The mediator analysis of psychological contract: relationship with employee engagement and organisational commitment PDF

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Int. J. Indian Culture and Business Management, Vol. x, No. x, xxxx 1 The mediator analysis of psychological contract: relationship with employee engagement and organisational commitment Jyotsna Bhatnagar* and Soumendu Biswas Management Development Institute, Mehrauli Road, Sukhrali, Gurgaon 12200-2...

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Int. J. Indian Culture and Business Management, Vol. x, No. x, xxxx

The mediator analysis of psychological contract: relationship with employee engagement and organisational commitment Jyotsna Bhatnagar* and Soumendu Biswas Management Development Institute, Mehrauli Road, Sukhrali, Gurgaon 12200-272, Haryana, India E-mail: [email protected] E-mail: [email protected] *Corresponding author Abstract: The present study tests the outcome variables of employee engagement and organisational commitment with psychological contract as a mediator and procedural justice; perceived organisational support and person– organisation fit as antecedents. The model was tested on a managerial sample (n = 297) from six Indian organisations. The study makes an important contribution by establishing the nomological network of these constructs and their relationship to employee engagement and organisational commitment. Structural equation model analysis reveals that the constructs of procedural justice, perceived organisational support and person–organisation provide a best fit model and mediate the relationship between psychological contract and employee engagement and organisational commitment. The outcome variables of employee engagement and organisational commitment are two empirically discriminant constructs. Theoretical and practical implications are discussed. Keywords: psychological contract; procedural justice; perceived organisational support; person–organisation fit; employee engagement; organisational commitment; mediator; SEM; structural equation modelling. Reference to this paper should be made as follows: Bhatnagar, J. and Biswas, S. (xxxx) ‘The mediator analysis of psychological contract: relationship with employee engagement and organisational commitment’, Int. J. Indian Culture and Business Management, Vol. x, No. x, pp.xx–xx. Biographical notes: Jyotsna Bhatnagar is an Associate Professor in HR Area at MDI, Gurgaon, India. She has been elected as part of Board of Governor for Asia Academy of Management, affiliated to Academy of Management, USA, and is a Harvard Business School Affiliate. She is a PhD from IIT Delhi, in the area of strategic HRM. She has published many national and international research papers in journals of repute like IJHRM, and also presented papers in several international conferences such as the AOM, ECLO, APROS and Asian Academy of HRD Conferences. Her co-edited book, titled Changing Face of People Management in India, was published by Routledge in 2010. Her research interests include innovative human capital development and talent management, employee engagement, strategic HRM, organisational learning and psychological empowerment with commitment-based HRM. Soumendu Biswas is an Assistant Professor in the HR Area at MDI, Gurgaon, India. He completed his PhD from IIT Kharagpur in the area of Industrial/Organisational Psychology. He has published articles in quite a few

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J. Bhatnagar and S. Biswas national and international journals and has also presented papers in several international conferences such as the AoM, EURAM, AAoM, ANZAM and ASTD. His research interests include organisational culture, psychological climate, organisational effectiveness and research methodology in OB/HR area, particularly with reference to structural equation modelling.

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AU: Bal et al. (2008), Turnley et al. (2006), Ambrose and Arnaud (2005), Ambrose and Schminke (2007), Leventhal (1980), Rhoades and Eisenberger (2002), Schein (1980), Morrison and Robinson (1997), Li (2006), Rhoades et al. (2001), James and Brett (1984) and Cropanzano and Wright (2001) are cited in the text but not given in the list. Please check.

Introduction

With the employer–employee relationship undergoing a shift, and with recent recession hitting the global economy, the construct of psychological contract emerges as an important area for management research (Bal et al., 2010; Battisti et al., 2007; Bhatnagar, 2009; De vos et al., 2005; Guest et al., 2010). In the Indian context, Bhatnagar (2009) reported that, over the past decade or so, numerous studies have provided empirical support to psychological contract as an important motivator for employees (e.g. Isaksson et al., 2010; Rousseau, 1995; Sturges et al., 2005). Recent studies have investigated the linkage between psychological contract and employability and employee well-being organisational citizenship behaviour (De Cuyper et al., 2011; Suazo et al., 2008), and contract breach and work-related outcome turnover intentions (Bal et al., 2008; Guzzo et al., 1994; Nauta et al., 2009; Zhao et al., 2007) among others. Most of the research has investigated breach of contract and its effect on employee outcomes such as job performance and organisational citizenship behaviour and attitudes, such as commitment, satisfaction and intention to quit (Restubog et al., 2006; Staufenbiel and König, 2010; Turnley and Feldman, 1999; Turnley et al., 2003, 2006). Restubog et al. (2009) reported another line of research, which has investigated situational factors which are likely to influence the relationship between breach and employee outcomes. Procedural and interactional justice reduce the negative impact of psychological contract breach on employee behaviours (Kickul et al., 2002). A substantial body of research has examined the impact of justice perceptions on outcomes, such as job satisfaction, organisational commitment, organisational citizenship behaviour, productivity and withdrawal behaviours, that consistently illustrate the importance of justice in the workplace (CohenCharash and Spector, 2001; Colquitt et al., 2001; Forret and Sue, 2008; Viswesvaran and Ones, 2002), but have not investigated the connection between procedural justice and psychological contract leading to employee engagement and organisational commitment. Baker (2006) investigated the moderating effects of perceptions of organisational justice and psychological contracts on employee responses to organisational change. Though theoretically the linkage between organisational support theory and psychological contract theory have been established (Aselage and Eisenberger, 2003), there are sparse research studies in the western context (exception being Battisti et al., 2007) and no reported research in the Indian context, investigating their empirical linkage.

1.1 Background of the research Contemporary research reveals the emergence of the concept of ‘employee engagement’ which at times is confused with employee’s organisational commitment as an outcome variable and confusion persists in its definition (Bhatnagar, 2007; Saks, 2006; Wefald and Downey, 2009). Researchers (Halbesleben and Wheeler, 2008; Macey and Schneider,

AU: The following references have been changed as per reference list. Please check: Suazo et al. (2005) to Suazo et al. (2008), Forret and Love (2008) to Forret and Sue (2008), Deery et al. (2006) to Debry et al. (2006), Yaniv and Farkas (2005) to Yaniv and Frakas (2005) and Akaike (1974) to Akaike (1987).

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2008, p.3) state in their work that engagement will make a stronger contribution as a unique construct and will add value to the nomological network, which the present study proposes. Though psychological contract and organisational commitment have been examined in the literature (Raja and Ntalianis, 2004; Restubog et al., 2006) linkages with employee engagement have not been investigated. Employee engagement moves one step ahead from retaining to engaging the employees. This requires understanding the needs of the employees and the kind of psychological contract they have with the organisation and analysing the gaps in the psychological contract levels. Such an analysis will help organisations to build the engagement levels of their employees and hence increase their retention level. In India, there has been no reported empirical research on the linkage between employee engagement and psychological contract (exception being Bhatnagar, 2009), especially in the changing context of the post-liberalised Indian economy. The objectives of this study are threefold. The first objective of the present study is to examine the constructs, and the reason they are treated as antecedents of psychological contract in the Indian context. Second objective is to investigate why the outcomes of the psychological contract, specifically discrimination between employee engagement and organisational commitment examined. Third objective of the present study is to empirically investigate whether psychological contract emerges as a mediator between the antecedents, which are procedural justice, perceived organisational support, person– organisation fit and the outcomes, which are employee engagement and organisational commitment. The research questions of the present study are: 1

Do the variables like procedural justice, person–organisation support and person– organisation fit emerge as antecedents of psychological contract in an Indian sample?

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What are the outcomes of psychological contract? Do variables of employee engagement and organisational commitment qualify as outcomes of psychological contract in an Indian sample?

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Does psychological contract emerge as a mediator between the antecedents, like procedural justice, perceived organisational support, person–organisation fit and outcomes such as employee engagement and organisational commitment?

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Literature review

The conceptualisation of the psychological contract has evolved from its historical roots in Barnard’s (1938) theory of equilibrium and Gouldner’s (1960) theory of reciprocity. Pioneers, such as Argyris (1960), Levinson et al. (1962) and Schein (1965), have used the construct of ‘psychological contracts’. The psychological contract process then draws from the agency theory, the attribution theory and the construct of trust, credibility and procedural justice to explain the reaction of parties when psychological contracts are broken (Bhatnagar, 2009). Recently, justice was seen as an outcome of psychological contract (Battisti et al., 2007). This paper argues that the antecedent of a psychological contract rests in perception of fairness. Let us further examine the stream of research on perception of organisational justice, and explore the link between psychological contract and workplace justice.

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The construct of workplace justice is important in terms of perception fairness leading to improving organisational outcomes (e.g. Ambrose, 2002; Aryee et al., 2002; Brandes et al., 2004). Another line of research examines the perception of justice and its effect on employee behaviour and attitudes (Colquitt et al., 2001). While Hollensbe et al. (2008, p.1099) state that there are reasons to suspect that employees assess the fairness not only of events such as job applicants, performance appraisals and smoking bans (e.g. see Gilliland, 1994; Greenberg, 1994; Taylor et al., 1995), but also of social entities. Justice merges as a moderator between psychological contract and organisational outcome (Thompson and Heron, 2005), while in some studies it is treated as an output variable (Battisti et al., 2007). On the other hand, social entities’ perception would specifically be of the person’s organisational support (Eisenberger et al., 1986) or supervisors or leader members’ effect on perception of justice (Graen and Scandura, 1987). There is a need to study employees’ perceptions of the fairness of these social entities (Hollensbe et al., 2008). However, researchers (e.g. Colquitt, 2001; Cropanzano et al., 2001) have identified organisational justice as a multi-dimensional construct, consisting of four dimensions, specifically, distributive, procedural, interpersonal and informational (cf. Hollensbe et al., 2008). Nevertheless, in a later research, Cropanzano et al. (2007, p.36) state that distributive, procedural and interactional justice tend to be correlated. These can form an overall fairness/justice construct (Ambrose and Arnaud, 2005; Ambrose and Schminke, 2007). Conversely, Cropanzano et al. (2007, p.36) reiterate that if the ‘goal is to promote workplace justice, then it is indeed logical to deliberate upon them separately and in detail. This is because each component is engendered in distinct ways, arising from different managerial actions. Taking this line of thought further and building on the premise of justice perception of social entities, this paper extends the perception of procedural justice (taken as a separate form of justice, in line with earlier research quoted above), leading to the formation of a psychological contract. Procedural justice is characterised by a consistency in procedures, lack of bias, accuracy of information, representation by those to whom the procedures pertain and opportunity for a formal appeal (Leventhal, 1980). According to Forret and Sue (2008), it is procedural justice at the workplace that helps to ensure that employees play by the same set of rules. Psychological contract, according to the most recent definitions (cited from Battisti et al., 2007, p.665) ‘consists in [sic] individual beliefs concerning what has been promised to the worker by the organisation [sic]’ (competitive pay, opportunities for career advancement and job security), which is in real terms is the transactional contract (Debry et al., 2006; Rousseau, 1989). The way the supervisors interact with the employee and the quality of their relationship may lead to the formation of a relational contract. Both transactional and relational contract form the basis of psychological contract (Robinson et al., 1994; Rousseau and McLean Parks, 1993; Tsui et al., 1997). It is hypothesised, that: Hypothesis 1: Employees who perceive procedural justice will exhibit a positive psychological contract. This paper proposes a stronger association between perception of procedural justice and perceived organisational support, extending the social entity research theme. Now let us examine the theoretical linkage between perceived organisational support and psychological contract. Aselage and Eisenberger (2003) in their seminal work explored the theoretical linkage between perceived organisational support theory and psychological contract theory. Past research (Eisenberger et al., 1986; Rhoades and

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Eisenberger, 2002; Shore and Shore, 1995) states that employees develop a universal belief regarding the degree to which the organisation cares about them and values their efforts, which reflects organisational support theory. Edwards and Peccei (2010) in a multi-foci study found organisational support affecting many important outcome variables. Bhatnagar (2009) defines psychological contract as expectations about reciprocal obligations that compose an exchange relationship between the focal party and another party (Levinson et al., 1962; Schein, 1965), which runs the entire contract spectrum from strictly legal to purely psychological (Spindler, 1994). Further, this employment-exchange relationship as reported by Maguire (2001, p.167) has subconscious or hidden aspect of the employment exchange (Eisenberger et al., 1986; Greenberg, 1990) and is known as the psychological contract (Argyris, 1960; Rousseau, 1989; Schein, 1980). Aselage and Eisenberger (2003, p.495) state, “OST (Organisational Support Theory) emphasizes the favorableness [sic] of employees’ work experiences as antecedents of POS (Perceived Organisation Support), PCT (Psychological Support Theory) gives primary attention to the relationship between the favorableness of work experiences and the favorableness of the treatments the organisation has obligated itself to provide.”

Their work is taken as a foundation for empirically examining the relationship between perceived organisational support and psychological contract. It is posited thus: Hypothesis 2: Employees who experience perceived organisational support will exhibit a positive psychological contract. Further there is a related line of research which is concerned with the role of dispositional characteristics in the psychological contract process (Restubog et al., 2009). These researchers state that since the ‘formation of a psychological contract emerges from idiosyncratic belief (Rousseau, 1995) and result from a cognitive appraisal (Morrison and Robinson, 1997), dispositional characteristics are likely to be an important element in the contract-making dynamics (Restubog et al., 2009, p.118)’. This study proposes to examine person–organisation fit as the dispositional characteristic, which may affect psychological contract formation along with procedural justice and person–organisation support. Let us examine the literature on person–organisation fit, to understand this interpretation further. In his conceptual work, Murray (1938) proposed, “when given a choice, a person activated by a particular need or set of needs may be expected to seek out the environments that offer fulfillment [sic] of these needs, and avoid environments that stifle such fulfillment [sic]”. Chatman (1989) in her seminal work on person– organisation fit defines it as “the congruence between organisational values and individual values (which is what individuals want in an organisation)”. Past research of O’Reilly et al. (1991) also indicated that person–organisation fit had positive relationship with employees’ job satisfaction and commitment. Pervin and Rubin (1967) suggested that individuals who do not fit their organisations experience feelings of incompetence and anxiety, while those who fit have more positive and less negative affects. More recently, researchers such as Ng and Burke (2005) stated that the fit between an individual’s values, beliefs and personal characteristics and those of the organisation can help shed light on the process in which job applicants find organisations attractive and make job choice decisions. Later, Yaniv and Frakas (2005, p.450) stated that researchers such as Bretz and Judge (1994), Schneider et al. (1995), Cable and Judge (1996), Chan (1996), Kristof (1996), Judge and Cable (1997), Cable and De Rue (2002)

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and Siegall and McDonald (2004) have investigated the person–organisation fit to values congruent between individual values and organisational values. Further, Ahmad (2008) provides a comprehensive literature review on the kinds of fit, and states previous research which has mainly focused on dyadic fit which may occur between coworkers (Antonioni and Park, 2001), applicants and recruiters (Graves and Powell, 1995) and mentors and protégés (Turban and Dougherty, 1994, cf. Ahmad, 2008), but has not explored the link with the formation of a psychological contract. Recent research study of Li (2006) examined the person–organisation fit in the Asian context mainly in China, and pointed out the need to examine it in other cultures. Future research needs to also investigate other dimensions of employee performance, which justifies the need for this study. This study looks at the person–organisation fit in an In...