Employee Relations for Organizations’ Success

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The challenges employees face when meeting their obligations are a major drawback to organizations has the shift from traditional markets to economy driven markets. Poor relations between employees and the employer are blamed for employee redundancy, which leads to poor productivity and subsequent decline in an organizations overall performance. Empirical research on what type psychological contracts exists and their effect on employees performance show that, market economies demand more from organizations causing a downward effect on employees. If the effect is negative and the organization fails to identify modalities of keeping employees on the helm, the outcomes are rather negative. This paper analyzes the consequences of psychological contracts and how if well managed they shape employee-employer relations, outcomes of employee breaching them, and how organizations attempt to create employee relations based on the psychological relations.


Based on a critical review of two Slovenian firms, this paper comprehensively lays bare the organizations blueprints on employee relationship with the employer through psychological contracts. By understanding the core principles that hold together the tenet of psychological contract, employers may realize the untapped potential of employees as they shift from traditional practices to more competitive and challenging business environments. The construct of psychological contracts is incredibly a vital element of management and productivity in an organization. In fact, it is the principles of the psychological contract that provide guideline on management functions and a roadmap to comprehensive reforms and development of the organization, observed through profits, a good market-share, and consumer retention.

The psychological contract construct is about the employee relations and feelings init e organization. Many employees are never upbeat about their positions and often, many employees are not motivated rather feel demoralized and unappreciated by their bosses. Organizations need loyal workers, in fact, commitment, enthusiasm, and job satisfaction to achieve their objectives. Schein (1970) singles out agreement on expectations between employees and the organization and a balance of employer hopes in-terms of output from the employees and employee’s expectations for his output. This will provide the organization the loyalty, commitment, and enthusiasm required to drive the organization to the next level of growth and development. As such, a psychological contract is the basic provision employer and employees proffer each other to remain functional.

The contract involves the salary, benefits, respect, time, and conduciveness of the workplace while the employer expects efficiency, consumer retention, and successful business process to shape the future of the organization and insulate the organization against impending business storms. There are two types of psychological contracts as observed in context. Transactional and relational psychological contracts are recognized as the only existent contracts that mentor employee relations with an employer. According to Rousseau and Park (1992), transactional contracts focus on the organizations fiscal returns. Besides, both the employee and employer seek a close-ended and a static working relation. On the other hand, the relational contract seeks a long-term socio-emotional relationship which determines the future of the organization, especially where the organization depends on consumer driven markets.

Literature Review

Here, we critically appraise both contracts by examining their functionality in Slovenian organizations. We base this on outcomes of longitudinal studies carried out by researchers when research developed around the subject. According to Kase and Zupan (2007), Psychological contracts are in the process of change in transition economies. The transition is a rapid change of business platforms and shift of markets without necessarily affecting the economics rather the societal aspect of trade and how enterprises involved in the process react and collaborate with an organization. The collaboration is affected by demographics, social values, consumer expectations, and social norms.

Today, organizations depend on their impact on the society to thrive. Many organizations have lost their stock value through negative social impacts. This starts when an employee shows dissatisfaction with his employer. The effect of this dissatisfaction is relayed downwards and negatively affects consumer confidence on the organization. According to Stanton, Miller and Lynton (1994) employees show dissatisfaction, they often treat the consumer badly, two, they are inefficient and redundant. This often leads to consumer dissonance due to inefficiency, poor service, and lack of proper customer relationship management as argued by Kotler et al (1998).

Social constructs could suffice to provide a new construct of working relations. The Slovenian perspective is indicative of shift from pragmatic differences between employers and employees, especially where employer has more at stake than the employee does. In such a situation, employee output is almost put in disregard. However, Kase and Zupan (2007) observe that there is almost no difference in the psychological contracts in Slovenian companies based on their comparison of two companies. Kase and Zupan argue that, the Slovenian picture indicates the narrowing of expectations in the workplace. The overall levels of expectations and realization of returns is capped at input against output, where the employee provides the input and the employer provides output and vise versa, depending on type of organization. Kase and Zupan (2007) further argue that the perception of realized returns does not differ much with regard to particular categories, but rather differs based on overall assessment of all returns.

The factors shaping the psychological contracts for the two companies

According the Kase and Zupan (2007) the first factor, satisfaction and implicit commitment, is described by positive attitudes toward work and company and expressed satisfaction. Termed as job satisfaction, employee confidence, and enthusiasm in his/her job is a great source of inspiration. Employers who have enthusiastic employees report great strides in achieving their strategic objectives. In such organizations, teamwork and simulations are commonplace and employee morale is always high. This kind of environment makes the organization to be very competitive since employees are performing at full capacity. Efficiency is observed and the organization is able to reach great levels of achievement. The organization is able to make strategic plans and execute the strategy successfully. This helps launch of new products, new strategies, aggressive, and successful marketing.

How much employees earn in return is important whereby, if their efforts are rewarded, employees tend to perform better. Various elements of this scenario dominate the context of employee satisfaction. Late payments might profoundly cause shift in employee productivity while timely payments that come along unnecessary deductions might have more implications that are adverse as argued by Prahaland & Hamel (1990). Employees will appreciate timely payments that are full. Besides full payments, the psychological contracts vary with situations at workplace and incentives offered by the organization. Today, more organizations are doing a lot to keep the employee safe, healthy, and fiscally secure. This is what allows employees to become committed to their organizations and more or so, very focused on their jobs. This guarantees the organization great results. Kase and Zuban (2007) single out commitment to a job as pivotal in making an organization realize its full potential. Commitment shows employee thoughts and intentions to change the employer as observed by Kase and Zuban (2007).

Zack singled out the amount of money drawn as a salary as crucial in determining how the employee responds to his employer demands. Lowly paid employees exhibit dissatisfaction, arrogance, and lack of commitment. These employees are plagued by debt and hard lives in the home front. Well-paid employees, as observed in the Slovenian example are very committed and enthusiastic about their work. They think about how they can do better, plan and benchmark unlike lowly paid employees who procrastinate, and Kase and Zupan (2007) point out how pay satisfaction explains the expressed level of satisfaction pertaining just how overall pay received by the employee.

Lipicnik and Zupan (1997) argue that pay dissatisfaction have an overriding effect on employee attitudes towards other work and employer a point noted by Kase and Zupan (2007). In continuum, Kase and Zupan (2007) agree with Kotter (1973) that it is not the level of returns, but the gap between expectations and returns, which negatively affects satisfaction and commitment whereby perceived realization has the strongest impact on satisfaction and commitment Kase and Zupan (2007). Breach of practice code of ethics has little implication to employer. Pate et al. (2003) that the breach of psychological contracts has a stronger impact on employee attitudes than on employee behavior

Employees react differently to motivation. Health insurance and savings schemes besides pensions funds have become key proponents of employee satisfaction and many organizations have continued to report great employee enthusiasm and increase in productivity.

A whole lot of departments have excelled as employees feel they are appreciated and part of the company. This is making many employees to find it hard to change employers even when the amount of pay awarded monthly is less than he/she expects. Bloom et al (1997) argues that the provisions are insulating his/her future and it is impossible to find such schemes once one quits a job. Employee retention and motivation as such becomes a primary goal for employers while in return, the employer hopes his efforts to reimburse and inspire the employee will pay off with exemplary performance by the employee.


Employee relations with employer are very vital in shaping the future of the organization. In fact, the psychological contract in the workplace is about striking a balance between output and input and how the outcomes can be used to catalyze the organization. Psychological contracts are two-way, relational, and contractual; however, both seek to strike a balance between employer and employee though the objectives of both differ. Good working terms are catalytic and employers reap more when employees are motivated, well paid, and paid in a timely manner. Companies should provide incentives and negotiate better pay and working conditions to keep their employees motivated. That way, realizing their full capacity is possible and subsequently, the organization will realize its full potential. It is important to realize that poorly paid employees and poor working conditions de-motivate employees and this has a downward effect on an organization. It cuts off efficiency, productivity, and commitment which results to consumer dissonance and losses.

Reference List

Bloom, M. Milkovich, G. and Zupan, N. (1997) Contrasting Slovenian and US Employment Relationships: The Links between Social and Psychological Contracts CEMS Business Review, 2. – pp. 95-109.

Kase, R. & Zupan, N. (2007), ‘Psychological contracts and employee outcomes in transition to market economy: a comparison of two Slovenian companies’, Problems and Perspectives in Management. 5(4): 16-27.

Kotter J.P. (1973). The Psychological Contract: Managing the Joining-Up Process California Management Review, 9(515) pp. 91-99.

Kotler,et al. (1998). Marketing, 4th Edition, Prentice Hall, Australia.

Lipicnik B., & Zupan, N, (1997). Motivational Potential of Compensation in Transitional Economies. Proceedings of the Second International Conference on Enterprise in Transition, Split Faculty of Economics– pp. 579-583.

Pate J, et al, (2003). The impact of psychological contract violation on employee attitudes and Behavior. Employee Relation, pp. 557-573.

Prahalad, C., K., & Hamel, G, (1990). The Core Competence of the Corporation, Harvard Business Review, May-June 1990.

Rousseau D. & Parks, M. (1992). The Contracts of Individuals and Organizations, in Cummings, L.& Staw, B (1992) (eds.). Research in Organizational Behavior, Greenwich (CT): JAI Press 15, pp. 1-47.

Schein, E. H. (1970). Organizational Psychology. 2″ edition. – Engelwood Cliffs (NJ): Prentice Hall, 1. – 138 pp.

Stanton, W., Miller, K., & Layton, R., 1994, Fundamentals of Marketing, 3rd Edition, McGraw Hill, Australia.

Zack, M. 1999, Knowledge and strategy, Butterworth – Heinemann, Woburn.

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