Article

State of Psychological Contract Global Business Review

16(4) 623–631
in India: Managing the ‘New Deal’ © 2015 IMI
SAGE Publications
sagepub.in/home.nav
DOI: 10.1177/0972150915581107
http://gbr.sagepub.com

Promila Agarwal1

Abstract
The article explores the contents of psychological contract in the light of changes that has taken place
in India and considering the dynamic nature of psychological contract. A shift in obligations from both
sides has been observed. A multiple method approach is used involving: semi-structured interviews,
focus group discussions, the Delphi method and surveys. The findings reveal new contents of psy-
chological contract. The article provides insight into how employee obligations towards employer
have changed. The findings have implications for both researchers and practitioners in understanding
the employee–employer relationship. The novel contents of psychological contract are identified and
the article provides a framework to measure psychological contract. The significance of the emerging
contents of psychological contract is discussed.

Keywords
Psychological contract, obligations, employee relations, India

Introduction
Psychological contract has emerged as a concept to deal with employee–employer relationship (Thomas
et al., 2003). The article explores new contents of psychological contract that aligns the changing
individual needs and organizational needs. Over a period of time, the priorities of both employee and
employer have considerably changed in India. Psychological contract research work in India is limited
and based upon the framework borrowed from the west. Despite more than 20 years of extensive research
on psychological contract, the research in the area of composition of psychological contract is limited
(Blancero et al., 2007). The influence of cultural difference on perception of psychological contract is
largely ignored (Zhao and Chen, 2008). Second, the proportion of research on psychological contract in
the Asian context is further limited (Aggarwal and Bhargava, 2009). Therefore, a conceptualization of
employment relationship in Indian context is timely. The findings will advance research in the area of
psychological contract by highlighting possible variations in psychological contract due to cultural
settings. The research strongly argues that a shift in psychological contract will require new set of rules
and regulations to manage the psychological contract.

1
Indian Institute of Management, Ahmedabad, India.

Corresponding author:
Promila Agarwal, Indian Institute of Management, Ahmedabad.
E-mail: [email protected]
624 Global Business Review 16(4)

Psychological Contract
Argyris (1960) introduced the term psychological contract (PC). Argyris studied PC in the context of
leadership style used by the superior. The term ‘psychological work contract’ emphasizes the implicit
relationship between the leader and subordinates as a consequence of the leadership style used by the
leader. Schein (1970) added to the concept of PC by emphasizing that employee and employer have
multiple expectations from each other. Kotter (1973) further specified the expectation of both employee
and employer and examined the scope of incongruence between employee and employer expectation.
Psychological contract refers to ‘individual beliefs, shaped by the organization, regarding terms of an
exchange agreement between individuals and their organization’ (Rousseau, 1995, p. 9).
Currently, the review distinguishes core dimensions of the psychological contract into transactional
psychological contract and relational psychological contract. A transactional contract is based upon
short-term monetary exchanges such as merit pay (Robinson et al., 1994) and requires limited involvement
by the employer and employee. In contrast, a relational contract is based upon broad, long-term exchange
and reflects socio-emotional elements such as trust, commitment and loyalty (Cavanaugh and Noe,
1999). There is no agreement on whether transactional and relational types of contracts can be placed on
the opposing ends of a continuum (Rousseau, 1990; Rousseau and McLean Parks, 1993; Shore and
Tetrick, 1994) or an employee can be high or low on both a transactional and a relational dimension
(Shore et al., 2006). Psychological contract has been measured using content, feature and evaluation-
based measures. Contents of PC refer to elements which comprise a contract (for example, training and
career development, job content, Rousseau, 2000). The current study attempts to examine the employee
and employer obligations. There are a few studies which examine the specific obligations, although there
is a moderate amount of qualitative research available on employee and employer obligations (Herriot
et al., 1997). Variability across the cultures is expected (Rousseau and Schalk, 2000). Therefore, it calls
for examination of psychological contract in different cultural settings. Further, the literature strongly
argues in favour of the need for a new psychological contract (Petersitzke, 2009). Considering the strong
linkage between psychological contract and critical organizational outcomes like turnover (Deery et al.,
2006; Vos and Meganck, 2009), organizational citizenship behaviour, organization commitment, in-role
performance (Zhao et al., 2007) and job satisfaction (Coyle-Shapiro and Kessler, 2000; Deery et al.,
2006; Pate et al., 2003) and its idiosyncratic nature (Rousseau, 2000). It is imperative to have clarity
about specific obligations which constituents PC. The current study will first explore the obligations
using qualitative methods and then validate the findings empirically.

Methodology

Stage 1
Sample Size
The sample size for focus group discussions (FGDs) is presented in Table 1. A total of 30 participants
(10 HR heads, 12 functional heads and 8 academicians) participated in the semi-structured interviews.
The Delphi Technique Method
The instrument was subjected to the Delphi technique before taking it to the survey stage. The panel had
experts from academia (N = 6) and industry (N = 6). The experts were requested to critique the scale on
the parameters like: instruction clarity, need for additional instruction, any item which is confusing and
Agarwal 625

Table 1. Sample Characteristics of the FGDs Participants (N = 70)

Age Experience
Gender N (in years) N MS N Education N (in years) N
Male 35 21–30 13 Unmarried 33 Graduates 30 1–5 10
Female 35 31–40 16 Married 37 Post Graduates 30 6–10 12
41–50 15 M.Phil./Ph.D. 10 11–15 10
51–60 14 16–20 11
61–70 12 21–25 10
26–30  9
31 and above  8
Source: Author’s own.

misleading, any item which needs to be re-framed, formatting and layout of the questionnaire, if the
questionnaire captures the total content area of psychological contract, if the items are sufficient to
measure the components of psychological contract, any aspect/content which needs to be added and any
content which does not measure psychological contract.
Procedure
The data from the FGDs and interviews were recorded, consistent with the 24-hour rule of Eisenhardt
and Bourgeois (1988), and the discourse was transcribed immediately after sessions. Seven contents
of employer obligations and employee obligations emerged. The content and meaning from the tran-
scripts were categorized using ‘open coding’ techniques. In the second stage of ‘axial coding’, coded
segments were manually compared and contrasted to bring out common properties and themes. In the
final stage of ‘selective coding’ common themes were classified into data categories using category
labels.
On the basis of the review of literature and qualitative data analysis (FGDS and interviews), a draft
scale was prepared and item analysis was done. The draft scale was subjected to the Delphi technique.
Fifteen experts from the area of psychological testing, psychology and management participated in the
Delphi technique method. All the concerns raised by experts were addressed and all the modifications
were made before subjecting the instrument to the survey. The data were first subjected to a pilot survey
before subjecting it to the final survey. Following the rule by Pett, Lackey and Sullivan (2003), the pilot
study data was excluded from the final survey analysis.

Stage II
Sample Size and Method
The sample size and its characteristics are presented in Table 2. The response rate through email was
18 per cent and over all response rate was 43 per cent. Confirmatory factor analysis was used to validate
the instrument.
Instrument Design
Instructions and layout of the scale is presented below:
Employer obligations were assessed by asking respondents to indicate the extent to which they
believed that employer was obligated to provide given items. Responses were given on a five-point scale
ranging from ‘not at all’ to ‘to a very great extent’.
626 Global Business Review 16(4)

Table 2. Sample Characteristics of the Survey Participants (N = 244)

Age Experience
Gender N (in years) N MS N Education N (in years) N
Male 240 21–30 97 Unmarried 220 Graduates 180 1–5 65
Female 210 31–40 97 Married 230 Post Graduates 180 6–10 65
41–0 98 M.Phil./Ph.D. 90 11–15 70
51–60 80 16–20 65
61–70 78 21–25 70
26–30 60
31 and above 55
Source: Author’s own.

Employer contributions were assessed by asking employees to indicate the extent to which they
perceived that their employer actually offered them each of the inducements listed. A five-point response
scale was used, ranging from ‘not at all’ to ‘to a very great extent’.
Employee obligations were assessed by asking respondents to indicate employee’s obligation to the
employer. Responses were given on a five-point scale ranging from ‘not at all’ to ‘to a very great extent’.
Employee contributions were assessed by asking respondents to indicate the extent to which they
believed that they actually offered each of listed items. A five-point response scale was used, ranging
from ‘not at all’ to ‘to a very great extent’.

Results

Stage I: Qualitative Results

On the basis of the analysis of the interviews and focus group discussion the following contents were
identified.

Contents of Employer Obligations

1. Training and Development: Management support, facilitation in acquiring and enhancing skills
and competencies, and opportunities for better career/promotional avenues both within and
outside the organization.
2. Social Climate: A healthy, cooperative, and friendly relationship with seniors, subordinates, and
colleagues. Employer obligation to provide comradeship and culture of excellence.
3. Job Content: Challenging, respectful, interesting, meaningful duties and responsibilities,
employer obligation that the job would entail sufficient decision making authority and
opportunities to exhibit skill set and competencies.
4. Freedom To Quit: Freedom to quit from the organization rather than being constrained by
contractual obligation.
5. Respect and Dignity: Employer obligation to treat employees with dignity, respect, equality, and
employer not discriminating the employee on the basis of gender, caste, religion and region
(etc.).
6. Reward and Recognition: Monetary and non-monetary acknowledgement of employee
contribution.
Agarwal 627

7. Work–Life Balance: Due cognizance to employee’s personal lives and sufficient flexibility to
allow freedom to engage in personal commitments.
Contents of Employee Obligations
1. Performance and Promotability: To perform job at best of the abilities and competencies, to
focus on targets and goals of the organization and to improve their skills in order to perform their
current and assumed greater responsibilities in the future.
2. Adaptability: Employee to quickly adapt to perform in constantly changing jobs and workplace
situations and to exhibit a great deal of team spirit and maturity in dealing with situations arising
from internal dynamics around them.
3. Compliance: Conform to the norms, rules, regulations, policies, processes and procedures of the
organization.
4. Managing Work–Life Balance: Not to indulge in activities beyond the call of duty in the name
of work–life balance and not to perform deficiently in the face of personal needs/situations.
5. Stability: To stay with the organization for a minimum of two years in order to give stability to
the organization.
6. Respect: To treat colleagues with dignity and respect irrespective of circumstances and not to
discriminate and humiliate colleagues and subordinates for any background factors (e.g., gender,
caste, race, region, etc.).
7. Ethics: To protect confidential information belonging to the organization, use the property or
resources of the organization honestly and not indulge in corrupt practices.

Stage II: Quantitative Results

The convergent and discriminant validity of the constructs is tested using confirmatory factor analysis.
The Amos 20.0 software package was used to analyze the responses. Descriptive statistics and
standardized regression weights/factor loadings, various fit measures of goodness of-fit index (GFI),
normed fit index (NFI), comparative fit index (CFI) and root mean square error of approximation
(RMSEA) of the scales were obtained. Factor loadings are conservatively chosen to eliminate items with
loadings less than 0.70. The objective was to identify and eliminate poorly performing items and
to affirm the convergent validity of items in each construct. The CFI, NFI and GFI were equal to or
greater than 0.90, suggesting the good fit of items to each construct. RMSEA was in the range of
0.03–0.05. All constructs had Cronbach’s alpha of greater than or equal to 0.70 (Nunnally, 1967),
confirming the internal consistency of items to measure each construct (see Table 3).

Discussion
The article begins with the need to explore the new contents of psychological contracts. The findings
reveal seven employee obligations and employer obligations using both qualitative and quantitative
methods. The current study is different from the similar kind of research done by Aggarwal and
Bhargava (2009) in both methodology and findings. The current study uses combination of
qualitative methods (FGDs and interviews). It attempts to cover up the limitations associated with
critical incident method. Second, the findings in the current research report the difference in the contents
which constituents PC.
628 Global Business Review 16(4)

Table 3. Confirmatory Factor Analysis Report

Employee Obligations M SD Cronbach’s Factor Loading Range

Performance and 3.30 0.48 0.81 0.73–0.86
promotability
Adaptability 3.28 0.58 0.75 0.71–0.81
Compliance 3.34 0.65 0.83 0.79–0.85
Managing work–life 3.29 0.56 0.86 0.72–0.80
balance
Stability 3.26 0.68 0.71 0.77–0.84
Respect 3.27 0.57 0.87 0.75–0.80
Ethics 3.29 0.57 0.73 0.80–0.85
Model fitness—GFI = 0.97, CFI = 0.92, NFI = 0.96 and RMSEA = 0.04
Employee Contribution M SD Cronbach’s Factor Loading Range
Performance and 4.40 0.51 0.90 0.70–0.84
promotability
Adaptability 4.64 0.50 0.86 0.75–0.86
Compliance 3.90 0.63 0.83 0.75–0.79
Managing work–life 4.01 0.56 0.88 0.77–0.81
balance
Stability 3.21 0.49 0.91 0.89–0.91
Respect 4.26 0.48 0.87 0.73–0.86
Ethics 3.99 0.50 0.88 0.75–0.79
Model fitness—GFI = 0.92, CFI = 0.96, NFI = 0.92, RMSEA = 0.03
Employer Obligations M SD Cronbach’s Factor Loading Range
Training and development 4.32 0.40 0.73 0.75–0.87
Social climate 4.49 0.41 0.83 0.74–0.80
Job content 4.56 0.39 0.79 0.79–0.89
Freedom to quit 4.12 0.37 0.81 0.82–0.86
Respect and dignity 4.48 0.39 0.87 0.77–0.81
Reward and recognition 4.41 0.38 0.86 0.78–0.89
Work–life balance 4.53 0.37 0.89 0.83–0.86
Model fitness—GFI = 0.91, CFI = 0.90, NFI = 0.96, RMSEA = 0.05
Employer Contributions M SD Cronbach’s Factor Loading Range
Training and development 2.66 0.74 0.89 0.78–0.82
Social climate 2.54 0.76 0.84 0.76–0.86
Job content 3.29 0.78 0.73 0.79–0.85
Freedom to quit 3.54 0.72 0.77 0.80–0.87
Respect and dignity 3.92 0.47 0.88 0.81–0.89
Reward and recognition 3.63 0.56 0.82 0.75–0.81
Work–life balance 3.42 0.67 0.87 0.83–0.84
Model fitness—GFI = 0.92, CFI = 0.94, NFI = 0.97, RMSEA=0.05
Source: Author’s own.

The contents of employee obligations include performance and promotability, respect, adaptability,
compliance, ethics, stability and managing work–life balance. The contents of employer obligations
include training and development, social climate, job content, rewards and recognition, freedom to quit,
respect and dignity and work–life balance. The contents like training and development, job content,
Agarwal 629

promotion, compliance, and work–life balance are similar to the earlier reported content of psychological
contract (Coyle-Shapiro and Kessler, 1998, 2000; Freese and Schalk, 1996; Guest and Conway, 1997,
1998; Herriot et al., 1997; Rousseau, 1990, 1998). Stability content is similar to the content labelled as
‘loyalty’ (Coyle-Shapiro and Kessler, 1998, 2000). In the current research article we use the term
‘stability’ because the term ‘loyalty’ is used in the field of organizational behaviour with a different
connation and meaning.
The employability content is replaced by promotability. Employability as a concept did not emerge as
core element of psychological contract. Employees are expected to expand their skill set and competen-
cies in order to take larger responsibilities within the organization to help the organization in its goal
achievement. Managing work–life balance emerged as another critical employee obligation. Employees
are expected not to misuse HR practices meant to facilitate a work–life balance. There was a strong argu-
ment in favour of not misusing the facilities under the cover of work life balance. Employees are obli-
gated to be honest with organization while using benefits meant for work life balance. Further, an
employee must take the lead in managing work–life conflicts. They must ensure that their performance
shall not drop significantly in face of work–life balance issues.
Elements like respect, dignity, ethics and equality emerged as strong contents of a psychological con-
tract. This might be due to current social environment prevalent in India. In recent past some of the big
corporate houses were accused for malpractices (Anderson, 2013). Some of the big names are into legal
battles for exploiting their subordinates (Vij, 2013). The country saw one of the big social movements
against corrupt practices (Bannerjee, 2011). There is heightened aggression against corrupt practices and
awareness about basic entitlements among people. Also, there has been increase in reporting of such
cases (Vij, 2013). Earlier, it was less likely for an employee to raise his/her voice against the employer
or the boss in the face of exploitation. The findings extend the arguments by Narang and Singh (2012),
that psychological contract is changing and need to be studies.
The practitioners can consider the emerged contents of psychological contract to better manage the
employee–employer relationship. The process of managing psychological contract begins at recruitment
stage and continues till the employee exits from the organization. Therefore, it is necessary to consider
the specific obligations across human resource functions. The findings also have theoretical implications.
The study argues that since psychological contract is dynamic and idiosyncratic. Therefore, the periodic
examination of contents of psychological contract is necessary. The study also discusses the possible
influence of social and environmental factors on psychological contract. The author suggests examination
of association between psychological contract and social factors.
The findings discussed in the paper extend the existing literature in number of ways. First and
foremost, it empirically explores the contents of psychological contract in context of India. It highlights
that how some contents of psychological contract are no longer relevant today and how some contents
have emerged as core contents of psychological contract. It differs from earlier research by including
combination of qualitative methods (FGDs and interviews). The strength of the study lies in the
representative sample of the research and robust methodology.

Conclusion
The research provides new contents of psychological contract in Indian setting other than the existing
ones. Contents like respect and dignity have merged as very strong constituents of psychological contract
like never before. Contents like employability are being replaced by promotability. The research discusses
possible factors responsible for the emergence of new contents of psychological contract. The author
strongly recommends the examination of these contents of psychological contract from the lenses of
630 Global Business Review 16(4)

social contract. The findings add value to the psychological contract theory by confirming that
psychological contracts are idiosyncratic and dynamic in nature. The emergence of new contents in the
current study further justifies the need to closely monitor psychological contract over the period of time.
The findings have clear practical implications. The HR systems in organizations can be designed around
the emerged contents of psychological contract. Further, the integration of employee and employer
obligations into HR systems will facilitate in healthy employee–employer relationships. The study
concludes with a validated scale to measure the psychological contract more relevant in the Indian
context. The tool is likely to facilitate a more accurate examination of psychological contracts in India.
The study promises to stimulate research in the area of psychological contracts in India. The research
uses a rigorous multiple-method approach to examine the contents of psychological contracts and
reduce common method bias. However, it is based on cross-sectional design and hence generalization
requires caution.

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