Effects of Psychological Contract Breach on Organizational Outcomes: Moderating Role of Tenure and Educational Levels

Abstract

In contemporary knowledge-intensive organizations, which are characterized by short product life cycles and unhindered access to information and resources, organizational survival, let alone success, necessitates higher-than-average performance. Engaged and committed employees are considered critical resources for organizational survival and business success. Research suggests that the quality of employment relationship significantly impacts employee attitudes. Psychological Contract is a useful framework for examining the quality of employee-organization relationship. Psychological Contract Breach (PCB), defined as the cognition that one's organization has failed to meet one or more obligations within one�s psychological contract in a manner commensurate with one's contributions has deleterious effects of employee motivation. Previous research has shown that breach is a norm, not an exception. However, given that PCB is an organizational reality, little effort has been made to examine the impact of PCB on critical behaviours of work engagement and commitment. Further, extant research on psychological contract has primarily tended to adopt main effects approach in examining the psychological contract-outcome relationship and not addressed various individual and situational variables which can alleviate/aggravate our reactions. Finally, most previous research on psychological contract breach has been conducted in Western countries where cultures are typically individualist and low in power distance. This work is significant for three reasons: It examines the effect of PCB on two critical organizational outcomes: work engagement and affective commitment. It tests the role of individual level variables — tenure and educational level on PCBOutcome relationship. It examines PCB in novel geographical context. Respondents to a survey were 1,302 Indian managerial employees working in eight organizations in India. Results suggest that Tenure moderates the PCB-affective commitment relationship Education level moderates the effects of PCB on affective commitment Education level moderates the effects of PCB on work engagement. Most of the research on psychological contracts has focused on direct effects of breach on organizational outcomes. By examining the moderating effects of employee tenure and educational levels, this study has unmasked some interesting findings in the PCB-outcome relationship. The results of this study suggest that much like their counterparts in the West, Indian employees perceive their psychological contracts to have been breached. The negative ramifications of PCB challenge organizations not to ignore the situation but to approach it.