experience, training, effort, age, seniority, company loyalty, past and present performance),their perception of what their peers are doing and receiving, their perception of their job’scharacteristics (level, difficulty, timespan, amount of responsibility), their perception of nonmonetaryrewards which will also be forthcoming, and their wage history. Similarly, employees’ perception oftheir actual pay is determined by their wage history, their perception of the pay of their referencegroup, and the actual pay rate. If employees’ perception of what they should receive is equal to theirperception of what they actually receive, they will be satisfied. When pay falls short of their9Arch Patton, “Government’s Pay Disincentive,” Business Week, January 19, 1974, pp. 12-13.

10Edward E. Lawler III, Pay and Organizational Effectiveness: A Psychological View (New York: McGraw-Hill Co.,1971), pp. 205-230.

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474-159Note on Managing the Psychological Contractperception of what they should receive, they will be dissatisfied. Finally, when actual pay exceeds theperception of what should be received, the employee will experience feelings of guilt and inequity.The implication of Lawler’s work for the design of pay schemes is straightforward: The amount ofpay provided must be consistent with the perceptions of employees, or the consequences are likely tobe dissatisfaction or guilt.

Career paths.A second source of extrinsic rewards to the individual employee is a meaningfulcareer path. Here the expectation is that promotions will offer developmental opportunities and alsogreater opportunity to experience the job’s intrinsic satisfaction as well as more money. Again, themessage is the same: Career paths must fit the task requirements and the individual’s expectations.While career paths should offer meaningful promotional opportunities for the individual, they mustalso provide for organizational stability; that is, career paths should not interfere with the unit’sability to perform its tasks.

An example of career paths that did not fit task requirements was found in a consumerproducts company. MBAs were lured to the company’s marketing department with promises of rapidpromotion through the product management ranks. The company kept its commitment by movingnew employees up the ladder at one and two year intervals. The result was great challenge for theindividuals, but a great deal of confusion within the marketing function and the company. Employeesmoved so quickly that they did not have a chance to execute marketing plans they had developed.Consequently, it was difficult to hold any individual responsible for results. Furthermore, as a resultof so much rapid movement, the marketing department’s relations with other functions deteriorated.Managers in research, manufacturing, and sales complained that the frequent job changes made itimpossible to know who to contact in marketing about mutual problems, so they quit trying.

Structure

One of the principal structural concerns at the functional level is job design. Job design maybe altered by modifying hierarchical agreements, providing rules, and by developing standardoperating procedures. With respect to the psychological contract, the functional manager may use jobdesign to insure that tasks requirements and/or the employees’ expectations are met.

Hierarchy, rules, and standard operating procedures.These are especially useful tools forfacilitating task performance. For example, the hierarchical span of control may have an impact on themanager’s ability to perform adequately. A district sales manager with a reasonable span is likely tobe more capable of meaningfully supporting salespersons than a colleague with an unmanageablespan of control. Similarly, rules may be used as managerial tools. Rules outlining territorialboundaries for salespersons enable the sales manager to be more efficient and effective in theutilization of personnel. Finally, standard operating procedures can be used to simplify a task bystandardizing its recurring elements. In most organizations the purchasing function has beensimplified through the standardization of procedures and forms.

Job enlargement and enrichment.If the functional manager wishes to use job design primarily asa means of fulfilling employee expectations, he or she may sometimes find it necessary to eliminate ormodify existing hierarchical arrangements, rules, and procedures. Job enlargement and jobenrichment are concepts associated with the redesigning of jobs that have become too restrictedconcerning the employees’ psychological contract.

Job enlargement is the broadening of job duties and responsibilities to eliminate as much aspossible the negative characteristics of repetitive work. Job enlargement has frequently meantcombining several operations in hope of reducing repetitiveness. Unfortunately, combining severalrepetitive tasks often results in simply a larger repetitive task. Because of this difficulty with jobenlargement, the concept of job enrichment has grown in popularity. Job enrichment is an attempt toenhance employee responsibility and autonomy through the broadening of job definitions, thus10

Note on Managing the Psychological Contract474-159emphasizing the opportunity for individual achievement and creativity.11 The hope has been that jobenrichment would lead to improved employee morale which, in turn, would foster greatermotivation.

Reporting on his research efforts with Lorsch, Morse concluded that job enrichment is mostlikely to result in improved job performance when it fits both “(1) personalities of the individualswhose jobs are being designed, and (2) the technology or the task.”12 Morse suggests that theimproved performance would not be due to increases in employee morale, but to increases inmotivation. Where job enrichment works, it facilitates task performance and results in greatereffectiveness. This improvement in effectiveness enables the individual to experience a fulfillment ofcompetency expectations. This fulfillment then leads to a greater willingness to expend energy on thetask and thus further contributes to increased effectiveness.

Certain tasks, such as assembly line activities and other work associated with large capitalinvestments, are unavoidably repetitive and monotonous. These positions require limited judgmentand allow little discretion. These tasks are not always perceived as undesirable and dull, however,because some individuals require or expect little autonomy or variety from their work. Here, jobenrichment would be a violation of these individuals’ psychological contracts.

In summary, a functional manager may affect performance by altering the unit’s structure. Ifperformance is to be enhanced, structural changes must fit the task and the needs of the individual.Selection and Development

As task requirements change, functional managers must enlist new persons to retrain existingpersonnel. Selection and development tools are among the functional manager’s most importantinstruments for securing good task-individual fits.

In the context of the concepts of fit and the psychological contract, the selection process isreally a matching process between the employee and the organization. In any ongoing functional unit,there is an existing psychological contract between its management and employees. The selectionprocess must bring to the functional unit individuals who will be comfortable with the existingarrangements. For the selection process to function properly, the manager and the candidate mustaccurately communicate their expectations at the employment interview. This means that themanager must be skilled in articulating the expectations of the workplace and in understanding theindividual’s expectations and predispositions. Although a psychological interpretation of theapplicant’s personality is not required, the manager must be skilled in hearing and understanding allclues concerning the applicant’s need structure (expectations) and personality. The manager mustmake a judgment as to whether or not an applicant would be able to accept the unit’s existingpsychological contract. A judgment must be made on the quality of the fit between management’sexpectations and those of the potential employee: Poor judgment here could have a negative impacton the functional unit’s effectiveness. Kotter found that job satisfaction, productivity, and turnovervaried with the quality of the match between the expectations of new employees and theorganization—the higher the quality of the match, the greater the job satisfaction.13

When either task needs or the employees’ expectations require changes, the functionalmanager has to assume responsibility for facilitating the development of subordinates. The managermust design development programs which will enable the unit’s personnel to grow. A program may11 John J. Morse, “A Contingency Look at Job Design,” California Management Review (Fall, 1973): p. 68.

12 Morse, p. 69.

13 John Paul Kotter, “The Psychological Contract: Managing the Joining-Up Process,” California ManagementReview (Spring, 1973): p. 93.

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474-159Note on Managing the Psychological Contractbe highly formal and structured (e.g., academic training, the Blake-Mouton managerial grid, theKepner-Tregoe program, or a team-building exercise), or it may be informal (e.g., the maintenance ofa supportive environment, or continuous, meaningful, informal counselling with employees). Thedevelopment program must fit the task requirements and the expectations of the individual. Intensivedevelopment programs in an organization with limited opportunities for advancement would likelylead to frustration, as would programs forced on individuals who have little aspiration to grow.

In this discussion of design tools, they have been viewed as a means of implementing thetacitly accepted psychological contract. It also has been repeatedly stressed that the effectiveness ofdesign tools as implementation aids depends on their fit with the organization’s task and theemployees’ predispositions and expectations. No one tool is a panacea for all situations. The ideaspresented in this note suggest only a broad framework for thinking about these issues. The functionalmanager must still use discretion and judgment in selecting and using these design tools to fit aparticular work situation.

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