Changing employment relations; The relation between exchange ideology and
relational psychological contracts and the moderating effect of LMX.
Master Thesis, specialization Human Resource Management University of Groningen, faculty of Economics and Business
August, 2010
Lisanne Jeanine van der Meer S1536281
Gorechtkade 94C 9713CG Groningen
Tel: 06-55800832 Email: ljvdmeer@gmail.com
Supervisor from the university: F.M. de Poel
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ABSTRACT
This research examines the relation between an employee’s exchange ideology and relational psychological contracts and investigates the possible moderating effect of leader-member exchange (LMX) on this relation. After a thorough literature study a conceptual model was developed stating a negative relation: a low exchange ideology would relate to more relational psychological contracts. Leader-member exchange was hypothesized to have a weakening moderating effect on this negative relation. A questionnaire among 81 employees in Dutch organizations in several branches was conducted . Results of this questionnaire showed no significant relationship between the exchange ideology and relational psychological contract. The analysis did show a positive relationship between LMX and relational psychological contracts. LMX was also found to have a positive moderating effect on the relation between exchange ideology and relational psychological contract. In a situation of a high quality LMX, a high exchange ideology related to more relational psychological contracts. The implications will be discussed further in this study.
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INTRODUCTION
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A lot of scholars have adressed the employee side of the psychological contract. It includes the employees beliefs and perceptions about obligations of the organization to the employee and the other way around (Shore & Tetrick, 1994; Rousseau, 1990; Robinson & Morrison, 2000). Individuals differ from each other in what they expect from the organization. The focus of this study will be on the relational expectations in the psychological contract. Employees enter an organization with ideas and expectation about what is exchanged between the employee and the organization, for instance symbolic benefits or rewards. These expectations are called the exchange ideology of the employee (Eisenberger, Huntington, Hutchinson, Sowa, 1986). This ideology exists before the employee enters the organization and could be able to explain individual differences in psychological contract orientation (Rousseau, 2001; Coyle-Shapiro & Neuman, 2004). The role of individual differences in exchanges have not been researched extensively, while it is known to be important (Coyle-shapiro & Neuman, 2004).
However, we know that the psychological contract has two parties, the employee and the employer. A new line of research is focusing on the employer- or organization representation in the psychological contract theory (Bligh & Carsten, 2005; Tekleab & Taylor, 2003). The employer is an important party in the formation of the psychological contract. Agents who represent the employer make promises to the employee on which the employee bases his psychological contract (Tekleab & Taylor, 2003). In this study the direct manager is chosen as the agent representing the organization. The quality of the relationship between the employee and his direct manager (leader-member exchange, LMX) will be explored and how this relates to the employees psychological contract.
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exchange ideology and psychological contracts we will look at the relationship between the employee and manager (LMX). For this study a questionnaire was conducted among 81 employees in Dutch organizations.
Relational psychological contracts
The psychological contract is defined by Rousseau (1995, p. 9) as ‘Individual beliefs, shaped by the organization, regarding terms of an exchange agreement between individuals and their organization’. Psychological contracts are important in analyzing the employment relationships. The contract includes promises that an employee believes the organization has made to him and the other way around. The major feature of this contract is that it is based on a mutual exchange (Rousseau, 1995). Employees contribute to the organization, and the organization will have to provide something of value in return. This return could be resources, interesting tasks, money, safety, training, it depends on what both parties think is of value (Morrison & Robinson, 1997).
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positive relation with job commitment and organizational commitment (Millward & Hopkins, 1998). These positive effects of relational contracts makes the it important to the organization and is the reason for the focus on relational psychological contracts in this study.
Exchange ideology and relational psychological contracts
Individuals differ in what they will expect from the person-organization exchange and how important they think the return exchange is. Some will focus more than others on what they get in return for their effort. These expectations about exchanges between a person-organization often exist before the employment relation is formed, and is called the exchange ideology. Exchange ideology is defined as an internal orientation to what the employee receives from the organization and what the employee should give in return (Sinclair & Tetrick, 1995). Employees can differ in their focus on what they receive from the organization (Witt, 1992). This exchange ideology is a continuum, employees with a weaker exchange ideology will work hard without regard of fair treatment or a return exchange. Employees with a high exchange ideology will work hard only when they feel they are treated fairly and believe they will get a fair return for their effort (Lin, 2007).
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also influenced by others schema’s related to the employment relation, for example pre-employment schema’s. These schema’s exist before the pre-employment relation is formed and are used by the individual to analyze the employment experiences and the created obligations The exchange ideology is an important pre-employment schema and can also influence the psychological contract (Rousseau, 2001). .
Above we showed that the psychological contract of the employee is influenced by the pre-employment exchange ideology of the employee. Coyle-Shapiro and Kessler (1998) found in their research among managers and employees that individuals with a stronger exchange ideology hold weaker obligations to the organization. They feel the organization owes them, and they are less likely to fulfill their obligations to the organization. Relational psychological contracts hold obligations for the long-term. High exchange ideology implies focus on immediate return of exchange, which interferes with the development of long term obligations (Pazy & Ganzach, 2010). This would implicate that employees with a low exchange ideology could develop a more long term contract and are more likely to fulfill their obligations than employees with a high exchange ideology. Research has also found that high exchange ideology prefers tangible outcomes (Pazy & Ganzach, 2010). Relational psychological contracts are less oriented towards tangible outcomes. We expect that the exchange ideology will negatively relate to the development of a relational psychological contract..
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The employee side of the psychological contract is explored using the exchange ideology. It has told us about the employees focus on exchanges between the employee and the employer (Witt, 1992). Like said before there is also an employer side to the psychological contract since the exchange relation involves two parties. The psychological contract theory states that in the psychological contract the organization could be represented by multiple agents who can communicate the organization’s view of mutual obligations (Rousseau, 1995). The multiple foci theory (Marks, 2001) also states that an employee can form separate psychological contracts with multiple agents depending on the work relation with this agent. The organization is not seen as one, but is represented by multiple agents. Employees use these agents as a source for information to form their beliefs and perceptions about the organization (Rousseau, 2001). The agents tell the employee what to expect from the organization and what the organization expects from him.
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managers are responsible for the distribution of resources and rewards. So managers can be seen as able to maintain the psychological contract.
For the reasons stated above, this research will focus on the direct manager as the agent that represents the employer in the psychological contract. Since we are looking at relational psychological contracts, the direct manager can have an important role. The basis for a relational psychological contract is a social exchange relation between the employee and his employer (here the direct manager) based on trust, loyalty and security (Morrison & Robinson, 1997; Millward & Hopkins, 1998).
Leader-member exchange as a moderator.
To discuss the employer side of the psychological contract the Leader-member exchange (LMX) theory can help explore the quality of the exchange relationship between the employee and the direct manager. Relational psychological contracts are also oriented towards social exchanges (Millward & Hopkins, 1998), the LMX can define the quality of this social exchange relationship.
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outcomes. Positive outcomes are for example organizational commitment, job satisfaction, supervisor satisfaction and autonomy (Liden & Maslyn, 1998).
The LMX relationship is based on mutual exchanges. The quality of the relationship will influence both parties expectations about the immediacy of returns of these exchanges. High quality exchanges are more based on relational exchanges and there is no immediacy of return (Uhl-Bien & Maslyn, 2003). Low immediacy of return is possible when the parties trust each other. Asymmetries may exist in the contribution of the two parties, one party will have to trust the other party to contribute more in the future (Uhl-Bien & Maslyn, 2003). The long-term exchanges based on trust and future contribution is a characteristic of relational psychological contracts (Millward & Hopkins, 1998). The exchange ideology measures the focus on the immediacy of return (Pazy & Ganzach, 2010). The low immediacy of return and high trust stated in high LMX relationship implies a weak exchange ideology and a more relational psychological contract. The expectation is that if a high relation between the employee and the manager is developed (high LMX) it weakens the negative relation between the employees exchange ideology and the relational psychological contract.
Hypothese 2: A high quality LMX between employee and the direct manager will positively relate to relational psychological contracts.
Hypotheses 3: A high quality LMX between employee and the direct manager will weaken the negative relation between exchange ideology and relational psychological contract.
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employee will be related to a relational psychological contract. A high leader-member exchange will weaken the relation between exchange ideology and relational psychological contracts. Figure 1 is the graphical presentation of the expected relationships.
Figure 1. Graphical presentation of theexpectations in this research.
METHOD Procedure
For this research a questionnaire was used containing questions about the type of psychological contract, exchange ideology, LMX. Participants to the questionnaire were collected from organization in the form of teams. All Dutch organizations with a team structure could participate in this research. The size of the firms that participated in the questionnaire varied from small local organizations to large international firms. Organizations from a broad range of sectors have been used for this research. There are for example organizations from the healthcare, real-estate, transport, and IT sector. The invitations were sent to the participants by
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mail. Online questionnaire-software was used to let the participants fill in the questionnaire with a personal link.
Sample
137 employees working in teams in Dutch organizations were invited to participate in the questionnaire. 81 employees finished the electronic questionnaire that was sent to them. This gives us a response rate of 59%. The questionnaire was filled in by 24 women (29,6 %) and 57 men (70,4%). The age among the participant ranged from 18 years to 63 years with an average of 40 years. Participants in this sample had an educational level differing between MAVO and University. More than half of the participants (54,3%) had a bachelor degree (HBO) or higher. For 27,2 % of the participants MBO is the highest education. 17,5% only finished high school (MAVO, HAVO, VWO). Organizational tenure ranged from 1 month to 472 months with an average of 95 months and a standard deviation of 103.53 months.
Measurement instruments
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items of the scale loaded on the same factor. The item ‘My career path in the organization is clearly mapped out’ and the item ‘I am motivated to contribute 100% to this company in return for future employment benefits’ both had high cross loadings and are deleted. The cronbach’s alpha did not change substantially (0.88) by deleting these items.
Exchange ideology. The five item scale of Eisenberger e.a. (1986) was used to measure exchange ideology of the individual participants. Examples of statements in the scale are ‘An employee's work effort should depend partly on how well the organization deals with his or her desires and concerns’ and ‘An employee who is treated badly by the organization should lower his or her work effort’. The items were measured on a five-point Likert type scale ranging from 1. strongly disagree to 5. strongly agree. The cronbach’s alpha of the scale was calculated at 0.62. The factor analysis showed that two items of the exchange ideology scale did not load on the same factor. The first item is: ‘An employee's work effort should have nothing to do with the fairness of his or her pay’. Deleting this item from the scale would higher the cronbach’s alpha to 0.65. The decision was made to delete the item from the scale. The second item from the scale ‘The failure of the organization to appreciate an employee's contribution should not affect how hard he or she works’ also had cross loadings. This items is not deleted because the cronbach’s alpha would be lower than it is now.
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very low loadings on the same factor. These 5 items are deleted, the cronbach’s alpha does not change substantially (0.88).
Control variables.
Organization representation by manager. This scale is used to measure how much the employee identifies the manager with the organization. The circle scale is based on Shamir and Kark (2004), the scale is adapted from 7 circles to 5 circles. The employee had to choose the circle that best represents how he sees the manager related to the organization. Since the employee can have multiple psychological contracts with agents (Marks, 2001), this representation can tell us if the employee sees the direct manager as a representative of the employer in the psychological contract.
Age. The respondents age was asked in the questionnaire. The answer was given in years. Age is seen as a control variable since the psychological contract dynamics could change over a person’s life (Raja & Kark, 2004).
Job tenure. The contract dynamics can also change when a person is working longer for an organization (Raja & Kark, 2004). Job tenure has been measured by asking; how long have you been working in this organization?
15 Data analysis
For the underlying analysis the computer program SPSS has been used. First a principal component factor analysis is performed. This analysis assumes that there is an underlying structure in the data. The process has the goal to reduce a large set of data from variables to a smaller set of composite variables containing the same information. To make the output of the analysis more logic we will use the varimax rotation technique. The Kaiser-Meyer-Olkin test (0.80) tells us that the sample is adequate. The Bartlett’s test of sphericity gives a chi square of 1070.02 with 300 degrees of freedom (df) and p < 0.01. Conclusion is that the correlation matrix is non-random, the factor analysis was useful to perform. Table 1 in the appendix shows the results of this analysis. To test the hypotheses from this research a regression analysis was performed. The first step in the regression analysis is to standardize the independent variable, the moderator and the control variables. The second step is to insert these standardized variables in the analysis. And at last the interaction effect is entered into the analysis. The interaction effect is calculated by multiplying the standardized independent variable and the standardized moderator.
RESULTS
Descriptives
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There are some correlations that we had not expected. The correlation between organisational representation and relational psychological contract is positive and significant (r = 0.42, p<0.01). And a negative significant correlation has been found between age and relational psychological contracts (r = -0.36, p < 0.01).
Table 2. Descriptives and correlation of the variables.
Variable M SD 1 2 3 4 5 6 1. Age 40.00 10.87 2. Educational level 6.11 1.71 -.28 * 3. Organisational tenure 95.05 104 .42 ** -.24 * 5. Organizational representation 3.38 .99 -.26 * .03 -.16 5. Exchange ideology 2.92 .72 .03 -.14 .14 -.03 6. Leader-member exchange 3.57 .72 -.04 -.11 .04 .12 -.13
7. Relational psychological contr. 2.95 .92 -.36 ** -.06 -.09 .42 ** -.12 .41 **
**correlation is significant at the 0.01 level (2-tailed)
* correlation is significant at the 0.05 level (2-tailed)
Regression analysis.
The hypotheses were tested using the hierarchical multiple regression analysis. Table 3 shows the results for this analysis. The R square values tells the variance in the relational psychological contract that is explained by the variables. In the first step with only the control variables, 25% (p < 0.05) of the variance was explained. The second step included the independent variables exchange ideology and LMX, the explained variance increased with 14%
(∆R²) to 39% (p < 0.05) of the variance. When the moderating effect is included the percentage
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Table 3. Results of the hierarchical regression analysis for the relationship between exchange ideology and relational psychological contracts and leader-member exchange.
Relational psychological contracts
steps variable 1 2 3 1 Age -.33 ** -.35 * -.34 * Education level -.11 -.1 -.09 Organiz. Tenure .09 .1 .06 Organiz. Identification .29 * .26 * .28 * 2 Exchange ideology -.07 -.05 Leader-member exch. .32 *** .32 *** 3 Exchange ideology X Leader-member exch. .21 ** R² .25 *** .39 ** .45 ** ∆R² .25 *** .14 ** .06 ** *p <0.05 ** p < 0.01 *** p < 0.001
Hypotheses 1 expected a negative relation between exchange ideology and the relational psychological contract. An employee with a low exchange ideology would have higher relational psychological contract. The results of the analysis showed a negative relation between the exchange ideology and relational psychological contracts (b = -0.1, p > 0.05), however the relation is not significant The regression analysis provided no support for this hypothesis.
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Hypothesis 3 expected leader-member exchange to weaken the negative relation between exchange ideology and relational psychological contracts. The regression analysis found a significant positive moderating effect (b = 0.21, p < 0.01). The third hypothesis is partly supported. A simple slope analysis for the moderating effect was performed and the results are shown in Table 4. Figure 2 graphically presents the moderating effect of leader-member exchange. It shows that in a situation of high leader-Member exchange, a higher exchange ideology related to significant higher scores on relational psychological contracts (b = 3.47, t= 21.96, p <0.001). The relationship between exchange ideology and relational psychological contract is positive when there is high LMX. The situation in which employees have low leader-member exchange, a higher exchange ideology leads to significant lower scores on relational psychological contracts (b = 2.74, t = 24.21, p < 0.001). These results partly support the hypothesis because the hypothesis expected a weaker negative relationship between exchange ideology and relational psychological contracts and not a positive relation
Table 4. Simple slope analysis for exchange ideology
Leader Member exchange b s t
Low level 2.74 0.11 24.21 ***
High level 3.47 0.16 21.98 ***
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Figure 2. Graphical representation of the moderating effect of LMX on exchange ideology and relational psychological contracts.
Another significant relation that has been found is the relation between organizational identification, one of the other control variables and relational psychological contract (b = 0.31, p < 0.05).The regression analysis also showed a significant negative relation between age as a control variable and relational psychological contracts (b = -0.33, p <0.01).
DISCUSSION
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the employer side looking at LMX which was found to have a positive significant direct relation with relational psychological contracts. Next to the direct relation the study also expected a moderating effect of leader-member exchange on the relation between exchange ideology and relational psychological contracts. Although the third hypothesis expected a weakening effect of leader-member exchange on the negative relation between exchange ideology and relational psychological contract, results showed LMX changed the negative relation into a positive one. Theoretical implications
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attitudes and behavior is emerging (Witt e.a., 2001). Studying the direct effect of exchange ideology on the psychological contract is in line with the emerging research concerning the direct effect of exchange ideology on job attitudes, since psychological contracts also include job behaviors of employees.
The scale used for measuring the exchange ideology could also be a reason for the non-significant result. The exchange ideology scale does not tell anything about what is exchanged in the employment relation, relational or transactional items. Early theorists already made a distinction between economic and social exchanges (Dulac, et al, 2008). This whole research is focusing on social exchanges. Relational psychological contracts include social exchanges like trust, loyalty and growth (Morrison & Robinson, 1997). Exchange ideology is about the employees focus on exchanges between the employee and the direct manager (Witt, 1992). Eisenberger and colleagues (1986) stated that exchange ideology favours the trade of work effort for material and symbolic benefits. So both types of benefits are included in the exchange ideology. The norm of reciprocity is central in this exchange ideology, not what kind of items are exchanged (Eisenberger et al., 1986). The scale used to measure the exchange ideology does not necessarily capture the social part of the exchanges. This study includes the effect of the exchange ideology on relational psychological contracts, a contract including a focus on social exchanges. A scale that makes a better distinction between economic and social exchanges would be more useful in measuring the effect on relational psychological contracts. A literature search has not provided us with a social exchange ideology scale, future research could examine the development of a scale that measures the social exchange ideology of the employee.
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increase the emotional involvement and commitment of the employee When employees perceive injustice they may think their loyalty is misplaced and retreat from the relationship. The employees affective commitment will also decrease. Employees with a high exchange ideology are sensitive to organizational justice (Witt et al, 2001). The factor perceptions of justice could be influencing the relation between exchange ideology and relational psychological contracts. An employee with a high exchange ideology who perceives his treatment is fair, could also have a high relational psychological contract instead of a low contract like we expected. Perceptions of justice could be an explanation for the non-significant result for our expectations. Research could find out exactly how the perceptions of justice is influencing the relation between exchange ideology and relational psychological contracts.
The second hypothesis stated a positive relation between Leader-member exchange and a relational psychological contract. Like expected the analysis showed a positive significant relation between the factors. Employees with a high quality relationship with their managers (LMX) have relational psychological contracts which includes loyalty, trust and growth on the long-term. It is also one of the strongest influences we have found in this study. This conclusion is a contribution to the literature, it shows that LMX is strongly related to the employees relational psychological contract.
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As said before, when the employee sees the manager as a representative of the organization he is more likely to have a relational psychological contract. Who the employer is, is not well defined in the psychological contract theory. New research is focusing on this employer side of the psychological contract (Tekleab & Taylor, 2005). This study contributes to the literature by showing that the employee can see the manager as a representative of the organization and that the employee is then more likely to have a relational psychological contract.
We have also found a significant negative relation between age and relational psychological contracts. Apparently employees of a younger age have more relational psychological contracts than older employees. Further research should explore why the relational psychological contract decreases when employees get older.
Limitations
This research has its limitations. First, this research is based on a relatively small sample. 81 employees have participated to the questionnaire. It is possible that with a bigger sample the results will be different. Organizations from different branches were included in the research, however further research could examine a broader range of branches.
Second, the research is based on correlations which limits us to verify the causality of the hypothesized relationships (Field, 2005). The hypothesis about the relation between exchange ideology, relational psychological contracts and LMX are based on theory. Our hypothesized relation could also be the other way around; the relational psychological contract influences the employees exchange ideology. However according to the literature this is not rational.
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solve this problem by deleting some items from the scales. In the methods section an explanation of deleted items can be found. This section shows that the cronbach’s alpha is still high after deleting these items.
The last limitation is the use of the exchange ideology scale. Our whole research is based on social exchanges, however the scale of exchange ideology includes the economic and relational exchanges. The scale measures how important the norm of reciprocity is for the employee, but it does not give an insight in which type of exchange is important. An employee can have different focuses on economic or relational items.
Practical implication
This study also has practical implications for organizations. Relational psychological contracts are important for organizations, however they are becoming less obvious. Organizations should be aware of the factors that influence the relational psychological contract. This study suggest that employees who have a high quality relation with their direct manager (LMX) are more likely to have relational psychological contracts. The relation between the employee and manager should include for example trust, loyalty and growth. Next to this direct effect, LMX also has a moderating effect on exchange ideology and relational psychological contracts. In a situation of high LMX the employee with a high exchange ideology will have a higher relational psychological contract. When there is a low quality LMX, the employees with high exchange ideology will score low on relational psychological contracts. Organisations should aim after a good relation between employees and managers to enhance the positive relation between exchange ideology and relational psychological contracts.
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31 APPENDIX A
Table 1 Factor analysis.
Factor
1 2 3
Exchange Ideology
An employee's work effort should depend partly on how well the organization deals with .16 .08 .44 his or her desires and concerns
An employee who is treated badly by the organization should lower his or her work effort -.07 -.10 .80
How hard an employee works should not be affected by how well the organization .07 -.1 .72
treats him or her*
An employee's work effort should have nothing to do with the fairness of his or her pay* -.30 .25 .25 The failure of the organization to appreciate an employee's contribution should not affect -.37 .00 .55 how hard he or she works*
Relationele psychologische contracten
I expect to grow in this organization. .79 .11 .10
I feel part of a team in this organization. .66 .32 .05
I have a reasonable chance of promotion if I work hard. .79 .06 .08
To me working for this organization is like being a member of a family. .55 .15 -.28
The organization develops/rewards employees who work hard and exert themselves. .83 .11 -.05 I expect to gain promotion in this company with length of service and effort to achieve goals. .74 .18 -.11
I feel this company reciprocates the effort put in by its employees. .72 .08 .13
My career path in the organization is clearly mapped out. .49 .20 -.12
I am motivated to contribute 100% to this company in return for future employment benefits. .34 .40 -.27
Leader-Member exchange
I like my supervisor very much as a person. .19 .73 -.20
My supervisor is the kind of person one would like to have as a friend. .12 .79 -.10
My supervisor is a lot of fun to work with. .27 .80 -.15
My supervisor defends my work actions to a superior, even without complete knowledge of .16 .70 .24 the issue in question
My supervisor would come to my defense if I were "attacked" by others. .27 .73 .08
My supervisor would defend me to others in the organization if I made an honest mistake. -.01 .59 .05 I do work for my supervisor that goes beyond what is specified in my job description -.02 .48 -.34 I am willing to apply extra efforts, beyond those normally required, to further the .40 .18 -.41 interest of my work group
I am impressed with my supervisor's knowledge of his/her job. .58 .54 -.17
I respect my supervisor's knowledge of and competence on the job. .54 .53 .01
I admire my supervisor's professional skills .55 .58 -.08
Eigenvalues 5.61 4.83 2.40
