Impact of psychological contract breach on employee behavior

Organizations in the Philippines are almost always faced with the  dilemma of having an oversupply of candidates, and an undersupply of qualified job seekers. This disconnect leads companies to engage in a war for talent.

To get the people that they need, organizations come up with attractive compensation packages, promise opportunities for development and come up with enticing perks and benefits.  But what happens if, after some time, these precious talents think that the company did not live up to the promises made during recruitment?   How will these perceived broken promises, called psychological contract breach in organization literature, affect employee behavior?

The study

To determine possible outcomes of psychological contract breach (perceived unmet company promises), a survey was conducted in 2007 among 162 employees and their supervisor-executives in various pharmaceutical firms in the Philippines.  Results of the multilevel statistical analyses showed that recruits’ feelings and perceptions of breach led to undesirable workplace behavior.

Workplace deviant behavior

Employees who experience psychological contract breach engaged in workplace deviant behavior, or voluntary behavior that go against organizational policies and expectations. This is especially true for individuals who view their relationship to the organization as more transactional (‘entitled’ employees who focus more on the benefits that they get from the employment relationship) than relational (‘benevolent’ employees who give more importance to their relationship with the organization and its members). Entitled individuals who experience psychological contract breach have the tendency to ‘even the score’ with the organization by engaging in deviant behavior such as slacking-off, and starting rumors and conflict  that negatively affect productivity and well-being of their co-employees.

Lack of organization citizenship

Correspondingly, employees who think that their company failed to meet commitments will not demonstrate organization citizenship behavior (OCB), or actions that are beneficial to the organization and its members. OCBs directed at co-employees include communicating important work-related information or helping them with a heavy workload. OCBs aimed at the organization include being updated with company developments and voluntarily participating in company activities. These findings show that employees who feel that the company was not able to provide what was promised and therefore rightfully due to them will only do what is required and will not do more for the organization.

How to avoid broken promises

In a collectivist society such as the Philippines, reciprocity is valued in order to maintain smooth interpersonal relationships.  Committing psychological contract breach may mean failure or refusal of the company to fulfill their obligations to the employee—hindi marunong tumupad sa pangako. Though wrong, this breach of responsibility may consciously or unconsciously provide justification to undesirable employee actions such as deviant behaviors and lack of organization citizenship.

To avoid psychological contract breach, it is critical for organizations to be cautious about promises made to potential employees. Applicants must be given a realistic preview of the job and the organization to clarify expectations and establish transparent and truthful parameters and conditions of employment (such as salaries and benefits, work environment and opportunities for growth among others). Companies must ensure honesty and transparency in describing the job and company, and must remain true to their commitments.

(The author is the research director of Ateneo-CORD and assistant professor at the Ateneo Psychology Department. This article was based on a study conducted by Prof. Simon Lloyd D. Restubog of the University of Queensland, Prof. Prashant Bordia of the University of South Australia and Prof. Robert L. Tang of De La Salle- College of Saint Benilde which was published in the British Journal of Management (18) in 2007.)