1. 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.it
also affects the commitment and trust that the employees have on the organisation. 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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2. 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 that 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rhetoric in the UK is that the old contract of security in exchange for loyalty has been replaced
by a new contract of employability for flexibility.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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3. 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 ofRift 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 promisesgiven 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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4. 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 employeesin KETEPA
limited.
1.3Specific 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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5. 1.4Scope 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 also covered 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 managers in particular 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. The
study will as well add to the knowledge of psychological contract violation in organisations and
its effects.
1.6 Theoretical framework
1.6.1 Organizational Support Theory
There are a number of theories that can help one in understandpsychological contract violation.
Examples include, Expectancy Theory, Equity theory and Organisation Support theory
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6. Expectancy Theory by Victor Vroom (1990) on employee motivation focuses on three
relationships, namely, Effort performance relationship, Performance-reward relationship and
Rewards-personal goals relationship (EPR).As per the theory an employee will be motivated to
exert a high level of effort when the effort will lead to1) 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 equitablebalance
between what they receive from the organization and their own contributions. Whenemployees
perceive that their employer has failed to fulfill promised inducements, they maywithhold their
own designated contributions (Robinson and Morrison, 1995). Shore andBarksdale (1998) found
that employees expressed higher levels of perceived organizationalsupport, affective
commitment, and lower levels of turnover intentions when their employmentrelationships 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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7. 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 chosenbecause 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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8. 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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9. 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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10. 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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11. 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).
Committed employees are more likely to act as organisational advocates than those who are not
committed and can play a powerful role in promoting their organisation as an employer of
choice. HR professionals need to recognise that commitment is a strategic issue that cannot
simply be left to manage itself. Organisations should review their communications and
particularly their arrangements for listening to employee opinions. Line managers need support
in designing challenging jobs and managing effective teams.
Communication is the glue that makes policies real and without which they are ineffective. The
fact that communication is necessarily a two-way process, involving dialogue rather than simply
instruction, is well established. Yet many organisations perform badly in this area, failing to give
communication the priority it deserves.
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12. 3.0 RESEARCH METHODOLOGY
3.1 Research design
This research used a survey type of research design; this was adopted because it 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 600 employees of KETEPA limited inKericho which constituted both
the supervisors, their staff and managers. Out of 7 managers, 3 were interviewed.
Conveniencesampling technique of method was used tosample the managersbecause of the
nature of their duties which involve field work.The total population studied among the
supervisors and their staff was 180. A simple random technique was used to pick 30% of the
respondents. This is because each respondent has an equal chance of being included in the
sample. The table below explains better.
Table no. 1
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
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13. 3.3 Collection Method
The study used both primary and secondary data.Primary data was obtained through
questionnaires which were self-administered.Out of 180 questionnairesadministered 150 were
collected and analysed, 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.Descriptive statistics were utilised.
4.2 Results /Discussions
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
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14. 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 theirpromises. 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 theirstrong 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.
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.
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15. 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
• 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 70% 30%
bargain.
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 promisedfor
example, increase in salary, career development and promotions. Trust is avital 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
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16. 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.
The managers who were interviewed cited competitive forces among their rivals like UNILIVER
and FINLAYS as affecting the market of their products. They also indicated the counterfeits of
their products as another challenge. These challenges force the management to expect more from
the employees which in most cases is never availed.The employees according to them do not
meet their part of the bargain, they do not work as they promised to .As much as the employees
expect to be treated fairly, promoted and trained,they should as well give their part of the bargain
and be ready to work diligently towards the organisational goals.
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.
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
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17. 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.
Recommendations
The following were the recommendations for the study:
1. That management should be more careful on thepromises 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. That management should be very mindful that terms of the psychological contract
represents perceptions of promises and they engender bonding through reliance within
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18. 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. That during recruitment interviews the management should present the unfavourable as
well as the favourable aspects of a job in a realistic job review.
4. That in induction programmes the management should communicate 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. That management should issue and update employee handbook as that reinforce the
messages delivered in induction programmes.
6. That the management should encourage the development of performance management
processes that ensure that performance expectations are agreed and reviewed regularly.
7. That management shouldencourage 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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