Entrepreneurial organizations have undergone substantial workforce changes and transformations during the last two decades in order to compete successfully on a global scale. The ability to attract and retain reliable and competent employees has become a key component in developing an effective and sustainable competitive advantage. The purpose of this study is to investigate the role of the psychological contract and the types of promises made and communicated by small business organizations to attract and retain their employees. From a sample of 151 employees within small businesses, the results demonstrate that perceived unfulfilled promises can have a considerable impact on workplace attitudes, commitment, and intentions to leave the organization. Implications and recommendations for small businesses as well as directions for future research are discussed.
While the tendency towards restructuring and globalization continue to be an integral part of the economic and employment landscape, entrepreneurial organizations are increasingly pressured to make rapid changes and accommodations to their workforce and employment policies (Cappelli 1999; Coffey, Cook, and Hunsaker 1994; Hitt 1998; Kreitner and Kinicki 1995). Underlying all of these changes is the fact that organizations of varying sizes and capabilities are finding that they must manage, renegotiate, and in some cases, violate the employment relationship or psychological contract that they have established with their employees (Rousseau 1995; Rousseau and McLean Parks 1993). Psychological contracts, in general, are the set of promises held by an individual employee about the terms of the exchange agreement between the employee and his/her organization (Rousseau 1989). For example, an employee may perceive that he/she has been promised competitive wages, promotional opportunities, job training, challenging an d meaningful work, and in return has promised to give the organization his/her energy, time, technical skills, and commitment. Unlike formal employee-employer contracts, the psychological contract is inherently perceptual, and therefore one party's interpretation of the terms and conditions of the obligations within the contract may not be shared by the other (McLean Parks and Schmedemann 1994; Rousseau 1995, 1998).
Objectives of the Study
The purpose of this study is to explore the role of the psychological contract within small businesses in order to better understand the type of inducements these businesses offer their employees to attract and retain their skills and expertise. While some research that has shown that large and small firms differ in terms of their employment and human resource management (HRM) practices (Aldrich and Langton 1997; Deshpande and Golhar 1994; Ng and Maki 1993; Morissette 1993), previous work in the psychological contract area (for example, Robinson 1996; Rousseau 1989; Rousseau and Tijoriwala 1998) has not specifically addressed the types of promises small firms may convey to their employees. These promises, based on employees' perceptions, can influence an employee's future performance and intrapreneurial behavior that extends beyond an employee's job or role requirements (Robinson 1996; Robinson and Morrison 1995). Because small firms tend to have personalized and informal human resource practices (Aldrich and Auster 1986; Aldrich and Langton 1997), the explicit and implicit promises these organizations make in order to appeal to their employees takes on added significance.
Additionally this study also examined how unfulfilled employer promises influence employees' attitudes and intentions to leave the small firm. As discussed by Baker and Aldrich (1999), Deshpande and Golhar (1994), Hornsby and Kuratko (1990), and Stevenson et al. (1999), the selection and retention of a competent and qualified workforce is a vital and important issue in managing and operating a small business. The ability to adequately provide competitive compensation, employee participation initiatives, and effective training and development are some of the critical factors associated with the effective and efficient operations of a small firm (Golhar and Deshpande 1997; Hornsby and Kuratko 1990). …