Relationship between Psychological Contract & Human Resource Practices

8/12/2019 Relationship between Psychological Contract & Human Resource Practices

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1.1 BACKGROUND OF THE STUDY

The Indian banking sector has emerged as one of the strongest drivers of Indias

economic growth. The Indian banking industry has made outstanding advancement in last

few years, even during the times when the rest of the world was struggling with financial

meltdown. India's economic development and financial sector liberalization have led to a

transformation of the Indian banking sector over the past two decades. Today Indian

Banking is at the crossroads of an invisible revolution. The sector has undergone

significant developments and investments in the recent past. Indian banks, the dominant

financial intermediaries in India, have made high-quality progress over the last five years,

as is evident from several factors, including annual credit growth, profitability, and trend

in gross non-performing assets (NPAs).

While annual rate of credit growth clocked 23% during the last five years, profitability

(average Return on Net Worth) was maintained at around 15% during the same period,

while gross NPAs fell from 3.3% as on March 31, 2006 to 2.3% as on March 31, 2011.

The Indian banking industry which is regarded as one of the most flourishing and secure

in the banking world has been selected for the study. The last decade has seen many

positive developments in the Indian banking sector. A large number of banks have startedfocussing on innovation and value creation which is mirrored in its market valuation.

With the liberalization of Indian economy; the Indian banking sector was exposed to the

world market. Bank s play a dominant role in Indias financial system and are, therefore,

expected to play a key role in furthering the agenda of financial inclusion with a view to

achieving inclusive growth and development. Today, at 35%; it contributes significantly

to the total gross domestic product (GDP) of the country.

Currently, Indian banks face several challenges, such as increase in interest rates on

saving deposits, possible deregulation of interest rates on saving deposits, a tighter

monetary policy, a large government deficit, increased stress in some sectors (such as,

State utilities, airlines, and microfinance), restructured loan accounts, unamortised

pension/gratuity liabilities, increasing infrastructure loans, and implementation of Basel

III.


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1.2 PSYCHOLOGICAL CONTRACT

The psychological contract refers to mutual unwritten expectations that exist between an

employee and his/her employer regarding policies and practices in the organization.

Argyris (1960) first referred to the psychological contract only in passing as the

relationship between employer and employee. Levinson (1962) is the father of the

concept and defined psychological contract as unwritten contract, the sum of the mutual

expectations between the organization and employee. Psychological contrac ts are mental

models or schemas that develop through an individuals interactions and experiences. The

definition given by Rousseau (1990) highlights employees perception of the existence of

mutual obligations deposited with the employer. It is an emotional bond between

employer and employee. It is implicit and thus unofficial and includes mutual

responsibilities and expectations. The common theme underlying these definitions is that

the psychological contract refers to an employees unexpressed beliefs, expectations,

promises and responsibilities with respect to what constitutes a fair exchange within the

boundaries of the employment relationship. Today, it is easy to recruit people but what is

challenging is to retain them and make them go an extra mile at work. Employers should

generate passion among the employees and create an environment that fosters creativity

and commitment. This can be achieved by building a positive psychological contractwhich results in good employment relationships. It is an emotional bond between

employer and employee.

The strength of the psychological contract depends on how far the individual believes the

organization is in fulfilling its perceived obligations above and beyond the formal written

contract of employment. Thi s in turn determines individuals commitment to the

organization and his/her motivation, job satisfaction and extent of feeling secure in the jobs. It leads to positive attitudes and a high level of commitment. The concept of

psychological contract addresses those relationships that are very hard to define clearly in

a formal employment contract, such as: knowledge and skills development, ones work

and motivation, relationships with ones boss and co -workers, the role one is expected to

fulfil, the ethical code by which the employee and the organization will act, the support

one can expect from the organization and vice versa, and so on. Psychological contracts

are voluntary commitments that limit ones future action. They are open -ended and need

to be flexible enough to accommodate changes without breaking. It is observed that


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potential employees can enter into employment relationships with dramatically opposing

views of one anothers rights. The traditional psychological contract provides a clear

contract and reduces uncertainty for employees with reference to jobs. The contract was

forthright and existed in stable and unchanging environments that were certain of growth.

The psychological contracts of employees differ from one another according to several

properties: (1) their specific contents or terms, (2) the overall proportion of transactional

versus relational terms, and (3) the total size of the contract relative to the individuals life

space. Additionally, transactional and relational portions of the psychological contract

influence one another; they are not independent. (Guzzo and Noonan, 1994). The central

premise is that employees are the key to sustainable competitive advantage, therefore, it

follows that relationship between employers and employees are critical to ensuring

productivity and the continued release of creation and innovatively. Employers expect

employees to work hard and generally do what the management demands, and in return

employers will provide with good jobs and good pay and advancement opportunities.

1.2.1 TYPES OF PSYCHOLOGICAL CONTRACT

Two major types of contracts are common in the workplace; transactional and relational.

The former is associated with economic exchange and the latter with social exchange.

Unlike economic exchange, social exchange involves unspecified obligations, the

fulfilment of which depends on trust because it cannot be enforced in absence of a

binding contract (Emerson, 1981). Rousseau and Benzoni (1994) further explore the

concept and identify four types of psychological contracts at workplace:

1. Transactional Contract: Rousseau defines this contract an employment

arrangement with a short-term or limited duration, primarily focused upon

economic exchanges; specific, narrow duties and limited worker involvement in

the organization (Rousseau, 2000).

Narrow/Specific: The employee is obliged to perform a fixed or limited set of

duties, to do only what he or she is paid to do so. The employer has committed to

offer the worker only limited involvement in the organization, little or no training

or other employee development


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Short-Term: The employee has no obligation to remain with the firm; is

committed to work for only a limited time. The employer offers employment for

only a short period and is not obliged to future commitments.

2. Relational Contract: Relational contracts are presented as open-ended, less

specific arrangements that establish and maintain a relationship, being based on

emotional involvement as well as financial reward (Robinson and Rousseau,

1994).

Stability: The employee is obligated to remain with the firm and to do what is

required to keep his or her job. The employer is committed to providing stable

wages and long-term employment.

Loyalty: The employee is obliged to support the fir, manifest loyalty and

commitment to the organizations needs and interest s. Employer is committed to

the well-being of the employees.

3. Bal anced Contr act: Balanced contracts are open arrangements with both parties

contributing to each others learning and development, conditioned on the

economic success of the employer (Sutherland and Wocke, 2008).

External Employability: Career development on the external labor market.

Employee is obligated to develop marketable skills. Employer is committed to

enhancing workers long -term employability both within and outside the

organization.

Internal Advancement: Career development within an internal labor market.

Employee is obligated to develop skills that are valued by the current employer.

Employer is committed to career advancements within the firm.

4. Transitional Contracts: Essentially a breakdown in contracts, reflecting the

absence of commitment regarding future employment as well as little or no

explicit performance demands on contingent incentives (Rousseau and Benzoni,

1994).

Mistrust: Employee mistrusts the firm because of poor communication and the

employer withholds important information from the employees. The employer

mistrust the employees


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Uncertainty: Employee is uncertain about the nature of his or her own obligations

to the firm. Employer measures and assesses the extent to which the employee is

uncertain about the commitment to the organization.

1.3 HUMAN RESOURCE PRACTICES

Human resource practices send strong messages about what organisations expect and

what employees can anticipate in return. They are major mechanisms employees use to

understand the terms of their employment. Also, human resource practices create

contractual and future intentions through hiring practices, reward practices and

developmental activities. Organisations even use them as communication tools. Human

Resource practices send strong messages to individuals regarding what the organisation

expects of them and what they can expect in return and are thus indicative of

organisation intentions. Human Resource practices communicate promises and future

intents in the name of the organisation through hiring practices, reward practices and

developmental activities. Individuals commonly view these promises as forms of

contracts, as enduring mental schemas and act according to the commitments conveyed

and behaviours cued.

One of the most potent organisational factors influencing the psychological contract of

employees is human resource practices. In the changing economy, traditional employee-

employer relationship based on trust, loyalty commitment and long-term relationship has

also drastically changed. Studies affirm the crucial role of organisational variables such as


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human resource practices on influencing employee conception of psychological contract

and organisational outcomes (Rousseau, 1990).

Psychological Contract is developed through an interactive process and is influenced and

shaped by various organisational processes (Rousseau, 1990; Tsui et al., 1997). It is

believed that HR practices send strong messages to individuals regarding what the

organisation expects of them and what they can expect in return (Rousseau, 1995) and

are thus indicative of organisation intentions. HR practices communicate promises and

future intents in the name of the organisation through hiring practices, reward practices

and developmental activities. Individuals commonly view these promises as forms of

contracts, as enduring mental schemas and act according to the commitments conveyed

and behaviours cued (Rousseau, 1995).

Recruitment and Selection: This is the first instance when the employee comes

into contact with the employer of the organization. Therefore, if the recruitment

process is managed well, it may significantly affect employee attitudes and

behaviors (Aggarwal and Bhargava, 2008). As employees join an organization

with the belief that employer will live up to the promises made to them and if they

are not fulfilled then the employee considers the psychological contract violated

and may react in ways that may go against the interest of the employer (Morrison

and Robinson, 1997)

Training and Development: New work experiences, interesting assignments,

expensive skill based training in line with the firms business objectives and a

planned career, signal an organizations intention to foster a long -term

relationship (Aggarwal and Bhargava, 2008). Human resource professionals can

influence the attitudes not only by giving the required training but also by

involving them into the need assessment phase and giving them a realistic preview

about the benefits they can expect from the training (Sims, 1994).

Pay/Reward Management: Reward management is an important inducement of

the exchange process between employers and employees (Gerhart and Milkovich,

1992). Rewards have been recognised as an important element of the

psychological contract defining the relationship between employers and

employees (Lucero and Allen, 1994). Reward and remuneration packages that are


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in congruence with employees expectations, encourages them to serve beyond

their job description, gain professional expertise, and cultivate core competencies

across functional groupings (Hiltrop, 1995). Appropriate reward management

system motivates employees to apply skills and abilities and encourage them to

work harder and improve work processes.

Performance Management: Rousseau and Ho (2000) matched compensation

system to employee psychological contract. Based on these two dimensions, the

authors have identified four types of relationships: short-term relationships with

specific measures of performance, short-term relationships with unspecified

measures of performance, long-term relationships with specified measures of

performance, and finally long-term relationships with unspecified measures of

performance.

Human resource practices can play an important role in orchestrating the culture of an

organisation. HR practices represent a set of salient and universal practices that can create

the foundation for particular form organisational climate to develop (Ostroff et al., 2000;

Schneider, 1990). Human resource practices like realistic job previews, developmental

appraisal which captures employee expectations and identification of training needs in

consultation with the employees, results in formation of progressive organisational

culture which talks with people, not at them. Importantly, the climate or culture

perceptions of organisation also shape individual inferences about what the organisation

is like.

1.4 NEED FOR THE STUDY

The efficient, dynamic and effective banking sector plays a decisive role in acceleratingthe rate of economic growth in any economy. The banking industry in India has helped in

the economic growth of the country. With the liberalization and privatization; banks

today contribute to the GDP of country. The banking sector in India has evolved not just

to participate in the growth of the economy but in a way to catalyze the growth of the

economy. With Grameen banks, ATMSs etc., it has made tremendous impact on the

lives of millions of people who are poor, marginalized and living in rural and far flung

topographies. Banks today are one of the major sources of employment for people in

India. Indian banking sector was also one of the few sectors to be unaffected by the global


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recession. Given its significance in the economy; banking sector should be studied to

understand the various managerial and human resource implications in it. In this people

economy one of the most challenging task that organizations face is to gain commitment

from employees which eventually leads to increased loyalty, productivity and retention.

The strength of a psychological contract highlights job attitudes and performance of the

employees in the organization. A healthy psychological contract results in voluntary

commitment resulting from the employees. Further, it motivates employees to comply

with the contract.

1.5 PURPOSE OF THE STUDY

The main purpose of the study is to find out if there is any existing relationship between

the psychological contract and the human resource practices in the organizations. Also,

though there have been a large number of studies discussing the impact of human

resource practices on psychological contract; there hasnt been a systematic attempt to

understand the same. Thus, the present study is aimed at developing a deeper

understanding about psychological contract and human resource practices amongst

employees serving the banking sector in India.

1.6 STRUCTURE OF THE STUDY

The first chapter gives an introduction to the topic under study as well the need and

purpose of the same.

The second chapter contains the literature review of the theoretical framework which

gives an overview of the key concepts about psychological contract and human resource

practices.

The third chapter contains the research methodology adopted and the key hypothesis

analyzed and tested.

The fourth chapter gives the empirical findings of the study conducted which contains the

results of the correlation and regression analysis.

The last chapter gives the findings, conclusion and suggestions.


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2.1 INTRODUCTION

Review of literature is the first step towards conducting any study as it serves as a vital

link between the research proposed and the research already conducted. It gives an overall

picture about the study to be undertaken and at the same time helps in identifying the

research methodology to be adopted with focus on the scope for future research. Also, it

helps to identify the gaps in the previous studies and how one can add more value to the

research already done.

This review is done to explore the various human resource practices that can affect the

psychological contract in the organizations.

2.2 HOW REVIEW HAS BEEN CONDUCTED

For this study, 20 research papers related to the study were reviewed. Most of the papers

reviewed are on studies conducted outside India; though; few studied done in India have

also been included. After reading through the research papers; the findings and gas of the

study conducted were written and a proper log was prepared before writing it in a formal

format.

2.3 STUDIES ON PSYCHOLOGICAL CONTRACT

Nadin & Williams (2012) examined the psychological contract from the employers'

perspective, by examining violations where the employer rather than employee is the

victim. The approach used was to study small business owners using qualitative

interviews, incorporating critical incidents technique. The analysis revealed the

significant disruption and damage caused by these incidents, with employers involving

other employees in their response as they set about the essential repair work required.

Employers actively mobilised shared understandings at the normative level of the group,

reinforcing and sometimes renegotiating the employee obligations, as they seek to

reaffirm their authority in the eyes of all of their employees. This response reflected the

collective psychological contracts the employer holds with each of their employees and

their concerns to limit the fall-out/damage when one employee commits a violation.

Patrick (2008) Psychological contract influences the job attitudes and performance of

employees. Six psychological contract variables (relational contract, transactionalcontract, employers commitment/obligation to employee, employees


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commitment/obligation to employer, emplo yers relationship with employee, and

employees relationship with employer) were measured on employees from IT

companies from randomly chosen for the study. The study revealed that relational

contract was dominant in the IT companies under study. Employees

commitment /obligation to employers was higher than employers commitment/obligation

to employees. Employees relationship with employers was also stronger than employers

relationship with employees.

Wright & Kehoe (2007) lay a great deal of emphasis human resource practices in an

organization as they can affect the organizational commitment of the employees. They

identify three dimensions of commitment that an employee develops with the employer.

Commitment target refers to the foci or object to which one is committed. An individualcan be committed to a wide variety of different targets but the commitment construct is

essentially the same regardless of the target. Commitment strength reflects the degree or

intensity to which someone is committed to the target. Commitment strength is singular,

one can be committed to multiple targets but commitment strength has the same singular

meaning regardless of the target . Commitment rationales are the multiple possible self-

explanations a person can hold for their commitment to a given target; i.e. how one makes

sense of or rationalizes their commitment. An individual can have multiple rationales fora particular commitment; those rationales can change over time, and may be conscious or

unconscious.

Freese & Schalk (2004) analyzed the different ways in which psychological contracts

can be measured. On the basis of criteria for measurement and scale development

psychological contract measurements are put to a test. The criteria are related to the way

the measurement is developed and evaluated, and the specific conceptualisations of the

content and evaluation of the psychological contract. Existing questionnaires to measurethe psychological contract are evaluated. The use of psychological contract measurements

of Psycones, or Rousseau is recommended.

Meuse, Bergmann & Lester (2001) in their study found that the perceptions of relational

component of the psychological contract have changed over time and tracks the same

over a period of 50 years. The findings suggested that part-time employees view the

psychological contract differently than their full-time counterparts, in that full-time

employees perceived a greater decrease in relational component over time. A


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psychological contract survey was produced and validated for the purpose of the study.

The decrease is characterized by low levels of trust, support, respect, loyalty and

commitment.

Rousseau and Benzoni (1994) further explore the concept and identify four types of

psychological contracts at workplace. Transactional Contract is an employment

arrangement with a short-term or limited duration, primarily focused upon economic

exchanges; specific, narrow duties and limited worker involvement in the organization.

Relational contracts are presented as open-ended, less specific arrangements that establish

and maintain a relationship, being based on emotional involvement as well as financial

reward. Transitional contract is essentially a breakdown in contracts, reflecting the

absence of commitment regarding future employment as well as little or no explicit performance demands on contingent incentives

Emerson (1981) Two major types of contracts are common in the workplace;

transactional and relational. The former is associated with economic exchange and the

latter with social exchange. Unlike economic exchange, social exchange involves

unspecified obligations, the fulfilment of which depends on trust because it cannot be

enforced in absence of a binding contract.

2.4 STUDIES ON HUMAN RESOURCE PRACTICES

Fey (2001) This study investigated the relationship between human resource management

(HRM) and the performance of 101 foreign-owned subsidiaries in Russia. The study's

results provide support for the assertion that investments in HRM practices can

substantially assist a firm in improving performance. Further, different HRM practices for

managerial and non-managerial employees are found to be significantly related to firm

performance. Only limited support, however, is obtained for the hypothesized relationship

between efforts at aligning HRM practices with firm strategy and subsidiary performance.

Delaney and Huselid (1996) In 590 for-profit and nonprofits firms from the National

Organizations Survey, they found positive associations between human resource

management (FIRM) practices, such as training and staffing selectivity, and perceptual

firm performance measures. Results also suggest methodological issues for consideration

in examinations of the relationship between HRM systems and firm performance.


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Youndt (1996) This study examined two alternative views-universal and contingency-of

the human resources (HR)-performance relationship in manufacturing settings. Results

from a survey of 97 plants primarily supported a contingency approach to human resource

management (HRM). An HR system focused on human capital enhancement was directly

related to multiple dimensions of operational performance (i.e., employee productivity,

machine efficiency, and customer alignment), but subsequent analysis revealed that this

main effect was predominately the result of linking human-capital-enhancing HR systems

with a quality manufacturing strategy.

Huselid (1995) examined the linkages between systems of High Performance

Work Practices and firm performance. Results based on a national sample of nearly one

thousand firms indicate that these practices have an economically and statistically

significant impact on both intermediate outcomes (turnover and productivity) and short-

and long-term measures of corporate financial performance.

Rosenzwei (1994) A study of human resource management practices in 249 U.S.

affiliates of foreign-based multinational corporations (MNCs) showed that in general

affiliate HRM practices closely follow local practices, with differences among specific

practices. The degree of similarity to local practices is significantly influenced by the

method of founding, dependence on local inputs, the presence of expatriates, and the

extent of communication with the parent. In addition, sharp differences are revealed

among affiliates of Canadian, Japanese and European MNCs, suggesting strong country

effects. Together, these findings support the view of MNCs as composed of differentiated

practices, which in turn are shaped by forces for local isomorphism and for internal

consistency.

2.5 STUDIES ON PSYCHOLOGICAL CONTRACT AND HUMAN

RESOURCE PRACTICES

Sonnenberg, Koene & Paauwe (2011) found a positive influence of a number of HRM

practices on psychological contract and its violation. They analysed the value of

organisation level HRM practices for individual level employees' assessment of the

degree of violation of their psychological contracts. Based on a sample of 49

organisations, the paper analysed the relationship between organisation level HRM practices and individual level employees' assessment of the degree of violation of their


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psychological contracts, using multi-level analysis. The findings showed that more use of

HRM practices leads to lower levels of perceived psychological contract violation for

individual employees, regardless of individual characteristics. Commitment HRM

practices explain about half of the variance in psychological contract violation that is due

to the total amount of HRM practices.

Suazo, Patricia & Rudy (2011) integrated the concept of signaling theory to propose that

organizations create psychological and legal contracts through their human resource

management practices (HRM). Focusing on the strength of the signal generated by HRM

practices, they developed a framework for contract creation. The study focused

specifically on how weak signals generate psychological contracts and strong signals

develop legally binding contracts. The propositions shed light on the importance ofconsidering not only the signals that HRM practices can generate to generate contracts,

but also the practical relevance considering the strength of signals as they relate to the

creation of psychological or legal contracts.

Scheepers & Shuping (2011) examined the effect of human resource practices on the

types of psychological contracts in an iron ore mining company in South Africa

empirically. Two questionnaires were administered. The findings showed that most

participants have relational contracts with the organisation. The study suggests that there

are relationships between these psychological contracts and specific human resource

practices. The study found that training and development was the most important human

resource practice for developing relational and balanced contracts. Employees thought

that they contributed more than their employer did to the relationship. The researchers

developed a model to illustrate the influence of the various human resource practices on

psychological contracts.

Sutherland and Wocke (2008) Balanced contracts are open arrangements with both

parties contributing to each others learning and development, conditioned on the

economic success of the employer

Rousseau and Ho (2000) matched compensation system to employee psychological

contract. Based on these two dimensions, the authors have identified four types of

relationships: short-term relationships with specific measures of performance, short-term

relationships with unspecified measures of performance, long-term relationships with


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specified measures of performance, and finally long-term relationships with unspecified

measures of performance.

Stiles, Gratton & Truss (1997) examined a key ingredient in the psychological-contract

making process, i.e. the performance management system. Focusing on three large U.K.

based organizations, the paper explores how performance management processes are

being used to facilitate moving away from the traditional contract of job security and

clear career paths, while attempting to maintain commitment and morale. The key

findings of the research were that a major element in changing the psychological contract

in the sample companies has been the renewed focus on performance management to

affect new organizational objectives. Employees regard the changes in the performance

management systems as making their employment relationships more transactional. Oneof the limitations of the study was that it did not produce a longitudinal data which makes

it unable to suggest about the changes in the commitment curve.

Rousseau (1994) Human resource practices represent a major mechanism for

implementing a firms strategic plan. These practices create a di stinct type of

relationships between employee and employer which can be characterized as

psychological contracts, that is, the belief people hold regarding the terms of their

employment relationship. These contracts affect the employees behavior towards

customers and fellow employees, and also affect their commitment to the organization.

Rousseau and Wade- Benzoni (1994) analyzed how human resource practices and

psychological contract are related to the business strategy of an organisation. Resultantly,

based on HRP and psychological contract the business strategic decisions (defender,

prospector, analyser and responsive) organisations make related choices in HR practices

that subsequently result in psychological contract of employees. Simply put, business

strategy and employment strategy influence the HR practices which in turn determines

psychological contract of employees.

Gerhart and Milkovich (1992) Reward management is an important inducement of the

exchange process between employers and employees. Reward and remuneration packages

that are in congruence with employees expectations, encourages them to serve beyond

their job description, gain professional expertise, and cultivate core competencies across

functional groupings. Appropriate reward management system motivates employees toapply skills and abilities and encourage them to work harder and improve work processes.


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Ostroff et al., 2000; Schneider (1990) Human resource practices can play an important

role in orchestrating the culture of an organisation. HR practices represent a set of salient

and universal practices that can create the foundation for particular form organisational

climate to develop. Human resource practices like realistic job previews, developmental

appraisal which captures employee expectations and identification of training needs in

consultation with the employees, results in formation of progressive organisational

culture which talks with people, not at them. Importantly, the climate or culture

perceptions of organisation also shape individual inferences about what the organisation

is like. Furthermore, organisational culture leads to the construction of a normative

psychological contract, which is shared by the members of the organisation.

Aggarwal & Bhargava (2009) synthesised the literature on the role of human resource practices (HRP) in shaping employee psychological contract (PC). Based on this review,

a conceptual framework for examining the relationship between HRP and PC and their

impact on employee attitudes as well as behaviour was put forward for further

examination. The approach included an extensive review of the literature, examining the

role of HRP in influencing PC of employees, between the periods 1972 to 2007 was

conducted. Adopting the multi-level approach, the paper discusses the role of individual

variable (PC) and organisational variable (HRP) on employee attitudes and behaviours.The article brings to fore the role of business and employment relationship strategy on

HRP; the relationship between HRP and organisation culture as well as employees

attitudes and behaviours; the relationship between HRP on and employee's psychological

contract; and the moderating effect of those conceptions on employee attitudes and

behaviours relationship. HRP and PC influence employee attitudes and behaviours as well

as have a bearing on organizational effectiveness.

Aggarwal and Robinson (2009) analyzed how hiring practices influence the psychological contract. As employees join an organization with the belief that employer

will live up to the promises made to them and if they are not fulfilled then the employee

considers the psychological contract violated and may react in ways that may go against

the interest of the employer. This is the first instance when the employee comes into

contact with the employer of the organization. Therefore, if the recruitment process is

managed well, it may significantly affect employee attitudes and behaviors.


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2.3 CONCLUSION

The above review conducted by different people gives us an insight about how human

resource practices can affect the strength of psychological contracts in the organizations.

The mutual expectations between the employer and the employee should be fulfilled in

order to maintain a strong psychological contract. The breach of psychological contract

can lead to mistrust and disloyalty which eventually affects the organization in a negative

manner. Thus, understanding psychological contract with reference to human resource

practices is crucial for the managers as it can affect attrition and job satisfaction among

the employees.


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3.1 INTRODUCTION

Research refers to the design of the study method and processes by which data is gathered for a

research project. It includes the blueprint for the collection, measurement, and analysis of data to

achieve the objectives of a research project. Research methodology is important in a research

work because it specifies the research design. Here the researcher explicitly defines the

operational definitions of the concepts used in the research and defines the variables that have

been included in the study. Research methodology is also important in a research work because it

also specifies the sampling design. The researcher also defines the target population and the

sampling method used. The researcher also provides the rationale for choosing a specific

sampling method. Additionally, the researcher identifies the data collection method. This could be

self-administered questionnaires, postal surveys, or interviews. Finally, the researcher focuses on

the limitations of the research. The researcher identifies significant methodology or

implementation problems such as sampling errors, response and non response errors and the

constraints of cost and time. This chapter attempts to explain the survey at hand in terms of the

study area, the study unit and the population. Further, the chapter highlights the organization and

design of the questionnaire as well as the methods of data collection and data analysis. The data

collection instrument employed in the investigation, the administration of the instrument as well

as their reliability and validity are also described. Finally, the chapter examines the different

statistical tests used to analyze the gathered data, the reliability, and the validity of the results as

well as the limitations in the collection of the data.

3.2 STATEMENT OF THE PROBLEM

Inefficient human resource practices (like hiring, training & development, remuneration

and performance appraisal) of the organizations will affect the psychological contract

between the employee and the employer.

3.3 OPERATIONAL DEFINITIONS OF THE VARIABLES1. Psychological Contract: Psychological contracts refer to beliefs that individuals

hold regarding promises made, accepted, and relied upon between themselves and

another Roussue (1900).

2. Relational Contract: It refers to open-ended relationship involving considerable

investments by both employees and employers. The contract is derived from long

term membership and participation in the organization involving high degree of

mutual interdependence.


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3. Transactional Contract: It refers to contracts which are short-term, primarily

focused on exchange of work in lieu of money with a specific and definite

description of duties and responsibilities and limited involvement in organization.

4. Human Resource Practices: The human resource practices under this study will

include hiring, training & development, performance appraisal and

remuneration/pay practices in the organization.

3.4 VARIABLES UNDER INVETIGATION

The variables under investigation in this study are:

Dependent Variable: psychological contract.

Independent Variable: human resource practices.

Demographic Variable: Gender, Qualification, Overall experience, Marital status

3.5 OBJECTIVES OF THE STUDY

To find out the type of contract held by banking employees

To find out the HRM practices adopted in the Banking sector

To find out if there is a relationship between the HRM practices and the type of

psychological contract held i the banking sector

3.6 HYPOTHESES

HYPOTHESIS 1: There is no significant relationship between Psychological contract

(Transactional/Relational) and HRM practices.

HYPOTHESIS 2: HRM practices will not influence relational and transactional contracts

in the banking sector.

HYPOTHESIS 3: There is a significant relationship between Psychological contract

(Transactional/Relational) and HRM practices.

HYPOTHESIS 4: HRM practices will influence relational and transactional contracts in

the banking sector.


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3.7 POPULATION AND SAMPLE OF STUDY

There are around 60 banks operating in India. In these 27 are public sector banks, 15 are

private sector banks and rest include foreign banks operating in India. 10 leading public

and private sector banks on the basis of market capitalization were identified for the study

and 300 bank employees were surveyed for the study.

The population of relevance had the following characteristics:

a) Had a minimum work experience of 1 year.

b) Had a qualification (Bachelors/Masters).

c) Ws involved in work that requires some level of decision-making.

d) Was well aware of the human resource practices in the organization.

3.8 SAMPLING TECHNIQUE

Judgemental sampling technique will be adopted to collect data from the respondents for

the present study. Bank employees with a minimum one year of experience will be

considered to fill the questionnaire

3.9 TOOLS ADOPTED FOR THE STUDY

The questionnaire method will be used to collect data from the respondents. Based on the

objectives of the study, the following tools will be used:

I. Psychological Contract Questionnaire (PCQ) adopted from Millward & Hopkins,

1998; and Rousseau, 1995 (furnished as Annexure) was used to study the strength

of transactional and relational contract in the organizations.

II. The Geringer, Collete and Millmna scale was used to study the human resource

practices in the organizations.

3.10 DESCRIPTION OF THE TOOLS

3.10.1 Psychological Contract Questionnaire

The Psychological Contract Questionnaire is designed to assess the generalizable content

of the psychological contract for use in organizational research and as a self-scoring

assessment to support executive and professional education. The questionnaire was


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adopted for the study to measure the psychological contract variables, viz., (i) strength of

relational contract, (ii) strength of transactional contract.

Part I: Respondents biographic data

Part II: Seventeen statements for measuring the strength of relational and transactional

contract. It uses a 7 point likert scale for the employees to choose from seven options

3.10.2 The Geringer, Collete and Millmna scale

The Geringer, Collete and Millmna scale analyzes the relation between human resource

management practices and psychological contract. There are 4 questions in this section

with 10 items each and uses a 5 point scale (1- not at all, 2- to a small extent, 3 to a

moderate extent, 4 to a large extent, 5 to a very great extent.

3.11 PILOT TEST AND RELIABILITY OF THE INSTRUMENT

The Cronbachs reliability test on the 17 PCQ statements for this sample has revealed

that reliability is a cceptable, being in the range: 0.73 - 0.89.

Table 3.1 Reliability Statistics

Cronbach's

Alpha

Cronbach's

Alpha Based

on

Standardized

Items

N of

Items

.763 .795 17

The Cronbachs reliability test on the 40 human resource practices statements for this

sample has revealed that reliability is acceptable, being in the range 0.73 -0.89.


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3.12 STATISTICAL TECHNIQUE AND ANALYSIS

a) Reliability Test: The questionnaire though standardized was modified to suit the

study. Therefore, a reliability test was conducted which indicated a cronbachs value

between the acceptable range implying the reliability of the questionnaire adopted.

b) Correlation Analysis: Correlations analysis is conducted to seek the relationships of

the variables in terms of direction and significance of the relationships. Correlation

between the dependent variables and the independent variables will be conducted. Thisanalysis will be used to answer the hypotheses and research questions.

c) Regression Analysis: It is statistical technique for estimating the relationships

among different variables. It mainly focuses on deriving relationship between a dependent

variable and one or more independent variables.

3.13 CONCLUSION

Research methodology has helped in developing the research questions, hypothesis, andobjectives in line with those of the research techniques and the population of relevance. An

analysis is done on responses collected from 300 respondents which are interpreted in the

subsequent chapters.

Table 3.2 Reliability Statistics

Cronbach's

Alpha

Cronbach's

Alpha Based on

Standardized

Items

N of Items

.766 .824 40


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4.1 INTRODUCTION

The Indian banking industry is considered as one of the safest in the world and has been

flourishing in the past many years. The last decade has seen a series of advancements and

developments in the banking sector. The policy makers, which include the finance

ministry, Reserve Bank of India (RBI) and financial sector regulatory bodies, have made

a large number of efforts to improve the regulation in the sector. The Indian banking

sector now compares favourably with banking sectors in the Asian region with respect to

metrics like profit ratios and capital equalization ratios. The IT revolution had a great

impact in the Indian banking system. The use of computers revolutionised the way

banking transactions and services were offered. Today, online banking is a growing

feature in the banks across the country. Much of it can be attributed to the liberalization,

globalization and privatization drive that came to India in 1991. The reforms helped India

to expose it banking sector to worlds market and led to various innovative changes.

Apart from improving the productivity and efficiency of the banking sector in India; the

reforms have greatly changed the working of the banking sector in India.

With the emergence of private banks and international banks; the competition to serve the

customers better has increased. With excellent customer service and support services,

they are an edge above the public sector banks. However, the public sector banks still are

going strong because of the low interest rates and government support. Compared to other

markets the cost of banking intermediation is quite high in India. However, on the other

hand the bank penetration is low compared to other banks in the region. The Indian

banking sector currently contributes about 35% t the Indian GDP and is one of the largest

employers in the country offering millions of jobs to the people every year. Thus, in order

to support the vibrant and fast growing economy of India; the banking sector should

strengthen itself. The bank managements are primarily responsible to drive this change

but an enabling policy and regulatory framework would also cater to strengthening the

sector. Recapitalization, non-performing assets and prudential regulation are some of the

challenges that the Indian banking sector faces today.

The efficient, enterprising and effective banking sector plays a decisive role in

accelerating the rate of economic growth in any economy. The banking sector in India has

evolved in India to catalyze the growth of the economy and is not just another sector

contributing to the economy. The banking sector has widened its horizons and has


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ventured into insurance, mutual funds and asset management. With a network that spawns

from urban metros to the rural interiors; the banking sector has affected the lives of most

Indians. Interestingly, the Indian banking sector was also one of the few sectors to be

unaffected by the global recession.

4.2 GOVERNMENT INITIATIVE IN BANKING SECTOR

The Indian banking industry is largely regulated by the government with the Reserve

Bank of India (RBI) being the apex body making the policies for banks in the country.

The first breakthrough came when government decided to nationalize the banks in

1970 s. This brought a large number of banks under the control of government and

changed the way banking operated in the country. In the early 1990s, the liberalization

brought with it emergence of a large number of private sector banks which were licensed

by the government. These came to be known as New Generation tech-savvy bank. The

next milestone in the Indian banking sector came with the governments decision to relax

the norms with respect to Foreign Direct Investment, thereby; allowing all foreign

investors in banks to have voting rights. At present the cap is at 74% with some

restrictions. The new policy jolted the banking sector completely and changed the

traditional operating ways of banks. A modern and technologically enabled outlook was

adopted by the banks to survive this new wave of change. This led to the birth of retail

boom in the country with the people receiving a lot from their banks.

Currently, banking in India is reasonably mature with regards to the products & services

offered and its ability to reach a large number of consumers. However; the private sector

and foreign banks have still a long way to go in terms of penetration in the rural sector

and it seems a daunting task. Indian banks have strong and transparent balance sheets in

terms of assets quality and adequacy of capital when compared to other banks in theAsian region.

4.3 SWOT ANALYSIS OF INDIAN BANKING SECTOR

The Indian banking sector is considered as one of the most secure sectors to work with

across the world. The strengths of Indian banking sector lie in its ability to remain stable

because of the regulatory practices that exist in the country. Policy makers in the country

have introduced reforms to improve the functioning of the sector. Extensive reach, strong

balance sheets and government policies are some of the strengths of the sector. However,


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on the other hand a fragmented industry structure, restrictions employed on the

availability of capital, lack of institutional support structure and an under developed

system of corporate governance are the weaknesses of the Indian banking sector.

Due to the growth of Indian economy the demand for banking services has also grown

with specific focus on retail banking and investment services. Liberalization of norms, IT

growth and the growing knowledge of hybrid capital are some of the opportunities that lie

ahead of the banking sector in the country. Threats for the banking industry include

instability of the system, and increase in the inflation rate of the country which could

impact the interest rates and increase in the number of foreign players would pose a threat

to the public sector banks as well as the private players.

4.4 FUTURE OF THE BANKING SECTOR

The Indian banking sector can expect to grow at a substantial rate as the economy and the

GDP the country is on the rise. With the rise in the number of foreign banks operating in

India, the banking sector will see a lot of competition with focus on improving the

customer satisfaction through effective and efficient banking services. Given the

significance of human resources; the future strategy should focus on competencies of

employees, their ability to learn and the ability of managers to manage soft skills inorganizations. It is imperative of the banking sector to focus on crucial areas like human

resources with respect to building an organization culture and developing leadership

which can serve as a source for competitive advantage in the long run. This implies that

banks need to focus on both the quantitative and qualitative aspects of business. Apart

from this; derivatives, retail banking, hybrid banking will be the future of banking sector.

.


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5.1 INTRODUCTION

This chapter deals with the analysis of the relationship between psychological contract

and human resource practices existing in the banking sector in India. This chapter

contains the analysis of primary data collected through the standardized questionnaire

administered to the bank employees. The techniques mentioned in Chapter 3 were used to

analyze the data using SPSS.

5.2 RESPONDENT PROFILE

A total of 300 bank employees across 10 major banks participated in the survey for the present study. The participants were from diverse backgrounds with respect to their age,

education and level in the organization.

The current gender ratio tells us that out of the 300 people who participated in the survey;

majority of them were males (59%) as is indicated in the graph. However, females

constituted 41% of the total population of respondents.


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Most of the respondents who participated in the survey belong to the lower (41.67%) and

the middle (45%) level in the organization depending upon the level of responsibility they possess on the job. Only a few respondents (13.33%) belonged to the higher level in their

organizations.

Out of the 300 employees who were administered the questionnaire; most of them had a

higher level degree in education. As seen in the graph, 76.67% of the respondents had a

post graduate degree while 23.33% of employees had a graduate degree.


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Graph 5.4

Out of the 300 employees who were administered the questionnaire; 63.6% of them had2-4 years of total experience on their jobs. This was followed by employees who had 5-7

years of experience (26.6%). Very few employees who participated in the survey had

more than 7 years of experience. This indicates that most of the people who participated

in the survey were new on their jobs with not many years of experience. Their career had

just started in the organization.

Graph 5.5

Out of the 300 employees who were administered the questionnaire; majority (35%) of

them belonged to the age group 26-29 years. This was followed by people in the age

group 22-25 years (28.3%). Thus more than half of the respondents were young. This is


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good for the study as they represent the new age work force and it is important to

understand their expectations.

5.3 STRENGTH OF PSYCHOLOGICAL CONTRACT IN BANKING

SECTOR

The strength of psychological contract in the banking sector was analyzed by calculating

the mean and standard deviations of the responses received from the bank employees and

the results are analyzed as under:

Table 5.1

Contract Mean Standard Deviation

Transactional 5.88 0.52847

Relational 5.3104 .70068

The mean value of transactional contract is 5.88 while that of relational contract is

5.3104. From the results tabulated; one can imply that in banking sector transactional

contract seems to be stronger than the relational contract. This suggests that in the Indian

banking sector the employees usually are committed to employment arrangement for a

short-term primarily focused on exchange of work in lieu of money with a specific and

definite description of duties and responsibilities and limited involvement in organization.

However; there is not much variation in the means and standard deviations of relational

contract.

5.4 STRENGTH OF PSYCHOLOGICAL CONTRACT IN PUBLIC

SECTOR BANKS

The strength of psychological contract was analyzed separately for the public \sector bank

employees to understand which type of psychological contract is prevalent in the

organization. The analysis was done with the help of mean and standard deviations

calculate from the data collected from the bank employed in both the organizations.


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Table 5.2

Psychological Contract Mean Standard Deviation

Transactional 5.716 0.58821

Relational 5.471 0.90538

From the above analysis, one can imply that though there isnt much variation in the

mean values of transactional and relational contract; but in public sector banks it is the

transactional contract that seems to be stronger than the relational contract. This means

employees have limited involvement with the work they do and work mainly for the

monetary benefits associated with the job. The non-monetary and psychological benefitsare not much important for the public sector employees. Much of this can be attributed to

the culture that exists in the public sector banks in India.

5.5 STRENGTH OF PSYCHOLOGICAL CONTRACT IN PRIVATE

SECTOR BANKS

The strength of psychological contract was analyzed separately for the private sector bank

employees to understand which type of psychological contract is prevalent in the

organization. The analysis was done with the help of mean and standard deviations

calculate from the data collected from the bank employed in both the organizations.

Table 5.3

Psychological Contract Mean Standard Deviation

Transactional 5.15 0.33716Relational 6.05 0.4016

From the above analysis, one can imply that relational contracts are much stronger in

private sector banks than the transactional contracts as can be analyzed from the means

tabulated. There is also much difference in the standard deviation values. This means that

employees in a private sector banks result from long-term employment arrangements

based upon mutual trust and loyalty. Growth in career and remuneration comes mainly


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from seniority and other benefits and rewards are only loosely related to work

performance. The contract is derived from long term membership and participation in the

organization. Much of this can be attributed to the culture that exists in the private sector

banks in India.

5.6 CORRELATION ANALYSIS BETWEEN PSYCHOLOGICAL

CONTRACT AND HUMAN RESOURCE PRACTICES

The following table explains the correlation analysis conducted between the

psychological contract and the different human resource practices in the organization.

Table 5.4

Contract Human Resource Practices

Hiring T&D PA Pay

Pearson Sig Pearson Sig Pearson Sig Pearson Sig

Transactional .265 .003 .394 .042 .490 .081 .549 .002

Relational .227 .010 .328 .003 137 .004 0.122 .035

Transactional Contract and Hiring Practices

Correlation test was conducted to analyze if there exists any relationship between the

transactional contract and the hiring practices in the organization. In the given situation;

the correlation is positive and the significant value (0.003) is less than 0.05 which

indicates that there is a relationship between the two variables under study.

Transactional Contract and Training & Development Practices

Correlation test was done to analyze if the training and development practices in an

organization can influence the transactional contract. In the given situation, there is a

positive correlation between the two variables and the significant value (0.042) is less

than 0.05 which indicates that there is significant relationship between the two variables

under study.


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Transactional Contract and Performance Appraisal Practices

Correlation test was conducted to analyze if there is any relationship between the

performance appraisal practices and the transactional contract. The above table clearly

indicates that there is a positive correlation between the two variables and the significant

value (0.081) being more than 0.005 shows there is no relationship between the two

components.

Transactional Contract and Pay/Remuneration Practices

The above correlation test shows that there is a positive correlation between the

remuneration practices and the transactional contract. With a significant value of 0.002

the two variables under study are significantly correlated.

Relational Contract and Hiring Practices

The correlation test was done to analyze if there exists any relationship between the

relational contract and hiring practices. The results show that there is a positive

correlation between the two variables and the significant value (0.010) implies that there

is a relationship between the two components under study.

Relational Contract and Training & Development Practices

The above correlation test shows that there exists a positive relationship between the two

variables under study. Also, the significant value (0.03) is less than 0.005 which indicates

that training & development practices influence the relational contract to an extent.

Relational Contract and Performance Appraisal

The above table shows that there is a positive correlation between the performance

appraisal practices and the relational contract between the employee and employer. At a

significant value of 0.004; the two are significantly related to each other.

Relational Contract and Remuneration/Pay

The above correlation analysis shows that there is a positive correlation between the two

variables under study. However, the significant value (0.035) is more than 0.005

indicating that there is no significant relationship between the remunerations practices


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and the relational contract existing in the organization. Thus, the alternate hypothesis is

rejected and null hypotheses can be accepted.

5.7 REGRESSION ANALYSIS BETWEEN THE PSYCHOLOGICAL

CONTRACT AND HUMAN RESOURCE PRACTICES

The following table explains the regression analysis conducted between the psychological

contract and the different human resource practices in the organization.

Table 5.5

Contract Human Resource Practices

Hiring T&D PA Pay

R Value R Value R Value R Value

Transactional .265 .455 .240 .481

Relational 0.52 .408 .19 .15

Transactional Contract and Hiring Practices

The coefficient of determination is 0.265 which implies that 26.5% of variation in the

dependent variable (transactional contract) is explained in the independent variable

(hiring practices). The percentage is not very high; thus, one can conclude that hiring

practices affect the psychological contract but not to a great extent. As the significance

value is 0.008 it implies that the regression model adopted is significant too as p


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Transactional Contract and Performance Appraisal Practices

The coefficient of variation is 0.240 indicating that 24% variation in the dependent

variable (transactional contract) is explained in the independent variable (performance

appraisal). The percentage is quite low which means the transactional contract is not

much affected by performance appraisal practices in the organizations. As the

significance value is 0.06 it implies that the regression model adopted is not significant as

p


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that the regression model adopted is significant as p


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6.1 INTRODUCTION

This chapter discusses in detail the research findings after the analysis and interpretation

of the results achieved from the questionnaire administered. It also discusses the findings

which are not shown in the test followed by suggestions with respect to the topic under

study.

6.2 FINDINGS AND DISCUSSION ON FINDINGS

The major aim of the research was to find out the relationship between psychological

contract and human resource practices in the banking sector organizations. The results

showed that there is a definite relationship between the two variables and the human

resource practices greatly influence the psychological contract. At the same time, there

are few practices which dont really influence the psychological contract between

employee and employer.

1. There exists a relationship between the human resource practices in an organization

and the psychological contract that develops between the employer and the employee.

The extent of dependence however varies from one practice to another.

2. The strength of relational contract is more compared to the transactional contract in

private sector banks. This indicates that a large number of employees prefer long-term

relationship with the organization and not a short-term relationship which is defined

only by monetary gains only.

3. The strength of transactional contract is more compared to relational contract in

public sector banks. This implies that employees in a public sector bank work

primarily for money and believe in fulfilling the short-term goals that come across in

their line of sight. The employees have a narrow set of duties and limited worker

involvement is there in the organization.

4. Amongst the various human resource practices taken for the study; pay/remuneration

has the most significant relationship with the transactional contract. Since

transactional contract is identified mainly with monetary gains and less employee

involvement; the results achieved affirm the hypotheses about the same.

5. Training & Development and Hiring practices also influence the transactional

contract in the organizations though not as great as the pay/remuneration. Also,

performance appraisal has no significant relationship with the transactional contract


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as the analysis showed. This affirms the fact about transactional contract that

employees are more interested in the pay as its a short term contract and the appraisal

practices might not interest them.

6. In case of relational contract, Training & Development and hiring practices indicate a

strong influence on the contract. Relational contracts are identified with strong

commitment from employees and employees expect employer to provide

opportunities for growth. This is clearly substantiated in the results.

7. However, relational contracts are not much influenced by the remuneration practices.

Interestingly, this is exactly the opposite of transactional contracts where employees

work with their main focus on money. In relational contracts; the employees are not

focused on the monetary rewards alone rather they look for non monetary benefits

also.

8. In public sector banks the strength of transactional contracts is determined by the pay

and hiring practices. The employees in a public sector bank expect the organization to

pay for the amount of work they do and there is not much effort from the employee to

walk an extra mile and do work which has a long-term orientation attached to it.

9. In private sector banks, the strength of relational contracts is determined by the

training and development practices. The employees expect the organization to invest

in the employees overall growth and development and they are ready to walk an

extra mile for the organization of their expectation of growth is fulfilled by the

employer.

10. The human resource practices like remuneration and training & development are

critical for any organization because these form the basis of the unwritten

expectations which an employee has from its employer. An effective and efficient

framework of human resource practices can greatly help in strengthening the

psychological contract between the employer and employees.

6.3 LIMITATIONS OF THE STUDY

a) The study was conducted only in 10 banks operating in Bangalore city.

b) The study focused on random selection of employees from different levels. The

study could have been more specific with focus on only one set of employees.

c) The answers given by the employees might be influenced by their state of mind.

d) It is subject to human errors of judgement.


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6.4 SUGGESTIONS

I. Psychological Contract is still not incorporated extensively in to the terminology

of human resource function in banks. Human resource managers should pay heed

to the unwritten expectations that employee has from the employer and try to fulfil

them within the limits of organization.

II. Human resource managers should lay emphasis on developing an effective and

efficient framework of human resource practices in the banks as they influence the

strength of psychological contracts between the employer and the employee.

III. Hiring practices should be made more transparent and selection of employees

should be fair and based on their competencies. All the promises made to them

while recruitment should be fulfilled. This will ensure that the expectations an

employee forms while joining are met with and psychological contract is

strengthened. The recruitment should be objective and personal biases and errors

should be avoided.

IV. Training and Development is one of the most vital human resource practices that

aids in the development of psychological contract. Today, employees want to be

employable rather than being in a secure hob. They expect the organization to

invest in them so that they can grow and in turn help the organization grow.Therefore, excellent training opportunities should be provided to the employees

for their development and learning.

V. Organizations should conduct a training needs analysis at frequent intervals to

identify the employees who need training. Also, human resource managers should

aim towards creating a learning organization where employees are pushed to learn

new things and improve their key skills and behaviors. This would ensure that

employees stay with the organization for a longer period of time.VI. Remuneration and performance appraisal should be exhaustive and employees

should be awarded according to their competencies and performance and not

because of seniority. A fair system of performance appraisal and pay shall ensure

that employees are paid for the work they perform and this would keep them

content.

VII. As analyzed, public sector banks have transactional contracts stronger than the

relational contracts. This is not the most accepted position as transactional

contracts are identified with lower employee commitment and involvement.


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Public sector banks should lay more emphasis on the human resource practices

aspects and try to develop relational contract with the employees. This would

ensure that the employees are more involved in their work place and contribute

more to the achievement of the strategic goals of the organization.

VIII. Private sector banks according to the study have a stronger relational contract

which is a good thing. However, there is not much variance in the scores. So,

private banks should invest more in their human resource practices and understand

what the employees want from them. This would eventually help in creating a

stronger contract at the work place.

IX. Organizations in general, should try to develop a robust set of human resource

practices at the work place because it will help in creation of stronger relational

contracts which would ensure employees are satisfied at their jobs, fully involved

in the work they do and are committed towards the organization. This aid in

building loyalty and the intentions to quit are also reduced. Thus, there is less

attrition in the organizations leading to more profits and a stable work force.

6.5 SUGGESTIONS FOR FURTHER RESEARCH

There has been a lot of research on psychological contract; however its relationship with

human resource practices has not been explored much. There have been a few studies

outside India but still there is a colossal scope for research. In India, though the concept

has been explained theoretically in many research papers; no quantitative study analyzing

the relationship between psychological contract and human resource practices. Therefore,

a lot of scope exists with respect to the topic and a lot of other human resource practices

like Communication, Human resource planning can be included in the range of human

resource practices and its relationship with psychological contract.

6.6 CONCLUSION

From the above analysis and interpretation of the results we can conclude that human

resource practices greatly influence the psychological contracts in organizations. In

context with the banking sector; transactional contracts are more prevalent in public

sector banks; whereas; in private sector banks relational contracts are more prevalent.

Much of this can be attributed to the differences in the organizational culture in the two.

Among the various human resource practices considered under the study; training and


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development, hiring practices and remuneration have a significant relationship with the

psychological contract. To be precise; in case of transactional contracts it is the

remuneration that has the most effect while in case of relational contracts it is the training

and development and the hiring practices which influence the contract.


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Relationship between Psychological Contract & Human Resource Practices

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