Case Study on Strategic HRM

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IIMB Management Review, September 2007 313

The Relationship betweenHuman ResourcePractices, Psychological

Contract and EmployeeEngagement —Implications for ManagingTalent

Upasana Aggarwal

Sumita Datta

Shivganesh BhargavaI

n today’s era of accelerated changes across the globe, managing talent

has become a top priority and a key business challenge. Having the right

talent in pivotal roles at the right time is of strategic importance, making

a difference to revenues, innovation and organisation effectiveness1. With

talent emerging as a key driver for competitive advantage, it is important to

examine the factors that determine higher utilisation and retention of talent.

Organisations are also grappling with myriad strategies to improve

organisational performance. Lately, there seems to be a heightened focus on

individual employees as a source of competitive advantage. The ways in which people work make a crucial difference between successful

and unsuccessful firms2. Pro-social employee behaviour is a necessity for

organisational, national and economic survival3, and in today’s fiercely

competitive times, organisations need employees who are flexible, innovative,

willing to contribute and go ‘above and beyond the letter’ of their formal job

descriptions or contracts of employment4.

The traditional ‘one-size-fits all’ approach to managing employees is now

being replaced by more individualised employee approaches. The individual-

Upasana Aggarwal is a Doctoral Student inHuman Resource Development andOrganisation Behaviour at the Shailesh J MehtaSchool of Management, IIT Bombay

.

[email protected]

Sumita Datta is a Doctoral Student in HumanResource Development and OrganisationBehaviour at the Shailesh J Mehta School ofManagement, IIT Bombay.

[email protected]

Shivganesh Bhargava is Professor, HumanResource Development and OrganisationBehaviour, Shailesh J Mehta School ofManagement, IIT Bombay. [email protected]

Round Table



314 The Relationship between HR Practices, Psychological Contract and Employee Engagement

specific psychological state of employees is recognised as akey determining factor of employee behaviour and responses

at work. As Kahn5 suggests in his seminal work ‘...the more

people draw on themselves to perform their roles within

those boundaries, the more stirring are their performances’.

Two psychological constructs which have been extensively

studied and are said to achieve tangible as well as intangible

firm level outcomes are employee engagement (EE) and

employee psychological contract (PC). A common thread

passing through the constructs of engagement and

psychological contract is that they are recognised as processes

for developing and retaining talent6. Likewise, there are many

other dimensions of these two constructs which call attention

to their significance in the effectiveness of human resource

(HR) management practices.

Research suggests that HR practices have a significant impact

on employee attitudes and behaviours. Though studies suggest

that HR practices are a part of high performing organisations,

HR practices alone do not guarantee such high performance7.

How is it then that organisations with similar HR practices

and employee skill sets vary in their outcomes? Presumably,

there are factors which moderate the relationship betweeneffective HR practices and organisational outcomes. We posit

that employee engagement and psychological contract are

the key explanatory variables which could help in explaining

the difference in performances across various organisations,

and are worthy of detailed examination. Further, the literature

suggests that employee psychological contract, engagement

and human resource practices (HRP) need to be looked at as

an integrative whole, and that HRP is the linchpin between

PC and EE which can be important strategic tools for talent

utilisation and retention. The paper suggests an integrative

framework which proposes new directions for these

relationships and suggests areas for further research.

Psychological Contract and EmployeePsychological Contract and EmployeePsychological Contract and EmployeePsychological Contract and EmployeePsychological Contract and Employee

Engagement – The ConstructsEngagement – The ConstructsEngagement – The ConstructsEngagement – The ConstructsEngagement – The Constructs

Psychological contract is a widely discussed and debated

construct. Studies on PC commenced in the early 1960s8,

but empirical assessment of the construct can be put down

to the 1990s. In general, there is a dearth of academic

literature on employee engagement9 and much of what has

been written on the subject comes from practitioner literature

and consulting firms10. However, since 1994, the two

constructs have continued to be a serious topic for conceptual

and empirical analysis11.

The growing interest in EE and PC can perhaps be attributed

to the fact that both the constructs have the potential to

predict employee outcomes, organisational success and

financial performance12. Employee-employer relationships

influence the economic as well as the behavioural outcomes

of an organisation13. If employee engagement affects financial

outcomes and the bottomline, disengaged employees

uncouple themselves from work, withdraw cognitively and

emotionally, display incomplete role performance and task

behaviours, put in less effort and become automatic and

robotic14. Unhappy employees, who perceive a discrepancy

in the promises made to them by the employer, may feel

cheated and look for more attractive options outside the

organisation. This is a costly proposition for organisations

and it is imperative for them to understand what employees

primarily want. The psychological states of employees are

key factors in determining their behaviour and responses at

work15. It is at least in part through the management of these

psychological states that organisational effectiveness can be

achieved16.

Contracts are recognised as the mainstay in employment

relationships17 and contracting has become an important

focus of studies in recent times

18

. Contracts can be legal andbehavioural/ psychological in nature. Rousseau, who has

pioneered work on different types of behavioural contracts

and has worked extensively on understanding the

psychological contracts of employees, defined PC as a ‘set of

expectations held by the individual employee that specifies

what the individual and the organisation expect to give and

receive in the working relationship’19. Rousseau described

the process by which organisational policies and practices

influence employee psychological contracts as ‘contract

There is a growing interest in

employee engagement (EE) and

psychological contract (PC)

because both the constructs have

the potential to predict employeeoutcomes, organisational success

and financial performance.

Employee-employer relationships

influence the economic as well as

the behavioural outcomes of an

organisation.




making’20. Based on MacNeil’s21 typology, psychological

contracts can be classified as transactional and relational,

which are two ends of the continuum in terms of their

features. Transactional psychological contracts are of the

limited duration of employment, with well specified

performance levels and focus on material rewards and are

publicly observable. Relational contracts

on the other handare broader, more amorphous, open-ended, they focus on

intangibles as well as material rewards, are wide ranging and

subjective to the parties involved. The key features of relational

contracts are that they emphasise mutual commitment and

continuity.

The antecedents which influence PC can be broadly classified

into individual, organisational and extra organisational factors.

Under personal/individual factors, past job experience and

personality of employees have been recognised to have a

significant impact on shaping employees’ psychological

contract22. ‘Early life experiences’ also shape an employee,influencing values about fairness, hard work and reciprocity23.

Literature suggests that the newcomers’ needs, motives and

goals influence what information they seek and attend to.

Organisational factors having an impact on employee PC

have been studied under the categories of organisational

socialisation; human resource practices as well as human

contract makers (line manager, HR personnel and co-

workers). (The impact of HR practices on PC is discussed in

detail later in this paper.) The social setting/national culture

has been identified as the third or extra-organisational

antecedent of psychological contract24.

Employee engagement is another construct which is gaining

relevance for practioners as well as academicians. There are

many definitions of employee engagement and in this paper

EE is defined as physical, cognitive and psychological

absorption in one’s work-roles. Towers Perrin25 defines

engagement as ‘bringing discretionary effort to work, in the

form of extra time, brain power and energy’. Kahn26, who

can be credited with conceptualising as well as theoretically

deriving the dimensions of employee engagement in

organisational studies, held that an employee can bephysically, emotionally or cognitively engaged. Employees are

cognitively engaged when they are aware of their mission

and role in their work environment27, have what they need at

work and have opportunities to feel an impact and fulfilment

in their work28. Employees are emotionally engaged when

they perceive that they are part of something significant with

co-workers whom they trust, form meaningful connection

with and experience empathy and concern for, and also have

chances to improve and develop. Employees can be engaged

on one dimension and not on others. However the moreengaged an employee is on each dimension, the higher will

be his or her overall personal engagement.

Focusing on how ‘people’s experience of themselves and their

work contexts influenced moments of personal engagement

and disengagement’, Kahn recognised three antecedents of

employee engagement: psychological meaningfulness —how

meaningful is it for me to bring myself into this performance

(measured by job enrichment, work role fit and co-worker

relations29); psychological safety —how safe is it to do so

(measured by supervisor relations, co-worker relations and

co-worker norms; and (3) psychological availability —how

available am I to do so? (measured by resources, work role

security and outside activities).

EE has been measured by using different tools, questionnaires

and inventories. One of the most popular measures is the

Gallup Workplace Audit30, though scholars are still identifying

new measures of EE.

Conceptual Distinctiveness of Psychological Conceptual Distinctiveness of Psychological Conceptual Distinctiveness of Psychological Conceptual Distinctiveness of Psychological Conceptual Distinctiveness of Psychological Contract and Employee Engagement Contract and Employee Engagement Contract and Employee Engagement Contract and Employee Engagement Contract and Employee Engagement

A number of constructs in organisation behaviour theory

indicate the psychological relationship of an employee with

the organisation or role. Psychological contract has an impact

on job satisfaction31, organisational commitment32, intention

to quit33 and organisational citizenship behaviour34, as does

employee engagement35. As differentiating between seemingly

similar constructs is important to avoid construct

proliferation36 an attempt has been made to distinguish PC

and EE from other related constructs.

Past job experience and personality

of employees have been recognised

as having a significant impact on

shaping employees’ psychological

contract. ‘Early life experiences’ alsoshape an employee, influencing

values about fairness, hard work and

reciprocity. The social setting/

national culture has been identified

as the extra-organisational

antecedent of PC.




Psychological contract is perceptual in nature and defined asa set of promissory expectations held by the individual

employee37. Kahn defines employee engagement as the

physical, cognitive and affective involvement of an employee

and the harnessing of organisation members’ selves to their

work roles. Job involvement (JI) is a cognitive judgment about

the need satisfying abilities of a job and is defined as a ‘belief

state of psychological identification’38, while job satisfaction

(JS) is an attitude towards one’s job39. Organisational

commitment (OC), on the other hand, is an attitudinal state

of an employee, defined as identification with and involvement

in a particular organisation40

. Organisation citizenshipbehaviour (OCB) is discretionary behaviour, not included in

an employee’s formal job description, such as assisting co-

workers with their work, helping peers learn a new task,

volunteering to do things that benefit their work groups,

among others41.

We can discern the constructs on the basis of the ‘question’

addressed by each of these relationship constructs42.

Organisational commitment asks: Why should I maintain

membership? Is it because I want to/ I need to/ I ought to?43.

Job involvement asks: How important is the job and job

performance to my self-image44

. Job satisfaction asks: Whatevaluative judgments do I make about my job? Employee

engagement can be of three types. While cognitive engagement

asks: Is performing my job so absorbing that I forget about

everything else? emotional engagement asks: Do I put my

heart into my job? and physical engagement asks: Do I exert

a lot of energy performing my job? OCB asks: Am I willing to

volunteer to do things for my work and work group not

included in my formal job description? Psychological contract

asks: Are my promissory expectations fulfilled?

These seemingly similar constructs can further be

differentiated from one another on the basis of the conceptual

core and motivational basis. The motivational basis of PC is

need fulfilment45. Job involvement satisfies an individual’s

desire to belong, to be ‘part of’ while organisation

commitment fulfils the desire to remain affiliated. The

motivation behind employees feeling engaged is a result of the perceived benefits from engagement in meaningful work.

OCB, on the other hand is an indicator of workers responses

to their employment relationship.

Psychological contract is different from organisation

commitment or the feeling of desire, need or obligation to

remain in an organisation. It also differs from job involvement

or being consumed by work and the job being a central life

interest46. The feeling of fulfilment of promissory expectations

differentiates PC from positive or negative evaluative

judgments of the job, as in the job satisfaction construct, as

well as from constructive discretionary behaviour or

organisation citizenship behaviour, which is a result of

fulfilment of PC.

Employee engagement, similarly, can be distinguished from

other constructs. While EE is grounded in theories of

motivation, it is different from motivation. Motivation is a

broad term, incorporating within itself many constructs such

as JI, EE, commitment and so on, which could also be

independently and exclusively studied as mediating variables

of performance. Similarly, although EE is closely associated

with existing constructs like job involvement, organisationcommitment, OCB and job satisfaction among others, it is

distinct. While JI is connected with the need satisfying abilities

of a job and is tied to one’s self image, EE is the degree of

involvement, physical, mental and psychological, that an

individual employs in his/her work roles. While organisation

commitment is understood to be an attitude towards the

organisation47, EE is the degree to which individuals are

attentive and absorbed in the performance of their roles.

Further, OCB is defined as voluntary extra-role behaviour

and concerns roles outside the job description, EE although

discretionary, refers to how an individual employs himself during the performance of his formal role rather than extra-

role. While job satisfaction concerns ‘how people feel about

their jobs’48 or the positive attitude of the person towards his

job, EE is not an evaluative judgment but the cognitive, emotive

and behavioural involvement of an employee in his work

roles.

It may be argued that employees with deep engagement in

their roles (EE), will identify more with their jobs, be more

We can discern the constructs on the

basis of the ‘question’ addressed by

them. Organisational commitment

asks: Why should I maintain

membership? Is it because I want to/ I need to/ I ought to? Job involvement

asks: How important is the job and

job performance to my self-image?

Job satisfaction asks: What

evaluative judgments do I make

about my job?




committed and satisfied with their jobs. Therefore these

attitudinal constructs may be considered as antecedents of

EE. Further, as attitudes are affective and to a significant extent

can predict behaviour49, employees with a deep sense of

engagement will demonstrate behaviours which are not

mandated, and assist organisations through organisation

citizenship. Literature has established the impact of EE on JSas an outcome. We suggest that highly engaged employees

will also have a positive relation with JI, OC and OCB.

Alternatively, it is possible that the relational constructs are

predictors of employee engagement, such that employees

who have positive JS, OC as well as JI and demonstrate

discretionary behaviour, will be highly absorbed in their work

and will experience a higher degree of engagement.

Furthermore, JS, JI and OC may coexist with employee

engagement. Therefore the relationships between EE, JI, JS

and OCB could be of those of antecedents, outcomes or

correlates. The direction of relationship between theseconstructs needs to be empirically ascertained.

The literature examining the relationship between PC and

other relational constructs is far more developed. The

fulfilment of psychological contract predicts employee

attitudes and behaviours, some of which (JS, OCB, OC) have

been studied while some still need to be investigated (EE, JI

among others). The distinction between PC and EE has been

elaborated in a later section of the paper.

What Psychological Contract and Employee What Psychological Contract and Employee What Psychological Contract and Employee What Psychological Contract and Employee What Psychological Contract and Employee

Engagement Add Engagement Add Engagement Add Engagement Add Engagement Add

While there is evidence in the literature that PC is a

determinant of employee attitudes and behaviours, and an

important regulator of employee-organisation relationship,

PC as a construct has the potential to integrate a number of

key organisational concepts50. The value addition that EE

makes in employee-organisation relationships is that it

integrates most of the dimensions which have been used in

other relational constructs. The strength of EE is that it is a

multi-dimensional construct and unlike other constructs it is

not only an affective but also a cognitive and physical state of involvement in one’s job. Unlike other constructs such as JI,

OC and OCB, EE views the relationship between employees

and their work, co-workers and organisation closely, at a

more day-to-day level. While other relational constructs are

quite broad and generic to account for or explain

organisational challenges, Harter et al51 suggest that EE is

more immediate and specific and has perhaps therefore

gained relevance as a powerful strategic technique.

Importantly, as disengagement is central to the problem of

workers’ lack of commitment and alienation52, the employeeengagement construct explains the dynamics of employee

involvement which fosters employee motivation and

attachment to work and facilitates personal growth53. This

may provide avenues for corporate executives to garner pro-

social behaviour as well as increase psychological ownership

of its employees.

To sum up, PC and EE focus on the emerging issues in

employment relationships. They are analytical constructs that

understand the concerns about employment relationships

and neatly capture the spirit of contemporary times.

Psychological Contract and Employee Psychological Contract and Employee Psychological Contract and Employee Psychological Contract and Employee Psychological Contract and Employee Engagement — Similarities Engagement — Similarities Engagement — Similarities Engagement — Similarities Engagement — Similarities

PC and EE are bothmechanisms of motivation . EE and fulfilled

employee PC engender pro-social attitudes and behaviours.

Both are constructs of employment relationships, and the

subject matter of organisational behaviour with a focus on

person-role relationship. The construct PC refers to employee

‘expectation’ from and towards his job/organisation;

employee engagement also operates in the context of the

employee and his/her role and the organisation. Literature

suggests that both EE and PC are cognitive in nature. PC is

idiosyncratic and lies in the ‘eye of beholder’. That is, even if

the same deal (benefits, rewards) is offered to every employee,

his/her psychological contract towards the organisation may

vary. Ceteris paribus, the engagement of employees to their

job or organisation also varies from one employee to another.

Furthermore, PC and EE are psychodynamic processes. Both

operate at the psychological level. Literature on PC and

While PC is a determinant of

employee attitudes and behaviours,

and an important regulator of

employee-organisation relationship, as

a construct it has the potential tointegrate a number of key

organisational concepts. EE is a multi-

dimensional construct and unlike other

constructs it is not only an affective but

also a cognitive and physical state of

involvement in one’s job.




socialisation54 establishes that the psychological contract of

employees evolves over a period of time (it may decrease or

increase) as a result of experience and organisational policies;

Similarly, like PC, EE is not a static concept. It is subject to

revision. Kahn defines employee engagement and

disengagement as ‘moments in which people bring themselves

into work or remove themselves from particular task

behaviours’55.

Employee engagement and psychological contract are

essentiallysocial exchanges . EE and PC are both anchored in

and well explained by the theory of social exchange. The Social

Exchange Theory (SET) suggests that although the formal orcontractual relationships in employment are economically

driven, a social element to such relationship typically evolves56.

Simply put, where an individual does another a favour there

is an expectation of some future return. Trust and the norm

of reciprocity are the core elements of SET. Using this

perspective in the employment relationship context, when

individuals receive economic and socio emotional resources

from their organisation, they feel obliged to respond in kind

and repay the organisation57. Moreover, the exchange between

two parties is in somewhat diffuse terms and without any

guarantee of a future. Therefore trust is the cornerstone of

the relationship between the two parties of the social

exchange process and relationships evolve over time into

trusting, loyal and mutual commitments as long as the parties

abide by certain rules of exchange.

The social exchange theory is the most cited framework for

understanding the psychological contract process58. As an

explanatory theory, SET views the process of psychological

contract by predicting employee-employer relationships.

Likewise, SET is also one of the theoretical foundations of

employee engagement. When employees receive economic

and socio-emotional resources from the organisation, they

feel obliged to repay. One of the ways to repay the organisation

is employing greater levels of engagement.

In addition to the aforesaid similarities, there are a few factors

which are common in terms of shaping both PC and EE,these being perceived organisational support (POS), job

characteristics and procedural justice.

Psychological Contract and Employee Psychological Contract and Employee Psychological Contract and Employee Psychological Contract and Employee Psychological Contract and Employee Engagement — Differences Engagement — Differences Engagement — Differences Engagement — Differences Engagement — Differences

Although the literature suggests that there are overlaps

between EE and PC (with regard to nature of the constructs,

their origin in SET, the level of operationalisation being the

individual, their antecedents and the impact on attitudes and

behaviour of employees and organisational outcomes), they

are essentially two different constructs.

A sense of fulfilment of promissory obligations (PC) is different

from degree of physical, mental and psychological presence

(EE). While PC is a cognitive construct, EE is multidimensional

in nature. Kahn argues that besides being cognitive,

engagement operates at the emotional as well as the physical

plane. Although PC and EE are both dynamic in nature, while

EE literature focuses on ‘moments of task performance’59,

PC is assumed to be ‘comparatively’ more constant and

stable. Amongst other differences, PC and EE vary at their

level of operationalisation. Literature distinguishes between job and organisation engagement as two different constructs.

Though PC has been generally discussed from an

organisational perspective and there are no studies

distinguishing between psychological contract of an employee

towards the job and towards the organisation, nonetheless

literature on PC discusses how an employee’s expectations

as well as response may vary towards multiple agents of an

organisation – for example, will breach of contract from a

line manager result in an employee perceiving an

organisational breach?

Inter-relationships between PsychologicalInter-relationships between PsychologicalInter-relationships between PsychologicalInter-relationships between PsychologicalInter-relationships between Psychological

Contract and Employee EngagementContract and Employee EngagementContract and Employee EngagementContract and Employee EngagementContract and Employee Engagement

Based on suggested similarities and differences between PC

and EE, we have raised some research questions about the

relationship between these two constructs.

In the literature on PC there is enough evidence of the negative

reactions of employees to unfulfilled and under-fulfilled

Employee engagement and

psychological contract are

essentially social exchanges. They

are both anchored in and well

explained by the Social ExchangeTheory, which suggests that

although the formal or contractual

relationships in employment are

economically driven, a social

element to such relationships

typically evolves.




promises. But research on the impact of over-fulfilment of

contract promise on attitudinal and behavioural

consequences is sparse60. Therefore, one can make a case for

theneed to investigate the positive outcomes associated with

overinvestment in employees.

Furthermore, SET suggests that if employees perceive that

the organisation has provided them more than it promisedor agreed to provide, they experience a positive imbalance in

the social exchange relationship. In a state of such positive

imbalance, employees may attempt to reciprocate by

increasing their contributions to the firm61. On similar lines,

engagement literature suggests that when employees receive

resources from their organisation, they bring themselves

more fully to work roles and devote greater amounts of

cognitive, emotional and physical resources. Therefore,we

need to examine whether increased employee engagement is one

of the positive outcomes of perceived positive imbalance. In other

words, does PC in a state of positive imbalance lead to engagement?

Although literature suggests that as a response to receiving

organisational resources, employees choose to engage

themselves to varying degree, it is silent on the ‘degree’ of

engagement. In other words, what needs to be addressed is:

‘How much’ engaged will an employee be on receipt of unexpected

benefits from the organisation? What is the relationship between

the degree to which an employee’s expectations are fulfilled and

the degree to which s/he feels engagement with the job/

organisation?

Additionally, can an employee whose expectations have notbeen fulfilled (that is, the employee experiences PC breach)

be cognitively and emotionally engaged? Perhaps not. That is

to say that PC is a predictive variable of EE. PC is a necessary,

if not sufficient condition of employee engagement. We

therefore argue thatan employee’s psychological contract

fulfilment antedates/predates employee engagement.

In the literature, perceived organisational support (POS) is

recognised as the predictor as well as moderator of

psychological contract fulfilment and employee engagement.

It has been suggested that if employees feel unsupported by

their organisation or supervisor62 it may result in a breach of psychological contract. Saks63 identified POS as an antecedent

of job and organisation engagement. Besides POS, literature

on PC suggests that procedural justice moderates the

relationship between breach and outcomes. Interestingly

procedural justice also predicts organisation engagement of

an employee.

Given the strong correlation between the two psychological

constructs, we posit that there is a need to examine the strong

relationship between PC and EE to differentiate the merit of

independence of the two constructs.

Role o f HR Pract ices on EmployeeRole o f HR Pract ices on EmployeeRole o f HR Pract ices on EmployeeRole o f HR Pract ices on EmployeeRole o f HR Pract ices on Employee

Psychological Contract and EmployeePsychological Contract and EmployeePsychological Contract and EmployeePsychological Contract and EmployeePsychological Contract and Employee

EngagementEngagementEngagementEngagementEngagement

Having studied the inter-relationships between PC and EE it

would be interesting to examine how human resource

practices significantly influence PC and EE and whether they

are the common link between the two constructs.

HR Practices and Psychological Contract HR Practices and Psychological Contract HR Practices and Psychological Contract HR Practices and Psychological Contract HR Practices and Psychological Contract

HR processes and practices determine to a large extent the

relationships between employers and employees, and play a

significant role in shaping employee psychological contract.

Numerous studies64 have examined the link between HR

practices (HRP) and psychological contract. The formation

of the ‘exchange’ relationship begins during the recruitment

and selection process and continues throughout the

employee’s tenure with an organisation. These studies have

shown how recruitment, training, performance appraisal,

compensation and benefits can encourage the formation or

elaboration of a psychological contact. A common thread

running through the studies examining HRP and PC is that an

organisation’s human resource practices can change the

psychological contract status and influence work related

outcomes.

How different human resource practices can shape and

influence the interpretation of psychological contracts of

employees has been highlighted below.

HR practices determine to a large

extent the relationships between

employers and employees, and play

a significant role in shaping

employee psychological contract.The formation of the ‘exchange’

relationship begins during the

recruitment and selection process

and continues throughout the

employee’s tenure in an

organisation.




Psychological Contract and Recruitment The recruitment and selection process involves identifying

potential employees, making offers of employment to them

and trying to persuade them to accept those offers. The roots

of psychological contract formation lie in the recruitment

process. During recruitment employers make promises to

their prospective employees, which the new employees expect

them to uphold. In case an employer fails to do so, the

employees may believe that their psychological contract has

been violated. Employees may react in a way that will go

against the interests of their employers65.

The literature suggests that recruiters tend to present jobs in

favourable terms. Therefore chances of psychological

contracts being breached are high as many of the expectations

are unrealistically high. Studies indicate that one of the ways

of fostering PC at the recruitment stage is the use of a realistic

job preview66 which tries to ensure that newcomers have

accurate expectations about their new job and employer and

thus avoid the experience of feeling short-changed thereafter.

Psychological Contract and Performance

Management

Studies suggest that during these competitive times the

greatest contribution HR can make in the changing

employment scenario is in the area of evaluation and

appraisal67. The performance appraisal (PA) process involves

employers setting performance standards and providing

employees with feedback about their level of performance.

The contract making features of performance management

include understanding of the job role, fair, timely and accurate

evaluation of performance, fair distribution of pay and

development opportunities and provision of feedback to

employees68.

When an employer gives feedback to employees about their

performance, it signals to the employees whether or not they

are contributing to the employment relationship. Appraisal

discussions also provide employers the chance to ask whethertheir employees are satisfied with the inducements provided

and remedy the situation if necessary. Appraisals therefore

are used as a stage in the contract making process to ensure

that the parties involved are fulfilling their psychological

contracts towards each other.

Psychological Contract and Training and

Development

With changing circumstances, employees are replacing job

security with the promise of developing skills which wouldmake them employable in the external labour market. Since

employees are expected to define their own career progress,

they will have definite ideas about the skills needed to make

them employable and definite expectations regarding the

organisation’s contributions in developing such skills.

Concomitantly, training and development has become a

valued part of the psychological contract of employees69.

Training is important in the make-up of psychological

contract, not only in terms of employer expectations who

consider the development of highly trained workers with

firm specific skills a major factor for securing competitive

advantage70, but also because it acts as inducement for

employees to maintain their commitment to the organisation.

The more employees perceive violation of organisational

obligations with regard to providing skills and career

development, the less satisfied they will be with their jobs.

Psychological Contract and Reward

Management

Employee benefits are an important part of the psychological

contract defining the relationship between employers andemployees71. Rewarding employees according to their own

perceptions of their needs and expectations can motivate

them better, therefore the reward system usually has the most

influence on employee behaviour72.

The compensation and benefits that employers provide

employees can have a major influence on their conception of

their employment relationship. Rousseau and Ho’s study73

suggests how employees’ conceptions of their employment

Studies suggest that during these

competitive times the greatest

contribution HR can make in the

changing employment scenario is in

the area of evaluation and appraisal.The contract making features of

performance management include

understanding of the job role,

fair, timely and accurate evaluation

of performance and fair distribution

of pay.




relationships are likely to lead them to expect certain types of

compensation. The study provides ideas of how the

compensation system is a part of the HRM strategy aimed at

establishing specific types of employment relationships.

To conclude, human resource practice significantly impacts

employee development as well as assessment of psychological

contract fulfilment. When employees are recruited, whenthey go through performance appraisals, when they evaluate

their benefits packages or receive recognition for their efforts,

they interpret the experience and that interpretation will

influence how they react to it. The failure of a company to

comply with its obligations (as perceived by an employee)

can erode the employment relationship and the injured

employee’s belief in the contract, thereby altering what the

employee feels obligated to offer in return74.

HR Practices and Employee Engagement HR Practices and Employee Engagement HR Practices and Employee Engagement HR Practices and Employee Engagement HR Practices and Employee Engagement

As discussed in the section on similarities between PC and

EE, the two constructs are shaped by some common factors.

From research, it emerges that HR practice is one of the

most important factors influencing the psychological contract

of the employee. However, the impact of HRP on EE and the

relationship between the two still remain unexplored; this

could perhaps be because studies on the antecedents of EE

are at a nascent stage. By including EE and PC in a theoretical

framework (model), we would be in a position to address the

existing gap in the literature on predicting the direction of the

relationship between HRP and EE and its subsequent impacton outcomes. Additionally, although there is accumulating

evidence of the impact of HRP on organisational outcomes75,

the impact of HRP on individual employees has not been

examined76. The relationships at organisational level do not

necessarily reflect similar trends at the individual level77. In

other words, although HRP results in positive organisational

outcomes, it may not have the same relationship with

individual outcomes. In this paper we have attempted to

examine the impact of HRP on PC and EE, which can be

considered as two such individual-level idiosyncratic

constructs.

Job characteristics encompassing challenge, variety and

autonomy are more likely to provide psychological

meaningfulness, a condition for employee engagement. Job

characteristics are defined by the human resource practices

of an organisation, the latter being an important predictor of

PC. For example, when a frontline customer care executive

is made part of a cross-functional team working on a

complicated project, he starts finding meaning in the task as

it provides him variety and challenge, thereby affecting hislevel of engagement.

Similarly, the performance management processes which

focus on roles and responsibilities provide conditions for

employee engagement when the implied identities in these

roles are psychologically appealing to the employee78. For

example, a person responsible for a routine administrative

role might get psychologically attached to the implied identity

of status and power when he or she is required to interact

with powerful people as part of the job. This identity also

involves a feeling of being valuable to the organisation which

in turn helps in engaging the employee.

Training and development is another important area in HRP

which contributes to employee engagement. Learning new

skills may trigger renewed interest in such aspects of the job

which had not been meaningful earlier. For example, a

software developer who acquires skills in an area of his own

interest might get engaged in projects and assignments

requiring him to use the new skill. Or a manager when made

aware of the power of emotions through sustained training

and coaching starts focusing on relationships with his team

members and peers and might experience hugely satisfyingreciprocal behaviours. These experiences are bound to make

him connect better with his co-workers and foster higher

engagement. In recent times, with talent retention becoming

a critical priority for businesses, managers are getting trained

on retention competencies in order to foster higher

engagement and thereby retention among their team

members79.

Rewards management, another very significant human

The impact of HRP on EE and the

relationship between the two still

remain unexplored; this could be

because studies on the antecedents

of EE are at a nascent stage. Byincluding EE and PC in a theoretical

framework, we could address the

existing gap in the literature on

predicting the direction of the

relationship between HRP and EE and

its subsequent impact on outcomes.




resource practice is said to have a major influence on the

employees’ conceptions of their employment relationship.

In the mind of the employee, rewards, which are not always

monetary in nature, are often a reflection of his/her value

within the organisation and also in the external job market.

In recent times, organisations have started adopting

innovative ways of rewarding employees (segmenting theworkforce on the basis of functions or skills, introducing

variable pay etc). In the given economic conditions wherein

employees may be disengaged but still remain, these tactics

of reward management are meant to enhance engagement

and retention.

As evident from the above discussion, it emerges that HRP

can garner conditions for employee engagement. HRM can

play a significant role in inducing employee engagement. We

may therefore suggest the need to explore if HRP has a

significant impact (antecedent/moderator/mediator) on

employee engagement.

Exhibit 1 illustrates the integrative framework between

human resource practices, psychological contract and

emotional engagement, as suggested in this paper.

Implications for ManagersImplications for ManagersImplications for ManagersImplications for ManagersImplications for Managers

It has been widely asserted that human resource practices,

including selectivity in staffing, training, and incentive

compensation, are positively related to perceptual measures

of organisational performance80

. This paper contributes

towards the better understanding of the more relevant

measures of effectiveness of human resource practices. Often

researchers and practitioners alike try to derive complex

metrics for measuring effectiveness of HRP which are not

very meaningful unless they also measure how effective the

practices are in terms of fostering higher engagement among

employees.Given the need for pro-social behaviours, human resource

practices which endeavour to align with organisational

strategies without igniting the full potential and talent of the

employees are unlikely to achieve sustained competitive

advantage. It is this aspect of the human resources which

makes them inimitable and difficult to substitute. It is therefore

suggested that besides measuring HR effectiveness through

organisational productivity measures, satisfaction index or

HR audit scores, practitioners need to focus on the

effectiveness of HRPs in keeping the employees engaged

cognitively and emotionally. ‘Satisfied’ employees without the

‘energy’ to push the organisation forward will fall short of

sustaining competitive advantage.

The findings of the proposed model will have implications on

all aspects of individual and organisational performance,

particularly on managing and retaining talent81.

ConclusionsConclusionsConclusionsConclusionsConclusions

The paper establishes that PC and EE are both important

psychological constructs gaining strength in academic and

Exhibit 1Exhibit 1Exhibit 1Exhibit 1Exhibit 1 Human Resource Practices-PsychologicalHuman Resource Practices-PsychologicalHuman Resource Practices-PsychologicalHuman Resource Practices-PsychologicalHuman Resource Practices-Psychological

Contract-Employee Engagement: An IntegrativeContract-Employee Engagement: An IntegrativeContract-Employee Engagement: An IntegrativeContract-Employee Engagement: An IntegrativeContract-Employee Engagement: An Integrative

FrameworkFrameworkFrameworkFrameworkFramework

Human

Resource

Practices

AttitudesBehaviour

TalentUtilisation and

Retention

Psychological

Contract

ExternalEnvironment

EmployeeEngagement

The dotted lines indicate the proposed relationships




12 Richman, A, 2006, ‘Everyone Wants an Engaged Workforce.How Can You Create it?’, Workspan, Vol 49, pp 36-39;International Survey Research, 2003, ‘Engaged EmployeesDrive the Bottom Line’, Research Summary: Chicago,Illinois.

13 Rousseau, D, 1990, ‘New Hire Perceptions of Their Ownand Their Employer’s Obligations: A Study of PsychologicalContracts’, Journal of Organisational Behavior,Vol 11, No 5, pp

389-400.

14 Hochschild, A, 1983, ‘The Managed Heart: Commercialization of Human Feelings’, Berkeley: University of California Press.

15 Sparrow, P, 1996, ‘Transitions in the Psychological Contract:Some Evidence From the Banking Sector’, Human Resource Management Journal , Vol 6, No 4, pp 75-92.

16 Singh, R, 1998 ‘Redefining Psychological Contracts with theUS Workforce: A Critical Task for Strategic Human ResourceManagement Planners in the 1990s’, Human Resource Management, Vol 37, No1, pp 61-69.

17 Barnard, C, 1973, The Functions of the Executive, HarvardUniversity Press: Cambridge, MA.

18 Guest, D, 1998, ‘Is the Psychological Contract Worth TakingSeriously?’, Journal of Organisational Behavior, Vol 19, pp 649-664.

19 Rousseau, D, ‘New Hire Perceptions …’, p 390.

20 Rousseau, D, 1995,Psychological Contracts in Organisations:Understanding Written and Unwritten Agreements , ThousandOaks, CA: Sage.

21 MacNeil, I, 1980, The New Social Contract: An Enquiry into Modern Contractual Relations , New Haven: Yale UniversityPress.

22 Raja, U, and F Ntalianis, 2004, ‘The Impact of Personality on

Psychological Contracts’, Academy of Management Journal,Vol 47, pp 350-367.

23 Coyle, Shapiro, and J Neuman, 2004, ‘Individual Dispositionsand Psychological Contract: Employee and EmployerPerspectives’,European Journal of Organisational Psychology ,Vol 11, pp 69-86.

24 Kickul, J, S Lester, and E Belgio, 2004, ‘Attitudinal and

Behavioral Outcomes of Psychological Contract Breach: ACross Cultural Comparison of the United States and Hong

Kong Chinese’, International Journal of Cross Cultural Management , Vol 4, pp 229-252.

25 The Towers Perrin Talent Report, 2003, ‘Working Today:Understanding What Drives Employee Engagement’, USA;

defining it along the same lines is Bates, S, 2004, ‘GettingEngaged’,HR Magazine , Vol 49, No 2.

26 Kahn,W, ‘Psychological Conditions of Personal Engagementand Disengagement at Work’.

27 Luthans, F, and S Peterson, 2002 ‘Employee Engagementand Manager Self-Efficacy-Implications for Managerial

Effectiveness and Development’, Journal of Management Development , Vol 21, No 5/6, pp 376-387.

28 Harter, J, F Schmist, and T Hayes, 2002, ‘Business-level UnitRelationship between Employee Satisfaction, Employee

practitioner literature. We suggest that though these constructs

are closely related, nonetheless they are not the same. We

need to investigate the direction of relationship between PC

and EE. Research on antecedents of employee engagement is

still in the embryonic stage; however HRP appears to be the

key antecedent of PC as well as EE. In other words, human

resource practices help in the formation of the psychologicalcontract of an employee and also create conditions for

employee engagement. Research would need to explore if

HRP moderates the relationship between PC and EE and

consequently has a bearing on organisational outcomes. Based

on a literature review we propose that employee psychological

contract, engagement and human resource practices need to

be looked at as an integrative whole. We conclude that HRP

is the linchpin between PC and EE which can be important

strategic tools for talent utilisation and retention.

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81 The concept of talent emerged from the study of individualdifferences (Ericsson, K, and A Lehmann, 1996, ‘Expertand Exceptional Performance: Evidence of Maximal

Adaptation to Task Constraints’,Annual Review of Psychology ,Vol 47, pp 273-305). Early studies have focused on theintellectual abilities which were believed to have producedexceptional or superior performance the sheer brilliance ormagnitude of which cast eminence on the talentedindividual. The last couple of decades have seen anemergence of the concept of talent in the management andpractitioner oriented literature. The term talent has beeninter-changeably used with very many inter-related termsviz intelligence, creativity, exceptional performance,giftedness, competencies etc. For the purpose of this study,the term talent has been operationalised as the applicationor process of applying and thereby activating one’s abilities,skills and knowledge in a given context to achieve superior

outcome. Associated studies in this area include Spencer,M, and M Spencer, 1993, Competence at Work: Models for Superior Performance , John Wiley and Sons; Sternberg, R J, 1997, ‘Managerial Intelligence: Why IQ isn’t Enough’, Journal of Management, Vol 23, No 3, pp 475-493; Ulrich, D,and D Lake, 1991, ‘Organisational Capability: CreatingCompetitive Advantage’ , Academy of Management Executive, Vol 5, No 1.

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