THE EFFECTS OF PSYCHOLOGICAL CONTRACT VIOLATION ON

EMPLOYEE- EMPLOYER RELATIONSHIP IN ORGANISATIONS; A CASE OF

KETEPA LIMITED KERICHO. KENYA.

ABSTRACT

The nature and implications of employees’ psychological contracts has become a major research

focus in the last two decades. Current employment trends, characterised by an increase in short-

term employment contracts and a loss of job security, have resulted in a redefinition of career

expectations in terms of psychological contract. This study sought to examine the effect of the

psychological contract violation employee-employer relationship. This study adopted

Organisation Support Theory which holds that employees will contribute to the success of the

organisation if their efforts are recognised and rewarded. The study used both qualitative and

quantitative techniques. Simple random technique was used to select the employees that were

included in the sample. Data was collected mainly through questionnaires and interviews. Both

inferential and descriptive statistics were adopted in data analysis. It was found out that

psychological contract violation affects the relationship between employees and employers. This

information should assist organisations in their effort to offer psychological contract that are

more in tandem with the exchange relationships that employees are seeking to create.

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TABLE OF CONTENT

Abstract ………………………………………………………………………………………...i

1.1 Background of the study ……………………………………………………………………..1

1.2 Research problem…………………………………………………………………………....4

1.3Research objective……………………………………………………………………………5

1.4 Scope of the study……………………………………………………………………………6

1.5 Justification of the study ……………………………………………………………………6

1.6 Theoretical framework……………………………………………………………………...7

2.0 literature review……………………………………………………………………………..9

3.0 RESEARCH METHODOLOGY

3.1Research design……………………………………………………………………………13

3.2 Target Population and Sampling Procedure……………………………………………..13

3.3 Data Type and Collection Method……………………………………………………….13

3.4Data Analysis and Presentation…………………………………………………………..16

3.6 Summary, Conclusions and Recommendations…………………………………………18

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1.0 INTRODUCTION

1.1 Background of the study

The nature and implications of employees’ psychological contracts has become a major research

focus in the last two decades. Current employment trends, characterised by an increase in short-

term employment contracts and a loss of job security, have resulted in a redefinition of career

expectations and of the nature of the employment relationship. The current focus on company

‘fitness’ and ‘flexibility’ has led to a major shift in work and employment practices with direct

implications for both individual employees and employing organisations.

Millward and Herriot (2000), citing deregulation of the labour market, suggest the current

rhetoric in the UK is that the old contract of security in exchange for loyalty has been replaced

by a new contract of employability for flexibility. Sims (2004), states that the traditional

expectation of ‘cradle-to-grave’ employment characterised by life-long employment in exchange

for loyalty and commitment is no longer valid. Moreover, Hendry and Jenkins (1997) argue that

the new era of uncertainty created by organisational restructuring has resulted in middle

managers and professionals becoming the ‘new insecure'. Consequently, employees no longer

gain secure employment in return for offering loyalty, but rather exchange skill flexibility and

hard work for simply having a job.

In the recent years the business environment has experienced much more rapid change and

intense competition. As the workplace changes the styles of labour relations are undergoing

significant changes as well. In particular the antagonism and confrontation that traditionally

marked employee-employer relationship on the factory floor are being reduced and replaced with

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psychological contract in order to bring about a cooperation that sees the management of change

easier and highly committed employees for the effectiveness of the organization.

Mills (2004) explains that whereas the contract of employment represents the traditional way of

defining the employment relationship, in recent years there has been an increasing interests in the

non-legal aspects of the relationship. This is particularly because the very foundations of the

relationship in many cases built upon years of mutual understanding have been threatened. This

has given rise to the employment relationship being analysed in terms of the `psychological

contract’ that exists between employer and employee.

KETEPA limited is an organisation situated at the highlands of Rift Valley province Kericho

County, it buys processed tea from other factories in kericho region and packs them for export.

KETEPA limited employs staff from all corners of the country and they represent other

employees in a Kenyan context whose promises given to them by the management are broken,

expectations never met and obligations never taken serious by their managers who in this study

represent the employer.

1.2 Research problem

New employees enter into an organization with the expectations that their new organisation will

give them the necessary, sufficient, and correct information about its operations or that the

promises given to them during recruitment will be fulfilled for example continued training for

staff, career development and information sharing among others. The organisation also expects

the employee to work diligently and tirelessly in pursuit of fulfilling organisational goals; it’s a

mutual expectation. The important thing is that they are believed by the employee to be part of

the relationship with the employer.Some of the promises and expectations are documented in the

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employment contract or job description given to employees as they begin their job. The

documented promises and expectations form the legal contract of employment which the

employee may have contributed little to its terms beyond accepting them. The nature and content

of the legal contract may only emerge clearly if and when it comes to be tested in an employment

tribunal. But in cases where the promises and expectations are not documented, the employees

are left in the mercies of their bosses to decide whether to fulfill or not.

Where employees believe that management has broken promises or failed to meet their

expectations, it has always had a negative effect on the relationship the management has with the

employees. Actions that violate may foster mistrust, dissatisfaction, and exit. These actions that

violate the contract may occur shortly after an employee enters an organization or after years of a

satisfactory working relationship. This study therefore seeks to find out whether the violation of

psychological contract affects the relationship between management and employees in KETEPA

limited.

1.3 Specific objective

The main objective of this study is to establish the effect of psychological contract violation on

the employees of KETEPA limited kericho.

The specific objectives are:

1. To investigate the extent to which the psychological contract has been violated in KETEPA

limited kericho

2. To investigate the effects of psychological contract violation on the trust and commitment of

employees of KETEPA limited kericho

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1.4 Scope of the study

This study was carried out in Kenya Tea Packers (KETEPA) Limited Kericho. All the six

departments were involved in the study. (KETEPA) limited kericho is assumed to represent all

the organisations. This study will also cover the violation of psychological contract on the

relationships between the employees and the management.

1.5 Justification of the study

This study will help fill a significant gap in knowledge, especially on the fact that employee -

employer relationship has changed with the change in the business environment and that the

concerned should understand that employees’ expectations are also changing. This study’s

findings and recommendations will also be of great importance to the management and

supervisors of KETEPA limited Kericho in reminding them that employees expectations are

changing and failing to meet them will have an effect on the organisation`s performance. The

management will also get to know that the workers are not part of the problem, they are the

source of the solution and that nobody knows more about a job and how to improve it, than the

person who is doing it, this will propel them to come closer to the employees.

1.6 Theoretical framework

1.6.1 Organizational Support Theory

There are a number of theories that can help one in understand psychological contract violation.

Examples include, Expectancy Theory, Equity theory and Organisation Support theory

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Expectancy Theory by Victor Vroom on employee motivation focuses on three relationships,

namely, Effort performance relationship, Performance-reward relationship and Rewards-personal

goals relationship. As per the theory an employee will be motivated to exert a high level of effort

when the effort will lead to 1) a good performance appraisal 2) that a good performance

appraisal will lead to organizational rewards such as bonus, salary increase, or a promotion and

3) that the reward will satisfy the employee’s personal goals.

From an equity theory perspective (Adams, 1965), individuals try to find an equitable balance

between what they receive from the organization and their own contributions. When employees

perceive that their employer has failed to fulfill promised inducements, they may withhold their

own designated contributions (Robinson and Morrison, 1995). Shore and Barksdale (1998) found

that employees expressed higher levels of perceived organizational support, affective

commitment, and lower levels of turnover intentions when their employment relationships were

characterized by mutual high obligations.

Organizational support theory (OST): as given by Eisenberger, et al (1996), explains that in

order to meet socio-emotional needs and to assess the benefits of increased work effort,

employees form a general perception concerning the extent to which the organization values

their contributions and cares about their well-being. Such perceived organizational support

(POS) would increase employees’ felt obligation to help the organization reach its objectives.

Their affective commitment to the organization, and their expectation that improved performance

would be rewarded.

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Eisenberger et al., (1996) holds that the formation of POS is encouraged by employees’ tendency

to assign the organization humanlike characteristics. Levinson (1965) noted that actions taken by

agents of the organization are often viewed as indications of the organization’s intent, rather than

being attributed solely to agents’ personal motives. According to Levinson, this personification

of the organization is abetted by the organization’s legal, moral, and financial responsibility for

the actions of its agents; by organisational policies, norms, and culture that provide continuity

and prescribe role behaviours; and by the power the organisation’s agents exert over individual

employees. Based on their personification of the organisation, employees would view favourable

or unfavourable treatment received from the organisation as an indication of the extent to which

the organisation values their contributions and cares about their well-being.

Out of these theories Organisation Support Theory was chosen because of its relevance to the

study. When employees decide to work for any organisation, they form a general perception that

the organisation will value their contribution and cares for their wellbeing if they work for the

organisation and meet its objectives. This theory is relevant to this study in that it examines how

an employee would perceive the organisation in terms of its contribution to their wellbeing, if an

organisation values its employees, the employees in return would work an extra mile to make

sure that the organisation meets its targets and therefore contribute to the success of the

organisation. If the employees perceive the organisation as not valuing them, then they will not

work to meet the organisation’s objectives.

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2.0 LITERATURE REVIEW

2.1 Psychological contract

The psychological contract constitutes a reciprocal (although implicit) agreement between

employer and employee by which one is obligated to give something in return for something

received; it is essentially an exchange relationship.

When employees commence a new job, they evaluate many of their experiences in relation to

what they expected the job would be like and what they thought the job should provide them. For

example, employees may enter an organization with the expectation that they will be provided

with opportunities for further education, Job content, social environment, financial

compensation, Career development and many others.

If employees perceive that the organisation treats them fairly, respects their efforts and rewards

them justly, they will feel obligated to reciprocate by working hard and avoiding harming the

organisation (Gouldner, 1960). Guest et al (1996), suggest that the strength of the psychological

contract is dependent on how fair the individual believes the organisation is in fulfilling its

perceived obligations and expectations above and beyond the formal written contract of

employment. This in turn determines commitment to the organisation, trust, job satisfaction and

the extent to which they feel secure in their job (Guest, 1996; Rousseau, 1994: 996). In other

words, promises made by the organisation followed by employee effort lead to expectations of

payment or organisational fulfillment of obligations. When fulfilled according to expectations it

leads to positive attitudes and a high level of commitment which will in turn lead to good

relations.

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Robinson and Rousseau (1995) argue that contract violation is a serious issue that occurs more

often than not. In their study of MBA alumni, they found that over half their sample (54.8%) felt

that their employer had at some stage violated their psychological contract. They also

demonstrated that the perception of violation was negatively related to an employee’s trust in

their employer, satisfaction with their job and organisation, intent to remain with the employer,

and positively associated with actual turnover.

A psychological contract contains the unwritten beliefs of one party in an employment

relationship about the reciprocal contributions of the other party. These relationships are

maintained by voluntary actions by which an individual will reciprocate the receipt of benefits in

the future (Homans, 1998). Contrary to a relationship based on economic exchange, a

relationship based on social exchange requires the parties to trust each other.

Robinson (1996) further studied the effect of contract violation on trust amongst MBA students.

They found that initial trust in one’s employer was negatively related to the perception of

contract violation. Those with low trust were more likely to look for incidents of violation, whilst

those with higher trust were likely to overlook, forget or not recognise the violation. Kickul

(2001), in her study of small business employees who were also enrolled in a part-time MBA

program, found that psychological contract violation was negatively associated with an

employee’s commitment and affect toward the firm, and positively related to intention to leave.

Turnley and Feldman (1999), in a study of over 800 managers, found that psychological contract

violation resulted in increased levels of exit, voice (e.g. whistle-blowing, grievance-filing),

neglect (e.g. decrease in effort), and decreased levels of loyalty to the organisation.

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Commitment strategy

The concept commitment refers to the feelings of attachment and loyalty and as such plays an

important role in the employment relationship. As defined by Shore (1995),

Commitment is the relative strength of the individual’s identification with and involvement in, a

particular organization. It consists of three factors:

1 A strong desire to remain in the organization

2 A strong belief in ,and acceptance of ,the values and goals of the organisation

3 A readiness to exert a considerable effort on behalf of the organization

The importance of commitment emerges clearly from the research into the impact of people

management on performance. Traditional management theory focuses on reward and particularly

pay as a prime source of motivation. But Herzberg thought that employees were motivated to

higher levels of performance by less material incentives such as interesting work and the

opportunity to develop their skills

There have been several studies done in a variety of industries, including automobile plants and

steelworks, where researchers found that high-commitment human resources practices led to

reduced errors in production, greater productivity, reduced employee turnover and other

favourable outcomes, according to Tsui (2006). "Measured in accounting performance, those

factors usually contribute to a substantial increase in the bottom line."

Researchers at the Massachusetts Institute of Technology found that high-commitment practices

at auto manufacturers resulted in high productivity as measured by hours spent building each car,

and high quality as measured in defects per vehicle.

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Still another research project, one that covered 10 companies in five industries and 85 job titles,

found that old employment approaches tended to reap a host of unfavourable employee

outcomes. Among them, you will find lower performance as rated by supervisors, lower

employee engagement in good-citizenship behaviours, such as helping fellow employees or

having less psychological commitment to the organisation. "The employees also perceived a

lower level of fairness, had less trust in their coworkers and reported more frequent absences," .

Tsui Carey (2006).

3.0 RESEARCH METHODOLOGY

3.1 Research design

This research used a survey type of research design; this was adopted because this research

attempted to collect data on the current status of the effect of psychological contract on employee

employer relationship.

3.2 Target Population and Sampling Procedure

The target population was the employees of KETEPA limited Kericho which has a population of

600; this constituted both the staff and their supervisors. The managers are 7 and only 3 were

interviewed, convenience sampling was used to sample them because of the nature of their work.

The sample was 180 employees. In each department 30% of the respondents were picked using

the simple random technique, this was used because each respondent has equal chances of being

included in the sample. The table below explains better.

Table no. 1

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Department Number of employees Sample 30%

Production 120 36

Marketing 109 32

Human resource 85 26

finance 80 24

Audit 76 23

security 130 39

total 600 180

Source: owner 2012

3.3 Collection Method

The study used both primary and secondary data. Primary data was obtained through

questionnaires which were self-administered. 180 questionnaires were administered but only 150

were collected and analysed the response rate was 83%. Secondary data was obtained from

various textbooks and journals. The response from the management was collected using

interview method, this was because it is easier for respondents who are mobile and don’t have

time to answer the questionnaires.

4. 1 Data Analysis and Presentation

The data was carefully scrutinized to ensure that it was accurate consistent with other facts

gathered, uniformly entered, as complete as possible and have been well arranged. Computer

based excel programme was used for data entry thereafter it was coded and processed using

statistical package for social sciences (SPSS) for ease of analysis. Analysis involved estimating

the values of unknown parameters of the population and testing hypotheses for drawing

inference. Descriptive and inferential statistics were utilized.

4.2 Results /Discussions

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The table below shows in summary the extent in which the contract has been violated by the

employees of KETEPA limited.

Table. No. 2

Questions asked Response rate

Has your employer ever failed to meet your promises? 68.7% -violated 31.3%-not violated

Has the failure to fulfill promises affected your trust in the management 78% yes 22%not really

the extent to which you feel your expectations are fulfilled 71.3%-poorly fulfilled 28.7%- fulfilled

Has the failure to fulfill your expectations affected your commitment 76% yes 24% not really

Source: owner 2012

When employees were asked whether their employer ever failed to meet their promises, (68.7%)

of them responded that their employer had ever failed to meet their promises. The promises that

were violated included training in which most of the respondents indicated, the researcher also

found out that the respondents were once promised increment in remuneration which it wasn’t

fulfilled. Most of them indicated that they were promised during recruitment and in the induction

exercises given to them. 31.3% indicated that their promises had never been violated.

Those who responded that their promises were never fulfilled were further asked whether it

affected their trust in the management, there was a positive correlation. The failure to fulfill their

promises affected the trust they had on the management. This means that failure to fulfill

promises can affect trust.

When they were further asked whether the failure to fulfill promises affected their strong desire

to remain in the organisation and belief in values and goals of the organisation, the response was

positive, this means that failure to fulfill promises also affected commitment but in a less

stronger way than that of trust.

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When respondents were further asked to indicate in overall the extent to which they felt their

expectations were fulfilled by their employer. 71.3% indicated that the expectations they had

about the organisation were poorly fulfilled. Before new employees enter into an organisation

they already have a perception on how the organization performs and operates, this is

information is formed through the adverts the organization places, how other people talk about it,

and the way they advertise their job opportunities. The perceptions create expectations and if

these expectations are not fulfilled it may create disappointments amongst employees. 28.7%

indicated that their expectations were fulfilled. This is an indication that they may have been

satisfied with the way they were treated by the management.

When the respondents were further asked how they felt when their bargain was not met, 76%

indicated that it affected the relationship they had built with the management. Research on

perceived organizational support began with the observation that if managers are concerned with

their employees’ commitment to the organization, employees are focused on the organization’s

commitment to them. It’s a mutual relationship. When employees found out that the management

did not fulfill their promises, or expectations not met, it affected the trust they had and also

commitment to the organisations objectives. 24% had the feeling that the fulfillment of

expectations i.e. favoured them in one way or the other.

The table below shows the degree of the trust the employees have on the management

Table no. 3

Questions asked NO YES

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• do you believe that the management means what it says 75.3% 24.7%

• do you feel you are treated fairly, equitably and consistently 74.7% 25.3%

• does management delivers the deal-it keeps the word and fulfills its side of the

bargain.

70% 30%

Source: researcher

The trust scale questions sought to find out whether the employees trusted the management.

Questions were asked and they responded in the following manner. When the employees were

asked whether they believe that the management means what it says, 75.3% said no they do not

believe. The reasons given were that in most cases they fail to fulfill what they have promised for

example, increase in salary, career development and promotions. Trust is a vital ingredient in

every relationship. Behavior that is most likely to engender trust is when management is honest

with people, keeps its word, and practices what it preaches. When they were asked whether they

are treated fairly, equitably and consistently, 74.7% said no, some of them gave instances like

nepotism when promoting employees, and recruitment. They were also asked whether their

employer delivers the deal-it keeps the word and fulfills its side of the bargain, 70% said no, this

could mean low trust in the management.

3.6 Summary, Conclusions and Recommendations

The current study supported Robinson and Rousseau's (1994) findings relating to the perception

of contract violation. Robinson and Rousseau found that a majority of MBA participants (54.8%)

felt that their psychological contract had been violated at some stage. Similar results were seen in

the current study with 71.3% of the participants reporting violation of their psychological

contract. The notion of contract violation being normal is thus generalisable to a Kenyan context.

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Managers should be aware that whilst the psychological contract is often nebulous and

idiosyncratic in nature it provides them an alternative mechanism to help to increase the level of

psychological and social binding within the relationship.

On the basis of the open-ended explanations offered by participants, many of the reasons given

concerned the employer reneging on promises made during recruitment and induction, as well as

the employer not meeting initial expectations regarding career opportunities and also increment

in salary. This suggests that it is essential to manage successfully and fully the entry of a new

employee into the organisation It was also found in the study that 43.2% of participants indicated

that their expectations were either 'well fulfilled' or 'very well fulfilled' by their employer, and

that at some point the obligations they perceived their employer owed to them were exceeded.

On the one hand this may indicate that participants took the dichotomous item relating to failure

to meet obligations too lightly. On the other hand, it may indicate that violation and over-

compensation with respect to perceived obligations are both valid and frequent occurrences in

the workplace.

Thus, psychological contracts and their violation may be multifariously experienced by

employees. Personal differences with regard to experiences may also play a part here in the way

perceptions of obligations arise; in addition, it may have been the case that the fulfillment of

expectations question could have been read as fulfillment of any expectations, even if they were

high or low, positive or negative. However, there is some comfort in the finding that those

participants who indicated that their employer had failed to meet their obligations were less

likely to say that their expectations had been fulfilled.

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Recommendations

The following were the recommendations for the study:

1. The management should be more careful on the promises made to the employees, they

should promise them tangible and feasible promises that they are able to fulfill. The

management should also be vigilant on the way they advertise their vacancies, they

should not paint a picture of the organization that never is.

2. The management should be very mindful that terms of the psychological contract

represents perceptions of promises and they engender bonding through reliance within

the relationships. This is critical to understand because the making and, more

importantly, keeping of promises are essential ingredients for a relationships that will

work towards fulfillment of organisational success.

3. During recruitment interviews - presenting the unfavourable as well as the favourable

aspects of a job in a realistic job review.

4. In induction programmes - communicating to new starters the organizations personnel

policies and procedure, indicating to them the standards of performance expected in such

areas as quality and customer service and spelling out requirement for flexibility.

5. By issuing and updating employee handbook as that reinforce the messages delivered in

induction programmes.

6. By encouraging the development of performance management processes that ensure that

performance expectations are agreed and reviewed regularly .

7. By encouraging the use of personal development plans that spell out how continuous

improvement of performance can be achieved , mainly by self –managed learning;

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