Psychological Contract Breach, Work Engagement and Turnover Intention Evidence From Banking Industry in Pakistan

AuthorSANIA ZAHRA MALIK AND NAFEESA KHALID

Abstract

Employees are one of the most important assets of an organization. In order to retain them, it is important to evaluate and analyze the exchange relationship of the employees and the organization, known as psychological contract. This study examines the impact of psychological contract breach on employees' turnover intention with the mediating role of work engagement. An empirical study has been conducted to test the main effects and mediating hypothesis through Hierarchical Multiple Regression. A sample of 302 responses has been collected from private and public banks of Lahore. The results indicate that a negative relationship exists between psychological contract breach and work engagement. Similarly, work engagement negatively correlates with turnover intention of employees.

Work engagement partially mediates the relationship between psychological contract breach and employees' turnover intention. Therefore, if employees perceive psychological contract breach then it leads to low work engagement and high turnover intention. Practical implications of the results have been discussed.

Keywords: Psychological contract breach, Work engagement, Turnover intention of employees, Mediation

  1. INTRODUCTION

    During past few years, organizations have endured substantial changes in order to compete in the marketplace. Operating within a complex and competitive work environment has changed the internal work arrangements as well as modified the nature of psychological contract that exists between the employees and employer. To succeed in the marketplace, employers need to understand what employees expect from the organization and must pay attention on fulfilling their expectations to fulfill organization's side of contract (Festing and Schafer, 2014). Psychological contract expresses personal promises and obligations among the employees arising from reciprocal relationship between the employees and the organization (Rousseau, 1989, 2001). There is always a written contract between the employee and employer but psychological contract exists over and above this written contract.

    The notion of psychological contract entails that employees have variety of expectations from their organization and organizations have variety of expectations from them respectively (Roehling, 1997).

    Psychological contract evaluates the reciprocal relationship among rights, duties, responsibilities and obligations of the employee as well as the employer (Rousseau, 1989).

    Smithson and Lewis (2003) view the psychological contract as the extension of the philosophical concept, which is social contract theory. According to the social contract theory, where there is a social relationship among individuals there is exchange of economic (e.g. money) as well as social resources (e.g. esteem and respect) (Conway and Briner, 2005). Morrison and Robinson (1997) describe the psychological contract breach as the failure of the employer or organizations to meet their obligations towards the employees. Where no written agreement exists, there are chances of broken and undue promises, obligations and commitments which result in psychological contract breach which in turn leads to the negative attitudes of the employees (Aykan, 2014). Literature suggests that psychological contract breach leads to reduced job satisfaction (Agarwal and Bhargava, 2013), work engagement (Parzefall and Hakanen, 2010) as well as increased employee turnover intention (Ballou, 2013).

    Turnover intention is considered to be the outcome of the psychological contract breach, which is not suitable for an organization's performance and productivity. Employees become dissatisfied with their jobs as they experience psychological contract breach, which leads to lower organiza- tional commitment and ultimately results in increased turnover intention (Aykan, 2014).

    The concept of turnover intention has attracted great attention not only from the practitioners but also from the researchers. According to Tett and Meyer (1993), turnover intention is the conscious and considered willfulness of the employees to leave the workplace. When employees perceive psychological contract breach; it might lead to an intention to quit from the organization. If the employees have intention to quit but they remain with the organization, because of other factors such an unavailability of employment opportunities, they will remain in a constant frustration for not being fairly reciprocated for their contributions (Turnley and Feldman, 2000).

    Employees are one of the most important assets for any organization. When they come up with innovative, creative and productive ideas, organizations use it to gain competitive edge. It is important to consider that what organizations can do to increase their employees' dedication and commitment. Instead of traditional ways of management control which includes cost reduction techniques and focus on increased efficiency, the modern management techniques focus on managing human capital (Bakker and Schaufeli, 2008).

    To accomplish their goals and objectives, organizations need employees who are highly engaged in their work. So, organizations must create such working conditions which motivate the employees and keep them engaged, to give their best in order to attain maximum output and to think out of the box without any fear of being criticized (Bakker and Schaufeli, 2008). According to Schaufeli and Bakker (2004), work engagement is a positive, optimistic, fulfilling, achieving and work-related state of mind. It's multi- dimensional concept which consists the elements of vigor, dedication and absorption. Literature on work engagement reveals that it is positively associated with the mental and psychosomatic health as well as to the positive behaviours and attitudes towards work, inner motivation and high performance (Bakker et al., 2008).

    Parzefall and Hakanen (2010) thoroughly examine the effects of psychological contract breach on work engagement. On the basis of job resource based model, it is inferred that perceived contract fulfillment is viewed as the resource by the employees and the employees expect the employer to provide rewards for their efforts and maintain a two-way exchange relationships which nurture the work engagement of the employees (Parzefall and Hakanen, 2010).

    Thus, it is inferred that work engagement is related to psychological contract breach and turnover intention. Therefore, in the research, work engagement is considered as a mediating factor that affects the relationship between psychological contract breach and employees' turnover intention.

    PSYCHOLOGICAL CONTRACT

    Psychological contract has attracted attention of researchers in understanding the employment relationships. In the past two decades, there has been numerous numbers of publications on the topic of psychological contract, which leaves the impression that it is a significant concept which needs to be studied. Also, there is a strong need to conduct national and cross-national researches as there can be a difference in levels of psychological contract within and across societies (Rousseau and Schalk, 2000).

    According to the Rousseau (1989, p. 124) psychological contract is "a mutual obligation existing at the level of the relationship (e.g. dyadic, inter- organizational)".

    This is quite obvious that sometimes organizations are unable or unwilling to meet the obligations or promises made to the employees, resulting in the breach of the contract and known as psychological contract breach. Robinson and Morrison (1997, p. 230) describe that psychological contract breach occurs when, "... one's organization has failed to fulfill one or more obligations composing one's psychological contract."

    In literature, several studies, such as Suazo (2009) and Zhao et al. (2007), have highlighted the outcomes of psychological contract breach. According to these studies, there are high possibilities that when organizations or workplace do not fulfill employees' expectations, they are unsatisfied with their job. In the past, researchers have given attention to the construct of psychological contract breach (Morrison and Robinson, 1997; Zhao et al., 2007). According to Morrison and Robinson (1997), there is vagueness about foundation of the psychological contract breach in existing literature. At one end, psychological contract breach is considered to be perception of employees that organization is unable to fulfill their promises and obligations which are implied through psychological contract. Alternatively, it is referred as the emotional and affective state in which it goes...

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