RESEARCH BRIEFS

Research Edge

We are proud to introduce our readers to Re-search Edge, which we hope will inform both ouracademic and executive audiences. This feature isdesigned to summarize current research in excitingnew areas with an eye toward highlighting keyimplications for managerial practice. Leadingscholars who have played important roles in devel-oping these emerging research areas will authorour Research Edge articles. They will appear ineach issue along with our regular Research Briefs.

Psychological Contracts in theWorkplace: Understanding the TiesThat Motivate

Denise M. Rousseau, Carnegie Mellon University

Modern organizations can’t succeed unless thepeople they employ agree to contribute to theirmission and survival. But flatter organizations,geographically dispersed work, and ever-increas-ing aspiration levels for service and innovationmake it impossible for employers to motivate work-ers strictly through supervision or monetary incen-tives. Instead, workers and employers need toagree on the contributions that workers will maketo the firm and vice versa. Understanding and ef-fectively managing these psychological contractscan help organizations thrive. Psychological con-tracts are beliefs, based upon promises expressedor implied, regarding an exchange agreement be-tween an individual and, in organizations, the em-ploying firm and its agents.1

Workers and employers need to agree onthe contributions that workers will maketo the firm and vice versa. Understandingand effectively managing thesepsychological contracts can helporganizations thrive.

In essence, psychological contracts motivateworkers to fulfill commitments made to employerswhen workers are confident that employers willreciprocate and fulfill their end of the bargain.These agreements can be limited to the hourly

wage for a temporary worker who ships holidaypackages, or they can be as broad as the generoussupport and mutual investment for a biotechnol-ogy firm’s chief scientist. Employers in turn havetheir own psychological contracts with workers,depending upon their individual competence,trustworthiness, and importance to the firm’s mis-sion. Overall, to make realistic promises that canbe kept, the psychological contracts which employ-ers and workers create should be consistent with awell-crafted human resource strategy.

But what are the basic features and dynamics ofpsychological contracts? And given those dynam-ics, how can employers impact psychological con-tracts in ways that benefit the firm? Likewise, howdo workers shape their own psychological con-tracts? What advice can we offer to help workersand employers create mutually beneficial psycho-logical contracts? Fortunately, by weaving to-gether findings from recent studies, a clearer pic-ture emerges about psychological contracts—onethat will help answer key questions and providesome important guidance to management.

Six Features of the Psychological Contract

The dynamics of the psychological contract areshaped by its defining features. Scholars haveidentified six key features, which are describedbelow.2

Voluntary Choice

Psychological contracts motivate people to fulfilltheir commitments because they are based on theexchange of promises in which the individual hasfreely participated. Commitments made voluntar-ily tend to be kept. An employee who agrees towork for a firm for at least a year is likely to beinternally conflicted if offered a job elsewhere afew months after being hired. Indeed, that em-ployee is more likely to decline the offer than acolleague who had made no such commitment tothe employer. Explicit voluntary commitments (“Iagree to stay a minimum of a year”) have morepowerful effects on behavior than implicit ones (“tostay a while”).

Belief in Mutual Agreement

An individual’s psychological contract reflects hisor her own understanding of the commitments

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made with another. Individuals act on that subjec-tive understanding as if it is mutual, regardless ofwhether that is the case in reality. For instance,consider a new employee who is told that her jobrequires two or three days of travel a week. Theemployee might interpret that to mean that shewill be traveling no more than three days a week,although the manager who hired her really meantthat there would be two or three days of travel perweek on average. More experienced recruits arebetter at probing for mutual understanding thanrookies are.

Incompleteness

With the exception of short-term, limited transac-tions (e.g., temporary help), psychological con-tracts tend to be incomplete and need to be fleshedout over time. Neither worker nor employer caninitially spell out all the details of a long-termemployment relationship. Indeed, it is impracticalto expect either party to recall all the relevantdetails that should be shared with another. More-over, changing circumstances mean that not allcontingencies can be foreseen. As a result, psycho-logical contracts tend to become more elaborateover the course of the employment relationship.That said, by filling in the blanks along the way,the parties to a psychological contract can come tohave inconsistent understandings over time—un-less periodic efforts are made to reinforce mutual-ity. Interestingly, aspects of employment thatworkers find satisfying but that are not part of thepsychological contract (e.g., the camaraderie ofcolleagues) can, over time, come to be viewed aspart of the promised status quo.3 In essence, theseaspects morph into the psychological contract, ne-cessitating attention similar to that given to otherexplicit promises.

Multiple Contract Makers

How workers interpret their psychological con-tracts with employers is shaped by many sourcesof information. For instance, information sourcesmay include top management, human resourcerepresentatives, and, in particular, a worker’s im-mediate boss. The boss consistently sends strongsignals regarding the terms of an individual’s psy-chological contract. Indeed, if their immediateboss leaves, many workers will view the departureas a violation of their psychological contract withthe firm. When their boss leaves, many workersfeel they are losing the shared understandingabout their psychological contracts. Coworkerscan also provide information which people use to

determine what they owe employers and viceversa. Lastly, human resource practices such astraining and performance appraisal processes cansignal promised benefits and required contribu-tions. And as you might suspect, when informationsources convey different messages, it erodes themutuality of the psychological contract.

Managing Losses When Contracts Fail

If workers or employers rely on psychological con-tracts to guide their actions, then the failure of theother party to fulfill anticipated commitments re-sults in “losses” (i.e., promised benefits that fail tomaterialize). Such losses are the basic reason whypsychological contract violation generates strongnegative reactions, including anger, outrage, ter-mination, and withdrawal of support. In essence,workers and employers must focus both on fulfill-ing commitments of their psychological contractsas well as on managing losses when existingcommitments are difficult to keep. For instance,an employer might offer someone a challengingproject when a promised promotion fails to mate-rialize. Likewise, a worker who misses a criticalmeeting might make special efforts to follow upwith colleagues to ensure that her performance isunimpaired.

Workers and employers must focus bothon fulfilling commitments of theirpsychological contracts as well as onmanaging losses when existingcommitments are difficult to keep.

The Contract as Model of the EmploymentRelationship

A psychological contract creates an enduring men-tal model of the employment relationship. Thismental model provides a stable understanding ofwhat to expect in the future and guides efficientaction without much need for practice. Think aboutthe way the conventional QWERTY keyboard helpsthose of us who type in English to compose a doc-ument without looking at the keyboard. Having apsychological contract as a mental model helpsemployer and worker function despite having in-complete information about the other party’s inten-tions or expectations. Subsequent information alsotends to be interpreted in light of the pre-existingpsychological contract. For the most part, this isfunctional since new performance demands can be

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incorporated into existing understandings of one’swork role.

But sometimes the old psychological contract istoo out of line with the new reality, and a moreelaborate change process is required. And workersaren’t the only ones who sometimes have troubleadapting their psychological contracts to changingcircumstances. For example, spillover effects havebeen reported among managers of informationtechnology (IT) workers whose status changedfrom regular employee to independent contractor.Managers continued to believe that their formerworkers should fulfill the duties of regular employ-ees despite the fact that they now worked for acontracting agency. Interestingly, the IT workersrecognized that the relationship with their formeremployer had shifted. Consequently, they had lesstrouble revising their psychological contracts thantheir bosses did.4

Types of Psychological Contracts

Although psychological contracts share certainfeatures, they can also take many forms dependingupon the nature of the work, the human resourcestrategy in place, and employee motives. Promisescan be very limited, as in the case of the simpleeconomic transaction that temporary work entails.On the other hand, psychological contracts caninvolve a host of relational commitments. Al-though the myriad details of a psychological con-tract can be as unique as each individual, thereare general patterns that differentiate how work-ers and employers behave toward each other.5

There are general patterns thatdifferentiate how workers and employersbehave toward each other.

Relational psychological contracts include suchterms as loyalty (worker and employer commit tomeeting the needs of the other) and stability (anopen-ended commitment to the future). Workerswith relational contracts tend to be more willing towork overtime whether paid or not, to help cowork-ers on the job, and to support organizationalchanges that their employer deems necessary. Al-though workers with a relational contract arelikely to be particularly upset when it is violated,the commitment embedded in such contracts oftencauses workers to seek remedies that will main-tain the relationship with the employer. Failure toremedy the situation typically leads to turnover or,if the employee remains, to reduced contributions

and further erosion of the employment relation-ship.6

On the other side of the coin, employers withrelational contracts absorb more of the risk fromeconomic uncertainties, often protecting workersfrom economic downturns. Malden Mills CEOAaron Feuerstein, an archetypal employer with arelational contract, continued to pay his workersafter his factory burned down, to tide them overuntil a new facility was built.7 Workers favor em-ployers who offer them a relational psychologicalcontract as opposed to the more limited transac-tional variety discussed below. In turn, employersare more likely to offer relational contracts to par-ticularly valued workers than to workers who con-tribute less.

Transactional psychological contracts includesuch terms as narrow duties and a limited or short-term duration. Workers with transactional con-tracts tend to adhere to its specific terms and toseek employment elsewhere when conditionschange or when employers fail to live up to theiragreement. Transactional contracts characterizeworkers whose contributions are less critical to thefirm’s comparative advantage and employers whooperate in highly unstable markets (e.g., entertain-ment, fashion). Both worker and employer arelikely to immediately terminate a transactional ar-rangement that fails to meet their needs. Transac-tional contracts shift the risk associated with eco-nomic uncertainties from the employer to workers.And the risk to workers can be particularly signif-icant if they have few alternatives elsewhere. Thearchetypal transactional employer is a Call Centerwhere workers who can easily be replaced oftentoil anonymously, performing narrow, limited du-ties. With transactional contracts, workers tend toperform in ways consistent with the contributionsthey are paid to make. Employers receive a spe-cific level of contribution from workers and incurfew, if any, future obligations to them. Such ar-rangements can be effective when workers areindividual contributors, performance can be ex-plicitly monitored, and there is little need to coor-dinate with others. Transactional contracts areless functional when they are a by-product of vio-lated or poorly managed relational contracts. Insuch cases, either workers or employers have losttrust in the other, resulting in a more wary arms’length relationship.

Finally, “hybrid” or balanced psychological con-tracts have emerged in recent years. These con-tracts combine the open-ended time frame and mu-tual concern of relational agreements with theperformance demands and renegotiation of trans-actional contracts. Balanced contracts combine

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commitments on the part of the employer to de-velop workers (both in the firm or elsewhere if needbe), while anticipating that workers will be flexi-ble and willing to adjust if economic conditionschange. Balanced contracts entail shared risk be-tween worker and employer. Moreover, such con-tracts anticipate renegotiation over time as eco-nomic conditions and worker needs change.General Electric represents the classic balancedcontract where workers trade job security for theopportunity to continually learn valued skills andmake contributions that have economic benefitboth to the employer and themselves (e.g., in theform of stock ownership, profit sharing, and otherforms of economic participation).

From a distance, assessing which type of psy-chological contract is operating is difficult—just asjudging a marriage is difficult from the outsidelooking in. Employment status, for example,whether part or full time, of brief duration or longterm, doesn’t indicate the type of psychologicalcontract that workers will have with an employer.Part-time workers and newcomers can have highlyrelational agreements with an employer. Con-versely, many full-timers and veterans report onlylimited commitments between themselves andtheir firms. To grasp the nature of the psychologi-cal contracts in place, it is necessary to drill downinto the beliefs which workers and employers holdas well as the information sources they use tointerpret the work environment. To increase mu-tual understanding, managers may want to initi-ate discussions with employees to share beliefsand perspectives that shape each side’s psycho-logical contracts.

Agreement between worker andemployer on what each owes the other iscritical to the employment relationship’ssuccess.

Mutuality: The Gold Standard

As noted earlier, a major feature of a psychologicalcontract is the individual’s belief that an agree-ment is mutual; that a common understandingbinds the parties involved to a particular course ofaction. Agreement between worker and employeron what each owes the other is critical to the em-ployment relationship’s success. Of course, psy-chological contracts are more likely to be keptwhen both parties agree on the terms. Conse-quently, creating mutuality is the gold standard inemployment relations.

In essence, worker attitudes should be more pos-itive and their performance better when both par-ties agree on what the employer has promised theworker than when a mismatch exists. So if bothworker and employer agree that the contract istransactional, then satisfaction and performancewill be greater than if one party believes it istransactional and the other thinks differently. Thesame holds for relational and balanced contracts.In one research organization, for instance, thehighest levels of productivity, career advance-ment, and worker satisfaction were found whenworker and employer agreed upon a balanced psy-chological contract.8

That said, workers and employers tend to havedifferent perceptions of how well each fulfills theirside of the bargain. Employers tend to rate them-selves more highly on fulfilling their end of thedeal than workers rate employers. Similarly, work-ers generally rate themselves as having fulfilledtheir end of the bargain to a greater degree thantheir employer does. This pattern conforms to thewell-established availability bias, where partiesto a relationship are better able to recall their owncontributions than those of their partners.9 Thewidespread tendency of husbands and wives torate their respective contributions to the marriagein ways that exceed 100 per cent is a well-knownexample of the availability bias in action. But it isimportant to note that while workers and employ-ers might each think they contribute somewhatmore to the relationship than their partner does,these differences do not necessarily mean thatthey believe their contract has been violated. In-stead, both parties credit themselves with morethan their counterpart typically acknowledges or isaware of.

However, biases in perceptions of contributionsdo create problems in an important aspect of mu-tuality: agreement on what workers owe the em-ployer as payback for the employer’s contributionsto them. Research shows that reciprocity is moredifficult to establish in balanced contracts whereworker contributions are expected to change withcircumstances and to be renegotiated periodically.Perhaps because balanced arrangements are rel-atively new, workers and employers are less famil-iar with effective ways of managing them. It alsomay be that dynamic situations requiring moreflexible responses make paybacks more difficult tospecify upfront. Given the role of negotiation overtime in balanced agreements, difficulty in achiev-ing mutuality regarding worker obligations sug-gests that both employer and worker need to keepeach other better informed regarding their inter-ests, needs, and opportunities for contribution. For

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this reason, firms with balanced contracts shoulduse HR practices that combine financial and devel-opmental incentives with open-book managementand opportunities for worker participation in deci-sion making.10

Not surprisingly, the more workers contributeover time, the more likely they are to feel that theemployer has increased the number and level ofpromises made, even if the actual number of ful-filled promises has diminished. Periods of highcontributions by workers tend to make salient thepromises employers have made as well as gapsbetween what is promised and what has (so far)been delivered. The key point is that while sub-stantial benefits accrue when worker and em-ployer perspectives are in agreement, mutualitycannot be assumed, and fulfillment of both sides ofthe psychological contract is a work in progress inthe employment relationship over time.

A long list of dysfunctional outcomes is gener-ated when an employer or worker believes thatthe psychological contract has been willfullybreached by the other side.11 From the worker side,anger, quitting, and lower performance, particu-larly in terms of discretionary contributions suchas citizenship behavior, are the more overt mani-festations of psychological contract violation. Moresubtle can be the mistrust, emotional withdrawal,and sabotage that also accompany violation, par-ticularly in circumstances where the violated partycontinues in the employment relationship. In suchcases, erstwhile relational contracts can turntransactional as the aggrieved party monitorseach interaction for signs of exploitation or abuse.Though more relationally oriented agreementsmay withstand threats to the psychological con-tract, significant breaches or drastic changes thatare poorly managed can create a cycle of escalat-ing violation over time. Incidents that fundamen-tally breach valued conditions of employment canform the basis of contract violation (e.g., the em-ployer did not respond effectively to sexual harass-ment complaints). In the aftermath of violation orpoorly managed change, the process of restoringtrust can require the formation of a new relation-ship, finding ways for veterans to begin feelinglike newcomers in a fresh relationship with thesame employer.12

How Does the Employer Impact the PsychologicalContract?

Early experiences with an employer, from recruit-ment to initial work on the job, have powerful af-fects on the psychological contract. Socializationevents, particularly initial assignments to bosses

and coworkers, can have pervasive effects overtime on beliefs that a worker holds about the em-ployment relationship.13 Training and develop-ment activities are another important source ofbeliefs regarding psychological contract terms, aswell as their degree of fulfillment. In particular, thequality of training shapes whether workers believecommitments have been made, and kept, regard-ing career development.14 So too do broader prac-tices like promotion from within and informal men-toring shape the climate of the organization asdevelopmentally focused and supportive.

But by far the most important aspect of the “em-ployer’s side” is the role that managers play. Man-agers, both immediate supervisors and higher-ups,play the central role in shaping a worker’s psycho-logical contract. The presence of a supportive im-mediate manager can serve to amplify or down-play messages sent by the firm’s HR practicesregarding the nature of the employment relation-ship.15 Importantly, managers report actively usingthe notion of a psychological contract in the waythey reward, motivate, and otherwise signal to em-ployees about what to expect from the firm in thefuture.16 For instance, managers can tailor theirrecruitment efforts to signal broader (more numer-ous and munificent) terms in their psychologicalcontracts with new workers. Likewise, managersreport using top-down communication regardingthe psychological contract to convey the mutualobligations they seek with workers (e.g., specifyingthe performance deliverables required for payraises and advancement).

Managers who feel poorly treated by theemployer are less likely to makeextensive commitments to their workersor to signal that the employer istrustworthy.

A manager’s own psychological contract also in-fluences the contracts he or she creates with work-ers. Managers who see their own psychologicalcontract as promising career development in ex-change for high performance are likely to signal asimilar psychological contract to their subordi-nates. In contrast, a manager who views his or herjob as a stepping stone to employment elsewhereis less likely to encourage staff development.17

Moreover, managers who believe the employer hasfulfilled its commitments to them are more likely tobelieve the employer will honor commitmentsmade to managerial staff. In contrast, managerswho feel poorly treated by the employer are less

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likely to make extensive commitments to theirworkers or to signal that the employer is trustwor-thy. Consequently, how employers select, train,and motivate managers has considerable impacton the psychological contracts that workers expe-rience. Indeed, rank-and-file employees appear toexpect that the employer will manage managers inways that directly influence their own psycholog-ical contracts with the firm.

After managers, coworkers are an importantsource of information regarding promises that em-ployers have made and what workers owe in re-turn (e.g., regarding role responsibilities, job secu-rity). In one study of social networks in a start-upfirm, workers formed psychological contracts thatwere similar to those held by coworkers whom theyviewed as friends and to those held by coworkerswhom they sought out for advice. Such effects weremore powerful early on (where few procedures ex-isted to socialize newcomers), declining over timeas the firm became more structured.18

How Do Workers Shape Their Own PsychologicalContracts?

Workers shape their own psychological contractsin three ways. First, through their career goals,workers make different commitments to the firmdepending on whether they view it as a long-termemployment possibility or merely a stepping stoneto better opportunities elsewhere. Career-mindedworkers with a stepping-stone perspective tend toadopt a more transactional view of employment,while workers seeking longer-term employmenttend to embrace relational contracts.19

Second, personality undeniably plays a role inpsychological contracts. Transactional contractsare more likely to be created by workers who arehighly neurotic or overly sensitive to fairness is-sues (e.g., about their pay). In contrast, workerswho are conscientious and possess high self-esteem are more likely to report having relationalcontracts, in part because they behave in waysthat employers value highly.20

Third, workers who have negotiated special em-ployment arrangements not available to others aremore likely to believe they have relational con-tracts. This is particularly characteristic of workerswho have negotiated special opportunities fortraining and development. Moreover, these specialarrangements (known as “idiosyncratic deals”)have particularly powerful effects on the psycho-logical contract when created among current em-ployees as opposed to during the recruiting pro-cess. Workers who successfully bargain for specialarrangements during recruitment tend to attribute

them to their market value. In contrast, workerswho receive special arrangements after they havebeen on the job awhile believe this treatment sig-nals something special about their employer.21

Guidelines for Employers

As firms become flatter and more workers managethemselves and their own careers, the need forboth workers and employers to carefully commu-nicate to each other their expectations for the fu-ture has never been greater. Consequently, em-ployers should take the proverbial bull by thehorns and embrace the idea of managing psycho-logical contracts. Granted, this is a tall order giventhe complexities involved. Nevertheless, followingthe guidelines below may help firms effectivelymanage psychological contracts and, in so doing,increase the odds of achieving important organi-zational goals.

Strive for Consistent Implementation ofPsychological Contracts

Because there are multiple “contract makers” (e.g.,managers, HR, co-workers, etc.), employers needconsistent implementation of their psychologicalcontracts with workers throughout the firm. Thisdoes not mean, however, that one size fits all. In-deed, the same employer is likely to manage avariety of distinct psychological contracts with itsworkers. Nonetheless, the employer must take re-sponsibility for the messages that it sends via itsindividual managers, coworkers, and array of hu-man resource practices. It needs to repeatedly clar-ify what commitments it makes and is asking inreturn so that managers, coworkers, and humanresource practices are aligned with respect to anindividual worker’s relationship with the em-ployer.

Establish a Clear Meta-Contract

Despite the existence of multiple psychologicalcontracts, employers need to establish a clearmeta-contract that can be used across the firm (i.e.,clear rules about the rules of the contract).22 On thefront end, this meta-contract requires an open ex-change of information between parties to learnabout each other’s interests, goals, and con-straints. It means acknowledging where differentpsychological contracts exist across hierarchicallevels, positions, or functional areas, and the basisfor these differences. On the back end, this meta-contract specifies how workers and employersshould proceed when perceived psychological con-

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tract violations occur. In essence, this communi-cates that the employer views violations as a con-flict that needs effective management. This in turnsignals that such violations can be resolved, whichshould help maintain trust over the long haul.Overall, employers need to develop and spell outthe rules for establishing psychological contractswithin the firm. Ideally, this would include rulesthat govern interaction (e.g., openness, mutual re-spect) as well as steps to be taken should eitherside perceive a psychological contract violation.

Employers need to establish a clearmeta-contract that can be used across thefirm.

Build Flexibility into Psychological Contracts

Clearly, psychological contracts must be consis-tent in terms of promises, expectations, and obli-gations. Given that the business conditions facingmost firms continue to evolve rapidly, psychologi-cal contracts must also be flexible enough to allowthe company to adapt (e.g., to changing markets,technology, etc.). Creating such flexibility may re-quire some degree of experimentation and a prob-lem-solving orientation, particularly in the contextof the employer’s meta-contract. It may also meanthat firms need to be flexible and creative whenunexpected events or drastic changes cause lossesfor employees. Looking for creative ways to offsetsuch losses (e.g., generous severance packages,additional training, extensive worker involvementin developing responses to change pressures) canpay dividends for the firm by reducing the likeli-hood that workers will feel that their psychologicalcontracts have been violated. The Malden Millsexample mentioned earlier underscores this point.Indeed, the CEO’s decision to continue paying em-ployees after their plant burned to the groundstrengthened worker loyalty and commitment tothe firm.

Overall, the psychological contract is a productof a complex web of exchanges between workerand employer, with the latter represented by sev-eral parties at the same time. Many employerssimply have no clue how many different “contractmakers” shape the beliefs that their workers hold,implying obligations without fully comprehendingtheir ramifications. In contrast, employers that de-liberately formulate and execute consistent psy-chological contracts are in a position to keep theircommitments and motivate the worker contribu-tions essential to their mutual success. Enterprises

that serve their stakeholders well are sustained byprincipled leadership and a highly committedworkforce, and psychological contracts are theirfundamental building blocks.

Endnotes1 Rousseau, D. M. 1995. Psychological contracts in organiza-

tions: Understanding written and unwritten agreements. New-bury Park, CA: Sage. See also Rousseau, D. M., & Schalk, R.(Eds.). 2000. Psychological contracts in employment: Cross-national perspectives. Thousand Oaks, CA: Sage Publications.

2 Ibid.3 Lambert, L. S., Edwards, J. R., & Cable, D. M. (in press).

Breach and fulfillment of the psychological contract: A compar-ison of traditional and expanded views. Personnel Psychology.

4 Ho, V. T., Ang, S., & Straub, D. 2003. When subordinatesbecome IT contractors: Persistent managerial expectations in IToutsourcing. Information Systems Research, 14: 66–86.

5 Rousseau.6 Rousseau, D. M., Robinson, S. L., & Kraatz, M. S. 1992. Rene-

gotiating the psychological contract. Paper presented at theSociety for Industrial/Organizational Psychology meetings,Montreal.

7 The mensch of Malden Mills. CBSNEWS.com, 3 July2003, http://www.cbsnews.com/stories/2003/07/03/60minutes/main 561656.html (downloaded 26 December 2003).

8 Dabos, G. E., & Rousseau, D. M. 2004. Mutuality and reci-procity in the psychological contracts of employee and em-ployer. Journal of Applied Psychology, in press.

9 Fiske, S. T., & Taylor, S. E. 1984. Social cognition. Reading,MA: Addison Wesley; Rousseau, D. M. 2000. Psychological con-tract inventory technical report. Heinz School of Public Policyand Management, Carnegie Mellon University, Pittsburgh, PA.http://www.andrew.cmu.edu/user/rousseau/0_reports/.

10 Rousseau, D. M., & Shperling, Z. 2003. Pieces of the action:Ownership and the changing employment relationship. Acad-emy of Management Review, 12: 115–134.

11 Robinson, S. L., & Rousseau, D. M. 1994. Violating the psy-chological contract: Not the exception but the norm. Journal ofOrganizational Behavior, 15: 245–259; Robinson, S. L. 1996. Trustand breach of the psychological contract. Administrative Sci-ence Quarterly, 41: 574–599; Bunderson, J. S. 2001. How workideologies shape the psychological contracts of professionalemployees: Examining doctors’ responses to perceived breach.Journal of Organizational Behavior, 22: 717–742; Turnley, W. H.,& Feldman, D. C. 2000. Re-examining the effects of psychologi-cal contract violations: Unmet expectations and job dissatisfac-tion as mediators. Journal of Organizational Behavior, 21: 25–42.

12 Rousseau, D. M. 1995. Changing the deal while keeping thepeople. The Academy of Management Executive, 10(1): 50–61.

13 Thomas, H. D., & Anderson, N. 1998. Changes in newcom-ers’ psychological contracts during organizational socializa-tion: A study of recruits entering the British Army. Journal ofOrganizational Behavior, 19: 745–767; De Vos, A. 2002. The indi-vidual antecedents and the development of newcomer’s psycho-logical contracts during the socialization process: A longitudi-nal study. Gent: University of Gent, Ph.D. thesis; Wanous, J. 1982.Organizational entry: Recruitment, selection, and the socializa-tion of newcomers. Reading, MA: Addison-Wesley.

14 Nordhaug, O. 1989. Reward functions of personnel training.Human Relations. 42: 373–388.

15 Takleab, A. G., & Taylor, M. S. 2001. Aren’t there two partiesin an employment relationship: Antecedents and consequencesof organization-employee agreement on contract obligations

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and violations. Paper presented at the Academy of Manage-ment Meeting, Washington DC, August.

16 Guest, D. E., & Conway, N. 2000. Can an organization havea psychological contract? A conceptual and empirical analysis.Paper presented at the Academy of Management Meeting, To-ronto, August.

17 Coyle-Shapiro, J. A-M., & Kessler, I. 2002. Exploring reci-procity through the lens of the psychological contract: Employeeand employer perspectives. European Journal of Work and Or-ganizational Psychology, 11: 69–86.

18 Ho, V. T., Levesque, L. L., & Rousseau, D. M. Social networksand the psychological contract: Effects of structural holes andcohesive ties. Paper under review.

19 Rousseau, D. M. 1990. New hire perspectives of their ownand their employer’s obligations: A study of psychological con-tracts. Journal of Organizational Behavior, 11: 389–400.

20 Raja, U., Johns, G., & Ntalianis, F. (in press). The impact ofpersonality on the psychological contract. Academy of Manage-ment Journal.

21 Rousseau, D. M., & Kim, T. G. When workers bargain forthemselves and career advantage. Unpublished manuscript:Rousseau, D. M. (in press). I-Deals: When workers bargain forthemselves. New York: M. E. Sharpe.

22 Shore, L. M., et al. (in press). The employee-organizationrelationship: A timely concept in a period of transition. Green-wich CT: JAI Press.

Happy Employees and FirmPerformance: Have We Been Puttingthe Cart Before the Horse?

Christian Kiewitz, University of Dayton

Most managers believe that if employees arehappy and satisfied, then the organization is morelikely to perform well. Indeed, most managersprobably feel that having happy employees is anecessary ingredient for outstanding organiza-tional performance. But is this conventional wis-dom really true? What about the possibility thatorganizational performance drives employee sat-isfaction? In other words, maybe it’s not that happyemployees make for high-performing firms, butthat when organizations excel, it makes employeeshappy. Simply put, this is a classic “cart before thehorse” question that has been the subject of schol-

arly interest for a long time. That said, most re-search on this question has focused on individualemployee, rather than organizational, productivity.So can new light be shed on the subject by exam-ining the connection between employee attitudesand overall organizational performance? After all,while individual performance is always a concern,the big prize is outstanding company performance.

The prevailing view is that employeeattitudes drive organizationalperformance while performance itselfdoesn’t drive much of anything.

Recognition of this fact was part of the impetusbehind a recent study conducted by BenjaminSchneider, Paul Hanges, D. Brent Smith, and AmySalvaggio, all from the University of Maryland.Schneider and his colleagues began wonderingabout the causal direction between employee atti-tudes and firm performance after looking at finan-cial and employee data from about 25 of America’smost admired companies. Clearly, the prevailingview is that employee attitudes drive organiza-tional performance while performance itselfdoesn’t drive much of anything. Nevertheless,some recent studies have implied that the oppositecan occur. These studies suggest that firm perfor-mance drives employee attitudes just as much as,if not more than, the other way around.But do these studies mean that managers shouldjust throw up their hands when it comes to em-ployee attitudes? And does that imply that manag-ers now have a green light to junk costly employeeattitude surveys and focus exclusively on the bot-tom line? According to Schneider and his col-leagues, the answer is “no.” While this might dis-appoint managers facing tight budgets, it turns outthat the relationship between employee attitudesand firm performance is complex and defies easyanswers.

For their study, Schneider and his colleaguesobtained eight years’ worth (1988–1995) of em-ployee attitude data from a group of large corpo-rations, most of which were part of the Fortune 500.These firms represented a diverse set of industries(e.g., automobile manufacturing, telecommunica-tions, financial services) and were part of a con-sortium that required them to administer attitudesurveys to their employees on an annual basis (onaverage 450 people per company were surveyed).The surveys focused on several aspects of em-ployee satisfaction, including their satisfactionwith job security, benefits, pay, and the job as awhole.

Denise M. Rousseau is theH. J. Heinz II Professor of Organ-izational Behavior and PublicPolicy at Carnegie Mellon Uni-versity. Her research interestsfocus upon employment rela-tions and change management.She is editor in chief of the Jour-nal of Organizational Behaviorand in 2004–2005 is president ofthe Academy of Management.Contact: rousseau@andrew.cmu.edu.

2004 127Kiewitz