Impact Of Psychological Contract On Employees Performance In Selected Entrepreneurial Firms In Oyo State, Nigeria

1.1 BACKGROUND OF THE STUDY  

As a result of globalization, organizations are now a days facing the challenges of global competition, economic instability and technological changes, among others. These difficulties request organizations to change their strategies, specially, with respect to human resource management, to allow them remain active and competitive (Omoruyi, Chipunza & Samuel, 2011). This led to increasing interests shown by both the academics and practitioners on how best to manage employment relationship (Rousseau & Scheperling, 2003). For these reasons, research in psychological contract and performance becomes very vital. 

The psychological contract can be defined as an individual’s beliefs about the terms of the exchange agreement between employee and employer. It concerns the idea of an exchange between parties. Additionally, it is important to note that the psychological contract does not involve items found in the employment contract. Instead of objective and defined promises, it concerns more implicit, subjective and supple ones (Rosseau, 1995). 

Schein (1965) has explained that the notion of a psychological contact implies that there is an unwritten set of expectations operating at all times between every member of an organization and the various managers and others in that organization. Kotter (1973) on the other hand, defined the term as an implicit contract between an individual and his organization which specifies what each expects to give and receives from each other in the relationship. 

According to Social Exchange Theory, people involve in relations with other people because they are driven by the expectations of receiving inducements in return from the other party. Thus, in line with the norm of reciprocity, higher contract fulfillment is expected to lead to higher work engagement and lower performance, (Gouldner, 1960). 

In a service giving industry like Entrepreneurial firms, the interaction between employees and customers is essential to putting the perception of customers on the level of service quality delivery and satisfaction. 

Therefore, the human resource is a key source of gaining competitive advantage. Rastgar and Pourebrahimi (2013) have stated that the major challenge of most organizations today is how to recruit, retain, manage and satisfy their employees who can help the organizations to realize higher level of competitive advantage. Thus, managing and retaining competent employees is a serious challenge. High turnover rate will not only increase the cost of recruitment and selection, but also reduce the organizational morale and weaken the intellectual capital. 

On the other hand, performance was very significant as a predictor of actual turnover, as well as an indicator of employee that may not contribute to organization at their full potentials. It can also serve as a sign of the degree of one’s psychological attachment to the organization. A study carried out by (Ongori, 2007) indicated that, if employee turnover is not managed properly it would affect the organization adversely in terms of personnel costs and in the long run it would affect its liquidity position.  

Thus, on a larger perspective the understanding of this concept and its proper implementation creates a sense of mutual understanding and creates a long-term relationship between employer and employee that in turns contributes to employee retention and business sustainability of the organization. To this end firms also conducts measurement of its employee’s satisfaction level at yearly base and turnover analysis every six month, believing that employee’s satisfaction, engagement and competencies are most important factors for the organizational success. 

1.2 STATEMENT OF THE PROBLEM 

Psychological contract is one of the hidden, hard-to-measure factors that end up being crucial to the success of a company. The psychological contract influences how employees behave, according to the underlying relationship they have with the company and other staff. The employee balances what they put into their job with how they feel they are being treated by their employer. If they are inputting more than they feel they are getting back in return, the balance is twisted and the psychological contract is breached.  

There are a number of researches that studied the consequences or outcomes of perceived psychological contract breach on employee’s behavior, attitude and feelings. Such studies include Robinson and Rousseau (1994), Turnley and Feldman (1999), Ongori, (2007), Umar and Ringim (2015). These studies indicated that the perceptions of psychological contract breach were positively related to employee performances and or actual turnover.  

Since turnover is a critical human resource issue in all sector of the economy, it can be utilized as an indicator of company performance and can be easily observed negatively towards the organization efficiency and effectiveness. (Glebbeek et al, 2004) In relation with this, creating s sufficient number of stable and well-paying jobs remains a major challenge for African economies. Urban labor markets in the region were identified by high informality and unemployment rate. In deed in Nigeria, the informal economy is estimated to account for over 38% of GDP with data from the Nigerian Central Statistical Agency showing that formal employment accounted for below 70% of total employment in 2012. 

As stated above, several studies were conducted on the influence of psychological contract on employee’s work attitudes in organizations with inconsistent results. In addition, these studies were mainly conducted in developed and developing countries such as Europe, Asia and America. Moreover, the influence of culture might play a role in the findings of such studies in those developed societies.  

The vision of FIRMS is to become a leading and dynamic Exchange in Africa. FIRMS has a mission to provide a modern, efficient, transparent and reliable market platform to serve the national development goals through adaptation of technology, excellence in innovation and with integrity. 

In order to achieve its organizational missions & vision, firms’s management need to properly manage its vital resources and pass decisions that are in favor of the employees. Despite, understanding of the concept that people are the greatest asset an organization has, the management would be expected to take the time to investigate what may influence an employee expectation and behavior. 

In addition, Turnover has proved to be a drain of profit of an organization and firms suffer the loss of job specific skills, disruption in production and incur the cost of hiring and training new works. (Martin et al 2007). Similarly, firms was also vulnerable to turnover related problems. Hence, by giving more emphasis to the issue, firms management tries to know the existing level of employees’ satisfaction and engagement every year.  

On the other hand, exit interview was conducted by the human resource department in order to know the reason behind employee’s resignation. The resigned employees mentioned that uncompetitive pay, in conducive work environment and boring work are some of the reasons to leave the organization. Contrariwise, the mental state of those employees who remain behind may differ from those who already left the organization. Because employees who already resigned might not have interest to explain the real problems which were faced retained in the organization. 

Coming to the specific case company, Entrepreneurial firms has not been studied to any great extent, except the annual employee satisfaction survey & turnover analysis conducted every six months based on exit interview, since its introduction in Nigeria in the late 2006.  

Therefore, the above-mentioned facts motivated the researcher to examine the effect of each psychological contract traits by identifying a psychological contract trait that has greater effect on employee performance in order to precursor turnover and forward possible policy implication to be implemented by the organization.  

Therefore, this study was conducted to identify effect of each selected psychological contract on employee’s performance. And through reviewing current empirical finding in similar studies, this study attempted to address the following research questions.