HR Daily discusses the importance of forming successful employer/employee relationships.  

In an era of constant change, an employer's capacity to adapt, succeed or survive hinges on the quality of employer/employee relationships, or the "psychological contract", according to a corporate psychologist.

"The psychological contract defines the 'essence' of the employment relationship," says Colin Beames in his book, Transforming Organisational Human Capital.

"It serves to bind individuals and organisations together and regulate their behaviour, making possible the achievement of organisational goals."

And it's a "powerful determinant", he says, of the behaviour and attitudes of workers.

"The quality of these employer/employee relationships... significantly impacts on both performance and retention."

Employees, Beames says, are more willing to accept change - such as downsizing, restructuring or the implementation of new initiatives - if their relationships with their employers are "healthy".

How the psychological contract is formed
Every relationship has a psychological contract, Beames says.

In business, he says, it can be defined as the set of expectations - based on stated or implied promises and understandings - that operate between employers and their staff. It is neither a written nor legal document, but "nevertheless 'real'".

The contract is established from the moment the organisation "promotes itself" (in a job advertisement, for instance) and develops progressively through every phase of the employment relationship, Beames says.

It is formed through what is written (from job ads through to HR policies), said or unsaid (by managers and colleagues), implied and observed, and is influenced by:

• the salary package;
• other financial and non-financial benefits;
• job security and career development;
• recognition of ontribution;
• workplace safety;
• the resources and training provided;
• managerial support; and
• promotion opportunities.

The "health" of the psychological contract, Beames says, depends on the employee's perception of the "delivery of the deal".

If they feel that their expectations aren't being met, he says, they're likely to become disengaged.

The cost of getting it wrong
Beames notes that while employers can increase the job satisfaction and engagement of workers by making and keeping promises, they can't be expected to fulfil every expectation.

There must be a "trade-off", or balance, he says, between meeting employee expectations and achieving business goals.

It is essential, therefore, that the psychological contract, or workforce strategy, is consciously linked to the business strategy, he says. A failure to do so can lead to excessive turnover.

For example, if the psychological contract places too much emphasis on remuneration based on short-term performance in an industry that relies on the development of long-term client relationships, those relationships will suffer and output will be restricted.

If employee salaries are stymied as a result, Beames says, talented workers are likely to leave and pursue other opportunities.

But even if workers manage to achieve outstanding results in these circumstances there is still a big chance they'll flee, he notes.

When a psychological contract is built almost entirely on short-term economic factors, he says, attachment tends to be tenuous.

Recruitment phase critical
The responsibility for managing the psychological contract is spread between executives, HR personnel and line managers, Beames says.

How they engage with the recruitment process, he says, is particularly critical.

"It is important that candidates are moved... from one part of the recruitment and selection process to the next, without them uncoupling or disengaging," he says.

Managers, he says, must maintain intermittent contact with recruits and provide them with regular debriefs and updates.

"The goal is to unite parties into a longer term relationship," he says. "However, the relationship is fragile in these early stages, and simple violations of the script or conventions are sufficient to terminate it."

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HR Daily has published an article about how to emerge from the GFC as a leading employer and how important authenticity, integrity, transparency and substance is for your company. 

Executive bonuses will tumble and "people factors" come to the fore as leading employers emerge from the global financial crisis, according to a new book on organisational change.

"One of the impacts of the GFC has been the investor angst and community outrage concerning the payment of obscene bonuses to some executives," says corporate psychologist Colin Beames in Transforming Organisational Human Capital (ISBN 9780980644203).

"People are now no longer in the mood to tolerate hypocrisy, lack of transparency and actions that promote blatant self-interest.

"The pendulum is shifting back in favour of authenticity, integrity, transparency and 'substance' over 'spin'."

In a post-GFC world, Beames says, the shareholder will no longer be king.

Performance standards that push for risk-taking and expediency will be discouraged, he says, and the fixation on short-term profits will necessarily diminish as stakeholders are forced to adopt a more sustainable perspective.

"Investors will come to realise that it is the less tangible and constantly evolving people factors that are increasingly the drivers of value and the developers of competitive capacity."

People management, accordingly, will become a core operational process - as opposed to a support function - as talent emerges as the key corporate asset, Beames says.

Employers restructuring - or leaping into the fire

According to Beames, the current economic climate provides CEOs and executives with a perfect opportunity to restructure, outsource non-core activities and discard unsustainable business models or unprofitable products and services.

"It provides them with legitimacy for change and possibly the pursuit of new opportunities."

Some employers, however, have leapt from the frying pan into the fire, Beames says, with impulsive and uncoordinated responses to the downturn, including:

• the slash and burn approach to labour cost-cutting, in which employees in more critical, specialist or core roles are let go as the result of an arbitrary percentage decrease;
• indiscriminate outsourcing, resulting in the loss of relationship capital (between the company and its clients), critical skills, intellectual property and "coal face" control;
• ad hoc employee-benefit cuts, such as the axing of flexible work arrangements, which lead to disengagement;
  recruitment freezes, resulting in the neglect of critical roles or a drop in performance due to the redeployment of unsuitable people; and
• the "peanut butter" (or spread evenly) approach to salary cuts, encouraging high performers to seek employment elsewhere.

The crisis, Beames says, has left an "indelible footprint" on the corporate culture, and employers must play by a new set of rules.

He says the age of "short termism", or get-rich-quick schemes, is over, and that sustainability will hinge on assessing and mitigating risk and more stringent corporate governance.

The "cult" of the CEO - which Beames describes as "a simplistic and convenient perspective where the CEO's impact on an organisation's success is accorded more weight than it deserves" - will be replaced by a focus on the team, and compensation systems will be overhauled so that executive pay is aligned with sustainable profits.

The current debate over proposed legislation to limit extravagant remuneration practices (such as excessive executive termination payments, see related article) is "clear evidence of the winds of change", he says.

The future of management

The traditional work of management will be performed less by managers as employers transform post-crisis, Beames says.

"It will be pushed out more to the periphery and embedded in systems via technology," he says.

"Decision making will be more peer-based with power based on competence, and less on authority vested in organisational structures."

Managers will have to earn authority, he says.

HR managers and other leaders must employ a more collaborative, transparent, and respectful approach in order to motivate staff.

"The hope is that more enlightened approaches to managing people will be adopted," Beames says.

"Irrespective of their status, one universal should prevail - that of treating all employees with honesty and respect."

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