Academic journal article Journal of Organizational Culture, Communications and Conflict

Psychological Contracts in Enterprises

Academic journal article Journal of Organizational Culture, Communications and Conflict

Psychological Contracts in Enterprises

Article excerpt

INTRODUCTION

The separation of ownership and control has been recognized from different perspectives as a potential major organizational problem (Berle & Means, 1932; McLean Parks & Schmedemann, 1994; Rousseau & Shperling, 2003; Veblen, 1923). From an economic perspective, it has been argued that the alignment of owners' and agents' interests via the nexus of formal contracts requires attempts in the resolution of the conflicts between the interests of the principals and their agents (Berle & Means, 1932; Jensen & Meckling, 1976). The problem of the separation of owners' and agents' interests refers to agents promoting their personal interests at the expense of principals whose interests are best served when their wealth is maximized through the efforts of the agents. For the principals, therefore, benefits are primarily relevant in economic terms. The agents, however, not only prefer enhancements of their wealth, but also enhancements of their non-economic utilities at the expense of principals. Note that agents' wealth may be enhanced with their employment rewards. Their non-economic benefits may encompass "the physical appointments of the office, the attractiveness of the secretarial staff, the level of employee discipline, the kind and amount of charitable contributions ... etc." (Jensen & Meckling, 1976: 486). Effort reduction on the job may also increase the non-financial utilities of agents at the expense of principals. Both the economic and the non-economic benefits of agents are conceived to be driven by self-interest, and self-interest is anticipated to be promoted deceitfully. Hence according to economic scholars, in the absence of inducements or monitoring/intervention, managers or employees will deliberately and guilefully violate the terms of their formal employment contract (Alchian & Demsetz, 1972; Jensen & Meckling, 1976).

From an organizational behavior perspective, it has alternatively been contended what economists interpret as agents' propensity to enhance their economic and non-economic benefits at the expense of principals may actually occur because of limited information, misunderstanding, or miscommunication (Morrison & Robinson, 1997; Rousseau & Shperling, 2003). Consequently, the problems that evolve from the separation of ownership and control can be traced to gaps in what employers expect and what employees perceive they should contribute. Rather than deliberately violating the terms of their employment agreements, organization behavior scholars propose executives and workers will honor their employment agreements, as they understand them. Accordingly, enhancing communication and mutual understanding among shareholders, managers, and employees may resolve the problem of the separation of ownership and control of corporate assets. Therefore, mutual benefits may be expected as mutual understanding is achieved among these stakeholders (Pierce, Rubenfeld, & Morgan, 1991; Rosen, Klein, & Young, 1986; Rousseau, 1995). What is recognized in the behavioral view is that individuals at the outset may seek jobs with organizations for an economic reason. Although economic exchange may initially characterize the relationship between the employee and the enterprise, behaviors of employees within the enterprise are motivated by more than an economic agenda. Hence, a person's decision to offer contributions to the firm cannot be explained by economics alone.

Whereas the economic perspective emphasizes the formal contract and the expectation that agents will seek selfish interests beyond the provisions of the formal contract, organization behavior theorists clearly emphasize the informal contract. More specifically, their argument is that the alignment of shareholders' interests with those of the firm's executives and workers may require a shared understanding of the informal psychological agreement that prevails in the employment relationship (McLean Parks & Schmedemann, 1994; Morrison & Robinson, 1997; Rousseau & Shperling, 2003). …

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