Session 9 Psychological Contract At Work and Future Work Values Globalizing HR Core MBA Course

1. Session 9Psychological Contract At Work and Future Work ValuesGlobalizing HR Core MBA Course Paul Sparrow Ford Professor of International HRM Manchester Business School 1st March 2004

2. Challenges Facing The Employment Relationship • The psychological contract • Changing structure of employment • Job stability and employment outcomes • Quality of the employment relationship: trust and job security • Work and career transitions • Individualization of Human Resource Management • Managing the new individual- Organization linkages • Work-life balance • New generations, new expectations and new problems?

3. Challenges Facing The Employment Relationship Insight into formation of psychological contract 1. 2. Behaviour of atypical workgroups Social climate factors (exchange) 3. Work and career transitions 4.

4. Challenges Facing The Employment Relationship 5. Increasing individualisation of relationship Changing organization – individual linkages 6. Barriers to adjustment: eg. work-life balance 7. Future generational values 8.

5. Demographics as Destiny? Options: increased productivity, extended working life or imported labour to expand workforce Centre for Strategic & International Studies, Washington: If immigrants not allowed in, then by 2020 Europe has to boost its productivity by 2/3rds (UK currently around 2% per year) Support ratios only maintained by raising retirement age to 75 UK needs 200,000 net immigrants per million population, Germany 600,000 and Italy 650,000 – x2 current levels 2020 – another 800,000 non-working UK adults over 55 supported by smaller workforce. £27 bn pension saving deficit Challenge to buy youth. 36% of NY population foreign born (cf 1910|). 75% of all HE Jamaican’s live in US

6. Seven Flexibilities TYPE BATTLE FOR INSTANCE Employment Relationship Outsourcing, peripheral, associates NUMERICAL Role and Competence Multi-skilling, core competence, cross-process FUNCTIONAL Reward-effort bargain PRP, gainshare, cafeteria benefit FINANCIAL Active Representation Flexitime, nil hours, annual hours TEMPORAL Homeworking, virtual teams Re-location GEOGRAPHICAL Form and rationale Ad-hocracies, networks, strategic alliances ORGANISATIONAL Cultural assumptions, cognitive maps, psychological contract Frames of reference COGNITIVE

7. The Old Psychological Contract CHANGE ENVIRONMENT PROMOTION BASIS REDUNDNACY/TENURE CULTURE MOBILITY RESPONSIBILITY STATUS PERSONAL DEVELOPMENT TRUST • Stability, short term focus • Expected, time-served, technical competence • Job for life • Paternalism, exchange security for commitment • Never, or on own terms • Instrumental, then progressive levels linked to promotion • Very important • Companies’ responsibility • High trust possible

8. The New Psychological Contract • Change is continuous • Less opportunity, new criteria, for those who deserve it • Lucky to have a job • Those who perform get rewarded, contract is developed • Horizontal, rejuvenation, managed • To be encouraged, balanced by accountability • Competence and credibility • Individuals’ responsibility • Desirable, but commitment to project or profession CHANGE ENVIRONMENT PROMOTION BASIS REDUNDANCY/TENURE CULTURE MOBILITY RESPONSIBILITY STATUS PERSONAL DEVELOPMENT TRUST

9. “These used to be a lot closer, didn’t they”

10. What are Psychological Contracts ? • Social and emotional exchange between two parties: security for compliance • Sources of prediction: Serve to enable anticipation and planning because actions are more readily specified • Open-ended agreements on what is given and what is received • Multi-level phenomena: amalgamation of individual unwritten contracts • Mental models that act as deep drivers of motivation theories: careers, reward, commitment

11. Research on Psychological Contracts • Recruitment/ engagement: buyers versus sellers market, democratisation of assessment • Downsizing, productivity and withdrawal behaviours • Career expectations in the delayered organisation • Implementation of strategic change: organisation citizenship behaviour

12. Organisational Obligations (1) Provide adequate information and training Training Equity and absence of discrimination in selection, appraisal, promotion and redundancy Fairness Personal time off for family needs Needs Consult and communicate wih employees on matters which affect them Consult Minimal interference with employees in how they do their job Discretion Act in personally and socially responsible way towards employees Humanity Employees and organisation equal More important to employees More important to employers

13. Organisational Obligations (2) Recognition and reward for special contribution and for time served Recognition Provision of a safe environment Environment Fairness and justice in application of rules and procedures Justice Equitable with regard to market values and consistently awarded across organisation Pay/Benefits Organisation tries to provide job security where it can Security Employees and organisation equal More important to employees More important to employers

14. Employee Obligations Work the hours you are contracted to work Hours Do a good job in terms of quality and quantity Work Deal honestly with clients and with the organisation Honesty Stay with the organisation, guard its reputation and put its interests first Loyalty Treat the organisation’s property in a careful way Property Self- pres- entation Dress and behave correctly with customers and colleagues Be willing to go beyond one’s job description Flexibility Employees and organisation equal More important to employees More important to employers

15. Violating The Contract • Inadvertent:Able and willing (divergent interpretations made in good faith) • Disruption:Willing but unable (inability to fulfill contract) • Breach of contract:Able but unwilling (reneging)

16. Emotion At Work ?!

17. British Public Attitudes: MORI data 1969-02 Percentage of British population agreeing that large firms help make things better for those who buy their products and services

18. Death of Loyalty? of HR professionals report loyalty/commitment decreased somewhat say it has decreased substantially rate commitment of employees as very high rate it as high argue loyalty will be very important see it as major factor in enhancement of customer service 59% 20% 4% 27% 94% 76%

19. Four Most Important Climate Factors Content and perceived breaches of justice Perceived organisational support Leader-member exchange Levels of trust

20. IDENTIFICATION COMMITMENT OWNERSHIP INTERNALISATION What do we mean by hearts & minds ? LIVING THE VALUES ? COGNITIVE AFFECTIVE

21. The Assumptions • Employment is fleeting and transitional • Communication about the realities improves trust • Technological imperative reshaping the structure, roles and job content • Flatter organisations provide less promotion: development by job enlargement or rotation • Careers will span several organisations: employability in return for self-development • Financial demands dictate more flexible employment contracts: no alternative • Empowered people will take on more responsibility and respond to targeted reward

22. Strategic Psychological Contract Scenarios NATURE OF THE CONTRACT State of mind Generic/ flexible responses Individual differences Inflexible responses SELF-CORRECTING ANIMAL RE-CONFIGURED LABOUR MARKET DIVERSITY Continuity Low breach Adjustments to incremental change LEVEL OF TRANSITION Dynamic change High breach Permanent adjustments to radical change NEW RULES OF THE GAME LIMITED CAPACITY

23. Job Insecurity: Longitudinal Change in Outcomes Allen et al (2001) Survivor reactions to organizational downsizing: does time ease the pain? Journal of Occupational and Organizational Psychology, 74, 145-164.

24. Measuring the Contract at NatWest • 200 employees involved in Project Heartlands in large UK Retail Bank • Measure attitudes to pay, promotion, tenure, flexibility • Expectations • Feelings • Intentions

25. Proposition for Staff(1) Building Awareness • What do staff ideally require in return for commitment and performance being asked of them ? • What is commercially viable and acceptable for the organisation to provide ? • Check staff perceptions of current deal. • Understand staff expectations. • Help future planning

26. Expectation Items 95% 35% 7% 11% 57% • Likely there will be less opportunity for promotion • Actively seek a new job outside the company • Promises made the company about your career will be kept • Likely will be rewarded fpr time served at bank • Likely you will NOT be made compulsory redundant

27. Feeling Items 79% 44% 74% 89% 4% • Even if I see promotion is unlikely, I will continue to work hard • Without the possibility of promotion it is impossible to remain committed to the bank • Better pay and benefits would compensate for a lack of future promotion • If people don’t perform, they don’t deserve the same rewards as those who do • I have enough responsibility in my present job - don’t want any more

28. Managing the Psychological Contracts Employee mindsets ? Career Responses? • Still Ambitious • Frustratedly Mobile • Passively flexible • Lifers • Buy Me Out • Guidance Seekers • Don’t Push Me Too Fast • Just Pay Me More • Get Ahead • Get Safe • Get Even • Get Out

29. The State of the Contracts • Still ambitious • Flexers • Lifers • Disengagers 19% 37% 13% 31%

30. What NatWest Wanted to Be: • A business people want to join. • A business people enjoy working in. • A business in which people feel they are treated fairly. • A business in which people are challenged and developed. • A business people feel proud of.

31. Delivering the Customer Proposition • Customer focused delivery. • Relationship Management. • Professionalism. • Continuity in roles.

32. How Should NatWest’s HRM have developed ? • What would you do with your human resource management to deal with the situation ?

33. What was NatWest’s HR Strategy ? Build for the future Enable the achievement of annual business objectives Keep the organisation out of jail

34. Proposition for Staff - The Process • Series of 1:1 meetings with most senior staff ( 30%.) plus focus groups with c400 staff • Obtain views on their own/their staff perceptions/requirements. • Facilitated by external people (IES/Sundridge). • Report for MD - feedback to all staff

35. HR Strategic Focus • Segmentation of HR strategies across the business • Identification & development of future capability requirements:- Identification of individual development needs.- Identification of development opportunities/gaps. • Influence and manage behavioural/attitudinal change through recruitment/ development/ reward/retention policies. • Facilitate motivation for optimum business performance.

36. Key HR challenges • Motivation - technical • Re - / Up - Skilling - management - business management • Reward • Management / Career development • Streamlining / improved processing / increased IT • Product Design / innovation

37. Policies and Practices Linked to Fairness, Choice and Flexibility Benefits eg bank cars Reward framework Capability & skills analysis Open job advertising Flexible working annual hours Investors in people Performance related pay Staff survey Staff as customers Training and development Partnership with unions

38. Key developments • Partnership relationship with union: greater access to information, wider territory for involvement • Staff as customers: principle that all staff should be treated in the same way as customers in terms of products and services, but with preferential terms • Staff survey to monitor key indicators from a balanced scorecard perspective: remove information filters

39. Key developments (2) • Flexible approach to working hours: annualised hours (1826 per year), staff determine own rostas within team • Confronted hours culture/overtime practices • Flexibility over job-sharing, part-time work • Flexible rewards: option to switch elements of salary increments to bonuses, review of benefits • Structural changes in some units to ease workloads/pressures • Revised career development approach : increased proactivity/partnership

40. New Career Contract: Herriot Individual gives... Organisation gives... • Flexibility • Commitment • Added-value • Employability • Trust/security • Core skills DEVELOPMENT (Core) • Specific skills • Cross-organisation skills • High performance with low management • Autonomy • Freedom in work design • Challenge AUTONOMY (Project) • Flexibility to match work demand • Performance levels to match customer service • Skills of full-timer • Willingness to balance work with other roles • Work patterns/ rewards matched to lifestyle LIFESTYLE (Part Time)

41. Satisfaction Guaranteed At Barclays • Barclays faced similar morale problems in late 1990s • Branch closure programme, protracted pay dispute in 1997 • New CEO launches programme of doubling value of banking group every 4 years • HR moves to shared service with 46% headcount cut • Differentiation considered to come from quality of people who deliver services • 1999 group wide survey shows widespread concerns • 21 day communication programme with CEO addressing 12,000 employees • ‘Climbing the big mountain’ team leader events

42. Satisfaction Guaranteed • Team behaviours incorporated into pay • Money targeted at high performers at lower end of salary ranges rather than highly paid visible stars • State-of-the-art learning centre and a Barclays University as gateway to HE • Employee engagement up – October 2001 only 54% of staff would recommend Barclays Business Banking to friends and relatives - Mid-2002 figure up to 73% • 19% improvement too in employee’s perception of the impact the business has on society • Operating profits up from £830m to £984m 1999-2001 • Investors day – 50 front line staff now at hand to answer questions and demonstrate quality of the workforce

43. Segmenting the Workforce at Tesco • Realised four years ago that knew more about their customers than about their employees • Staff being placed into one of five categories in a bid to be more receptive to employees needs • Ascertained what staff wanted from a career in Tesco • Providing a series of “for me” solutions to enable staff to tailor their hours and employment relationship to their needs • Staff surveyed twice a year to link morale scores to improvements in other areas “.. The stores that have the best survey responses also have the best retention, attendance, productivity and sales per square foot”

44. Segmenting the Workforce at Tesco want it alllive to workwork to livepleasure-seekerwork-life balancer

45. Drivers and Outcomes at Tesco Trust and respect Manager who helps Opportunity to get on Job interest Functional commitment Emotional commitment Turnover Absenteeism

46. Concerns with the Stable Picture? • Employees more objective in subjective assessment of insecurity ? • Surveys insensitive to underlying change in cognitive structures and perceived cause-and-effect reasoning • Perception of choice versus ‘mustn’t grumble’ cf. Stable levels of job satisfaction, attitudes unpredictive of behaviour and performance issue • Simple naivety ? Cf. BIM surveys of early 1990s

47. Individualisation at Work: Critical Perspective Critical management writers: powerful ethic, force, ideology Political economy of insecurity, risk redistributed from state, economy and firm to individual Key behaviours at work (leadership, influence, adaptability, resilience) seen as psychological dispositions Organisational success linked to extended workplace influence (assumed to require presence) Sustained unemployment/ inability to adapt seen as personal dysfunction, not a systematic one Four classes of risk: Columbus class; precarious employee; working poor; hopeless people

48. Country Percentage workforce satisfied 1998 Percentage workforce satisfied 2001 Globalization Index Ranking (1= lowest, 10=highest) Brazil 68 65 1 Canada 64 64 10 US 61 62 8 Germany 58 61 6 China 58 59 2 Spain 59 58 5 UK 54 56 9 France 56 55 7 Italy 56 55 4 Japan 43 45 3 Satisfaction and Globalisation Exposure Not Linked International Survey Research data and analysis

49. Traditionals Baby Boomers Millennials, Generation Y, Next Generation Generation X Generation Gaps?

50. Generation Gaps?