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Organizational Change and Psychological Contract Violation Running head: Organizational Change and Psychological Contract Violation

Experiencing organizational change in Greece: the framework of psychological contract

Maria Tomprou Carnegie Mellon University, USA

Ioannis Nikolaou Department of Management Science & Technology Athens University of Economics & Business, Athens, Greece

Maria Vakola Department of Marketing & Communication Athens University of Economics & Business, Athens, Greece

Address for Correspondence:

Dr Ioannis Nikolaou Department of Management Science and Technology Athens University of Economics and Business 76, Patission Ave., 104 34, Athens, Greece E-mail: inikol@aueb.gr, Tel: 003021 0 8203766

ACCEPTED FOR PUBLICATION IN THE INTERNATIONAL JOURNAL OF HUMAN RESOURCE MANAGEMENT

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Experiencing organizational change in Greece: the framework of psychological contract

Abstract

We examine antecedents and outcomes of psychological contract violation in parallel with perceptions of psychological contract fulfillment in the Greek banking sector. We demonstrated that violation mediated the relation between breach and attitudinal outcomes. Trust in the employer partially mediated the relationship of breach and violation with employee attitudes. Finally, careerism moderated the relationship of perceived breach and organizational commitment. Our results are discussed in light of the major organizational changes occurring in the financial sector, and the consequences of these changes on employees’ attitudes and psychological contract breach and violation, along with research and practical implications.

Keywords: psychological contract breach, violation, organizational change, banking sector, Greece.


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Experiencing organizational change in Greece: the framework of psychological contract

The industrial and information revolution has fundamentally altered the world of work, and has had a profound effect on employment relationships (Herriot & Pemberton, 1996; Schalk, 2004). Rapid growth, worldwide competition and breakthroughs in the areas of technology and information have challenged the existence of most organizations. Therefore, in order for these organizations to survive, continuous adjustment and change are in great demand, enhancing their flexibility towards both economic and social fluctuations (Burke, 2002). Both literature and practice have identified a number of organizational change interventions, such as mergers and acquisitions, restructuring and introduction of advanced technology, downsizing, etc. Organizational change does not only relate to impersonal sources, but also has an impact on human workforce and employment relationships. The concept that permeates these transitions in employment relationships is that of psychological contracts (Rousseau, 1989, 1995; Shore & Tetrick, 1994). Empirical research on psychological contracts has explained the term either as a conceptual schema (Coyle-Shapiro, 2002; Coyle-Shapiro & Kessler, 2000; Robinson, Kraatz, & Rousseau, 1994; Robinson & Morrison, 1995; Robinson & Rousseau, 1994) or as an explanatory framework indicating the transition from old to new deal (Arnold, 1996; Guest, 2004; Herriot, Manning, & Kidd, 1997). Here we adopt the conceptualization of the psychological contract being more or less an inherently subjective perception; it is identified as the perceived beliefs based upon promises regarding an exchanged agreement between the individual and another party. In organizations, the other party is perceived through the employer and/or the organizational representatives (Rousseau, 1989, 1995, 2004). The most intriguing part of


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managing psychological contracts is its impact on individual and organizational behavior when being violated. Once the promised obligations go unfulfilled, violation of the psychological contract occurs with certain negative consequences on employees’ attitudes and behaviors, such as decreased organizational commitment, trust, organizational citizenship behaviors and/or increased negative effect towards the organization and turnover intentions (Guzzo & Noonan, 1994; Kickul, 2001; Lo & Aryee, 2003; Restubog, Bordia, & Tang, 2006; Robinson & Morrison, 1995; Robinson & Rousseau, 1994). Within this framework, experiencing differential practices of organizational change, the renegotiation of psychological contract is at hand, usually with explicit negative consequences on the employee’s perspective (Lo & Aryee, 2003; Turnley & Feldman, 1998). Individual differences, acting either as antecedents or moderators, account for how the psychological contract for some individuals is perceived as less violated than others, even though they have experienced the same reality of organizational change. Due to the pivotal impact of psychological contract violation on organizational behavior, this study attempts to clarify the potential processes of this concept by investigating both the direct effect of violation as well as the less direct effect of psychological contract fulfillment. Therefore, the aim of the present research is to investigate the antecedents and outcomes of psychological contract violation/fulfillment amongst employees with previous experiences in organizational change. Specifically, the objectives of this study are: (1) to investigate the direct effects of individual antecedents, such as history of perceived breach and a contextual variable, i.e. the experiences of organizational change on psychological contract violation; (2) to examine the potential mediating influence of trust on the relationship between psychological contract breach and attitudinal outcomes; and (3) to examine one motivational variable, careerism, as the moderator of the relationship between psychological contract violation and attitudinal outcomes.


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The concept of psychological contract violation Much controversy has surrounded the construct of psychological contract violation. As we explained earlier, violating the psychological contract indicates the employee’s perceptions about the organization’s failure to keep up with its promises towards the focal person (Robinson & Rousseau, 1994), which in turn may have detrimental effects on employees’ attitudes and behaviors (Robinson & Morrison, 2000; Robinson & Rousseau, 1994; Turnley & Feldman, 1998). A large part of this controversy may be explained by the way the psychological contract is actually conceptualized and measured (Rousseau & Tijoriwala, 1998). Differential measures have been employed to measure contract violation contingent on researchers’ interest. Global measures of psychological contract fulfillment have been used (Robinson, 1996; Robinson & Morrison, 2000), as well as discrepancy measures between the promises about certain obligations and their fulfillment (Coyle-Shapiro & Kessler, 2000; Turnley & Feldman, 1999). In the recent meta-analysis of psychological contract breach, Zhao, Wayne, Glibkowski and Bravo (2007) confirmed their hypothesis that global measures had more profound consequences than studies using a composite measure with content specific terms. Therefore, we also purport that a global measure can actually capture an overall evaluation of perceptions and emotions about breaching one’s contract with the employing organization. Whether the certain promised obligations are actually breached item by item does not remain such an important issue; instead, actual perceptions of breach and violation may provide more information (Robinson, 1996; Rousseau, 1989). Conceptually speaking, the seminal paper of Morrison and Robinson (1997) on psychological contract violation enlightens the processes of violating the contract. They decompose it into two main components, i.e. breach and violation. “Perceived breach refers to


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the cognition that one has failed to meet one or more obligations within one’s psychological contract in a manner commensurate with one’s contributions” (p.230). Violation, on the other hand, indicates the emotional and affective state emanating from the perception that the organization has failed to adequately maintain the psychological contract. Employees who realize that the organization has failed to deliver promised obligations, experience negative feelings, such as anger, betrayal and mistrust. In empirical terms, Robinson and Morrison (2000) introduced breach as the most direct predictor of contract violation. Research based on this conceptual distinction has shown that the negative outcomes of perceived breach, such as turnover intentions, decreased job satisfaction and affective commitment, are substantially a function of felt violation (Raja, Johns, & Ntalianis, 2004). In their meta-analysis, Zhao, Wayne, Glibkowski and Bravo (2007) showed that affective reactions under the umbrella of violation also mediate the effects of perceived breach on more distal attitudinal and behavioral outcomes. Based on the previous findings, we formulate the following hypotheses. Hypothesis 1a. Psychological contract breach will be positively related to feelings of contract violation. Hypothesis 1b. Violation mediates the relationship between the perceptions of breach and job satisfaction and organizational commitment. Literature on psychological contract perceives breach as one side of a continuum of psychological contract fulfillment (Coyle-Shapiro & Kessler, 2000; Ho, 2005; Robinson & Morrison, 1995). As we explained, unfulfilling one’s psychological contract actually indicates its violation with sequential negative outcomes. On the other side of the continuum, fulfilling the psychological contract will probably evoke positive consequences for the employment relationship. Interestingly enough, when Conway and Briner (2002) investigated the differential


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role of psychological contract breach and exceeded promises, they found that broken promises had stronger effects than exceeded promises. This finding may indicate that breaching the psychological contract may not have totally adverse effects analogous to fulfillment. To assure that the actual examination of the psychological contract continuum ranging from breach to fulfillment and its impact on attitudinal outcomes, we will also examine breach from its diverse aspect: that of contract fulfillment. Previous research has examined psychological contract fulfillment on specific contract terms, whereas recoding the items indicate contract breach (Robinson & Morrison, 1995; Robinson & Rousseau, 1994). Another measure of fulfillment examines the degree of fulfillment as it is reflected by subtracting the promised obligations by the degree of actually receiving the promised obligation (Coyle-Shapiro & Kessler, 2000; Robinson, 1996). Both approaches have focused on the actual terms of employer’s promised obligations. This research examines fulfillment as a global indicator, regarding both the side of the employee and the employer as it is perceived by the employee. Empirical studies examining fulfillment incongruence have repeatedly found that employees and organizational agents hold divergent schemata regarding their obligations. Specifically, organizational agents as the ‘other party’, assess more positively organization’s fulfillment of obligations, as compared to employee’s evaluation about organization’s fulfillment (CoyleShapiro & Kessler, 2002; Tekleab & Taylor, 2003). However, as the focus of our study is how the employees perceive psychological contract breach and act accordingly, examining how the focal person perceives to what extent the psychological contract is being fulfilled by herself and the employing organization, may offer a wider scope of psychological contract fulfillment. Following the line of psychological contract literature regarding breach and feelings of violation as it has been explained above, we expect that


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Hypothesis 2a. Perceived employee and employer fulfillment are negatively related to perceptions of breach and feelings of contract violation. Hypothesis 2b. Perceived employee and employer fulfillment are positively related to organizational commitment and job satisfaction. Antecedents of psychological contract breach and violation As noted above, Morrison and Robinson (Morrison & Robinson, 1997; Robinson & Morrison, 2000) attempted to clarify the potential processes leading to contract violation. They pinpointed two main conditions that can actually provoke violation: reneging and incongruence. Reneging is when an agent or agents of the employing organization consciously break a promise, whereas incongruence is when the two parties of the employment relationship have divergent understandings about a promise. Although both factors may lead to a perception of discrepancy about what an employee was promised and eventually received, they can not lead to violation unless the focal person is vigilant on the organizational efforts to fulfill the terms of that person’s psychological contract (Lo & Aryee, 2003; Morrison & Robinson, 1997). There are three main conditions related to high levels of vigilance: uncertainty, the amount of trust characterizing the employment relationship, and the perceived costs of discovering an unmet promise. Based on the focus of our research, we will argue on the first two. Uncertainty about the organization’s efforts to fulfill employee’s psychological contract may be promoted by experiencing organizational change. Turnley and Feldman (1998; 1999) argue that, during organizational change, employees of the organizations undergoing change strategies report psychological contract violation. In support of this theoretical and empirical argument, few other papers have examined the impact of organizational change on contract breach. Pate, Martin and Staines (2000) argue that change strategies, such as cost reduction and downsizing, may lead to experiences of contract breach that


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in turn lead to increased cynicism and unwillingness to cooperate in future organizational change. Edwards, Rust, McKinley and Moon (2003) also explored psychological contract breach during layoffs mitigating the breach effects by the ideology of self-reliance. We can assume that past experiences of organizational change may create uncertainty, causing employees to become more vigilant about the fulfillment of their psychological contract. Therefore, under these circumstances, employees may more easily detect issues of contract breach. Hypothesis 3. Experiences of organizational change are positively related to psychological contract breach and feelings of contract violation. The second condition of heightened vigilance relates to the perceived costs of discovering an unmet promise. Previous research reported that managers who have experienced downsizing demonstrated less trust to their new employing organization (Feldman & Leanna, 2000; Rousseau & McLean Parks, 1992). They claimed that employees with a history of a violated contract are likely to pursue a transactional contract instead of a relational contract. These findings indicate loss of trust, which is likely to permeate and characterize future employment relationships. Previous breached employment relationships will cause an employee to be less trusting of his/her current employment relationship and, thus, become more vigilant (Robinson & Morrison, 2000). Therefore, high vigilance on employer’s contract fulfillment is likely to increase the possibility of an employee perceiving breach and violation on their employment contract. Hypothesis 4. History of perceived breach is positively related to psychological contract breach and feelings of contract violation.


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The role of careerism and trust Careerism refers to the motive employees have when they view their employing organization as the stepping stone for their career development (Rousseau, 1990). Careerists are not interested in their development within the employing organization. Instead, they are interested in career development within their planned career path (Rousseau, 1995). Change for careerists is considered as incorporated in their career plan rather than as an undesirable event in their working life. Research has shown that careerists tend to create transactional contracts indicating low levels of trust in their employment relationship (Rousseau, 1990). Previous research on careerism and contract breach has shown that high levels of careerism mitigate the relationship between breach and trust but not job satisfaction (Rousseau, 1990). Therefore, careerism is likely to moderate the negative relationship between contract breach and feelings of violation with attitudinal outcomes, i.e. organizational commitment and job satisfaction. A moderator is defined as a variable that affects the direction and/or strength of the relation between an independent variable and the dependent variables (Baron & Kenny, 1986). The more careerist the employee, the weaker will be the negative relationship between contact breach and contract violation and employee attitudes (i.e. job satisfaction and organizational commitment). Therefore, Hypothesis 5a. Careerism moderates the negative relationship of psychological contract breach and employee’s job satisfaction and organizational commitment. Hypothesis 5b. Careerism moderates the negative relationship of feelings of contract violation and employee’s job satisfaction and organizational commitment. Trust accounts for the expectations or beliefs referring to the odds that another’s actions in the future will be favorable or at least not harmful to one’s interests (Barber, 1983; Gambetta,


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1988). Research on psychological contract has emphasized the mediating effects of trust on the relation between contract processes and work outcomes (Lo & Aryee, 2003; Robinson, 1996; Robinson & Morrison, 2000). Following the definition of Baron and Kenny (1986), a mediator is defined as the mechanism through which a predictor influences an outcome variable. In our case, trust illuminates how perceived breach and feelings of violation lead to decreased levels of job satisfaction and organizational commitment. Either due to reneging or incongruence, contract terms are perceived as incomplete in relation to previous agreement. In social exchange theory, trust has been identified as an essential ingredient for discharging obligations (i.e. reciprocating) on a regular basis (Blau, 1964). Thus, when obligations are no longer being reciprocated, employee’s trust in his or her employer will be shattered and as the relationship dissolves, and the employee pulls away from it (Robinson, 1996). Perceptions of reciprocity were found to mediate the relationship between perceived contract fulfillment and affective commitment and intentions to leave the organization among Finnish public sector employees (Parzefall, 2008). Robinson (1996) found that the relationship between contract breach and trust is robust as the latter (along with unmet expectations) actually mediated the relation of the former and employee’s subsequent contributions to the firm. This finding has been reinforced by the work of Lo and Aryee (2003) who found that, between Chinese employees, trust in employer also fully mediated the relationship between contract breach and work outcomes of psychological withdrawal behavior and civic virtue, and partially mediated the relationship between breach and turnover intentions. The above argument and empirical evidence clarify how psychological contract breach and violation may challenge an employee’s trust to the employing organization and lead this employee to demonstrate low job satisfaction and commitment to the organization. We underline, though, that our focus interest is the overall cognition of unmet promised


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obligations, and a step further towards previous research of the emotional state of contract breach as it is being provided by Morrison and Robinson (1997). Since previous research (Robinson & Morrison, 2000) has identified that breach actually functions as the cognitive mediator of contract violation, the impact of breach and violation mediated by loss of trust will actually be to the same direction. Consistent with the rationale as explained above, the following hypothesis is provided. Hypothesis 6a. Trust mediates the relationship between psychological contract breach and employee’s job satisfaction and organizational commitment. Hypothesis 6b. Trust mediates the relationship between feelings of contract violation and employee’s job satisfaction and organizational commitment. The context of the present study The current study was carried out in Greece, using the banking sector as the most relevant setting in exploring the consequences of organizational change on psychological contracts. We have chosen the banking sector in order to explore our research questions, since it is considered the most energetic and powerful section of the Greek economy since the mid 1980s, when a more competitive business environment gradually began to develop, with deregulation of interest rates, abolition of various credit controls, development of the capital market, competition from non-bank institutions, free movement of capital flows, and the gradual entry of foreign banking institutions into the Greek market (Glaveli, Petridou, Liassides, & Spathis, 2006). As a result, a large number of changes have occurred in the field during the last ten to fifteen years and, in some cases, are still ongoing and very active. Virtually almost every bank in Greece has been involved in a major organizational change program, either internal (e.g. re-organization, culture change, etc.) or external (e.g. merger or acquisition). According to a survey carried out in Greece


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during 2004 by a major business consulting firm (PricewaterhouseCoopers, 2004), the banking and financial services sector came first, along with the Telecoms and Information Technology sector, in the number of mergers and acquisitions reported during that year. Claveli et al. (2006) claim that all these changes have substantially transformed the banking sector, not only in Greece, but also in the neighboring countries, where most of the Greek banks have extended their operations through mergers and acquisitions. They also suggest that the single most influential factor for this transformation has been the entry of foreign banks in the Greek and Balkan financial markets. Recently, Bellou (2009) explored variations in employees’ perceptions of the psychological contract in Greece, using a large cross-sectional sample. Therefore, we believe that the exploration of our research hypotheses in the Greek banking and financial services sector is justified, as a result of the aforementioned changes. Method Sample and Procedure The respondents were 236 employees working in various Greek banks. The sample was 45.8% male and 54.2% female. The mean age of the participants was 33.91 years; organizational tenure averaged 8.23 years and the 44.3% had secondary and post secondary education, 38.1% had received a university degree and 17.4% were postgraduates. Human Resource managers of the companies were approached prior to distributing the questionnaires to participants, in order to take approval for the distribution of the questionnaires. The first author approached the employees during working hours, seeking for their participation in the study. If they agreed to participate, they were handed the questionnaire booklet, which they then returned after a few days personally to the first author. The covering letter of the


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questionnaire booklet assured participants of anonymity and the voluntary nature of participation in the survey. Measures We translated the measures originally developed in English into Greek, and then two bilingual occupational psychologists back-translated them into English. Differences between the original English and the back-translated versions were discussed, and mutual agreements were made as to the most appropriate translation. This procedure tries to balance the competing needs of making the translation meaningful and naturally readable to native participants with the need to preserve the integrity of the original measure and its constructs (Brislin, 1980). All measures, with the exception of the measure assessing experiences of organizational change, were assessed using a five-point Likert-type scale, from strongly disagree (1) to strongly agree (5) and were summed up in order to create the scale. Psychological contract breach. We used a 5-items global measure of perceived contract breach developed by Robinson and Morrison (2000), which assesses employees’ perceptions of their psychological contract breach. Sample items include: “I have not received everything promised to me in exchange for my contributions” and “So far my employer has done an excellent job of fulfilling its promises to me” (reversed). A high score indicates high level of breach. Feelings of contract violation. Similarly, we used Robinson and Morrison’s (2000) global measure of feelings of violation. It consists of four items, and a high score indicates high level of felt violation. Sample items include: “I feel betrayed by my organization” and “I feel that my organization has violated the contract between us”. Psychological contract fulfillment. Perceptions of fulfillment were measured by a four-item scale. Two items measured employer fulfillment, i.e. the extent to which the employer fulfills his


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or her promises to the employee, and two more measured employee fulfillment, i.e. the extent to which the employee fulfils his or her promises to the employer. A high score indicates high level of fulfillment. These items were taken by the Psychological Contract Inventory (Rousseau, 2000). Sample items include: “Overall, how well does your employer fulfill its commitments to you?” and “In general, how well do you live up to your promises to your employer?” Experience of Organizational Change. Participants were given a checklist of the most common organizational changes, as identified in the change management literature, and were asked to indicate whether they had actually experienced these changes during their current employment relationship or not. Eight organizational changes were presented: (i) mergers and acquisitions, (ii) downsizing, (iii) culture change, (iv) restructuring, (v) business process re-engineering, (vi) introduction of information technology, (vii) introduction of new policies and procedures and, finally, (viii) introduction of a new performance appraisal system. Subsequently, we computed a new variable, based on the sum of their responses. A high score indicates increased experience of organizational changes with the current employer. Careerism. Careerism assesses an employee’s orientation toward his or her employer as an instrumental stepping stone up the career path. We used a three-item scale based on Robinson and Rousseau’s (1994) measure, eliminating the two reversed items of the original measure, since the translation of these items was considered by the researchers as misleading for the participants. Sample items include: “I expect to work for a variety of organizations in my career” and “I took this job as a stepping stone to a better job with another organization”. A high score indicates high levels of careerism. History of perceived breach. Participants responded to four statements developed by Robinson and Morrison (2000) concerning how well their previous employers had fulfilled obligations.


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The majority of the participants (66%) had previous working experience. Examples are: “In general whenever my past employers promised me something, they kept that promise” (reversed), and “I have had past employers break their promises to me on more than one occasion”. A high score indicates high level of history of breach. Trust. A seven-item scale measuring trust in one’s employer developed by Robinson and Rousseau (1994) was used. A high score indicates high level of trust towards the participant’s current employer. Sample items include: “My employer is open and upfront with me” and “I am not sure I fully trust my employer” (reversed). Organizational Commitment. It was measured with a shortened version of the measure developed by Porter, Steers, Mowday, & Boulian (1974) described in Jones (1986). It consists of nine items since we dropped one item, which reduced the internal consistency of the scale (“I could just as well be working for a different organization as long as the type of work was similar”). A high score indicates high level of organizational commitment. Sample items include: “I talk up this organization to my friends as a great organization to work for” and “I feel very little loyalty to this organization” (reversed). Job Satisfaction. A single item assessed the extent to which the respondent was overall satisfied with his current job (Rousseau, 2000). Results Preliminary Analyses Prior to discussing our results, it is important to acknowledge that our decision to use self-report measures raises the possibility of common method variance problems. That is, the constructs of the current study may be correlated simply because of common variance derived from their being collected with the same method. However, it would be difficult, if not


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impossible, to collect our data through any other means. Nevertheless, we followed the suggestions made by Podsakoff, MacKenzie, Lee and Podsakoff (2003) in order to explore statistically if common method variance was a significant problem in our analyses. Initially, we performed a post-hoc factor analysis (Harman’s single-factor test). An exploratory factor analysis, including all the variables of our study, elicited ten factors with eigenvalues above 1.0, explaining 75% of the total variance, where the first factor explained 28% of the total variance. While the results of this analysis do not preclude the possibility of common method variance, they do suggest that it is not a likely explanation for the reported findings. Further, we also followed the partial correlation procedure, as described in Podsakoff et al. (2003), and more specifically the general factor covariate technique, partialling out a general factor score, which is often assumed to contain the best approximation of common method variance (Podsakoff et al. (2003). We then reanalyzed the relationships between the independent and the dependent variables after “partialling” out the variance accounted for in the first factor. After conducting this procedure, we found that both the nature and the significance of the results, as demonstrated in the inter-correlation matrix of table 1, remained unchanged. The results of these analyses can be obtained by the authors. Hypothesis Tests Table 1 lists the means, standard deviations, reliabilities and intercorrelations for the variables. Preliminary analyses showed that none of the demographic characteristics were significant predictors of psychological contract breach and violation and, therefore, excluded from further analyses. The correlation matrix provided some initial support for our hypotheses. Hypothesis 1a was accepted, since employees’ feelings of contract violation were positively correlated to psychological contract breach. Accordingly, hypotheses 2a and 2b were also


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confirmed as there was a negative relationship between perceived breach, felt violation and psychological contract fulfillment (both employee’s and employer’s), as well as between psychological contract fulfillment with organizational commitment and job satisfaction. As far as hypothesis 3 is concerned, experiences of organizational change with the current employer were positively related to feelings of contract violation but were not related, as expected, with psychological contract breach. Finally, it is worth mentioning that, contrary to experiences of organizational change with the current employer, history of perceived breach with previous employers demonstrated different patterns of relationship with breach and violation. More specifically, history of perceived breach was positively correlated with psychological contract breach, but was not related to feelings of contract violation, partially confirming hypothesis 4. Moderator and mediator analyses Hypothesis 1b explores the mediating effect of violation on the perceptions of breach on job satisfaction and organizational commitment. The procedures described by Cohen, Cohen, West and Aiken (2003) were followed in order to explore whether mediation exists. There are two requirements that must be satisfied for mediation to be present. First, the independent variable (i.e. breach) must be related to the dependent variables (i.e. employee satisfaction and organizational commitment). Second, the mediator (i.e. violation) must be related to the dependent variables. Finally, the relationship between the independent variable and the dependent variable should be significantly weaker (partial mediation) or non-significant (full mediation) when the proposed mediator is included in the regression equation. An examination of the correlation matrix (see Table 1) reveals that both independent variables and the mediator are significantly correlated with the dependent variables. Thus, the first two conditions are satisfied for both of our hypotheses. In order to test the third condition, we performed a series of


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hierarchical regressions. Table 2 provides the results of these analyses. Steps 1 and 2 report the results of the first two requirements for mediation, while Step 3 reports the results of the mediation analysis. The left part of step 3 of the table shows the mediating effect of violation in the relationship between psychological contract breach and job satisfaction, while the right part shows organizational commitment. The effect of psychological contract breach on job satisfaction drops, but still remains statistically significant after we control for violation. The unstandardized regression coefficient of breach drops to -.06 (p<.000) from -.11 (p<.000), when we account for the effect of violation, demonstrating partial mediation effects. To explore whether this drop is statistically significant, we carried out the Sobel test (Sobel, 1982), following Baron and Kennyâ&#x20AC;&#x2122;s (1986) guidelines. The results of this test (Sobel = -.05, p < .000) indicate that the decrease in the unstandardized regression coefficient is statistically significant. Similarly, in the case of organizational commitment, the unstandardized regression coefficient of breach drops to -.67 (p<.000) from -.82 (p<.000), when we account for the effect of violation, which also demonstrates partial mediation effects. The Sobel test showed that this decrease is also statistically significant (Sobel = -.14, p < .00). The hypotheses 5a and 5b pertaining to the moderating effect of careerism were examined using moderated hierarchical regression analyses, following the instructions provided by Baron and Kenny (1986), Frazier, Tix, and Baron (2004) and Stone (1988). In order to examine the moderating effects of a variable, the scores of both the predictor and the moderator have to be standardised, before creating their interaction term. Following the guidelines of Stone (2003) and Cohen et al. (2003), the interaction term was entered last as an independent variable in a moderated multiple regression (MMR), where the other two variables were entered


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separately before the interaction term. If the R2 change of the interaction term is statistically significant, then a moderating effect exists. The results of these MMRs are presented in table 3. The results of table 3 showed a significant interaction only between careerism and psychological contract breach when organization commitment was used as a criterion variable. The nature of these interactions is shown in Figure 1. Regression lines were plotted for high, average, and low levels of careerism (+1, 0, and -1 standard deviations from the mean). In particular, it seems that the group with the highest level of commitment is individuals with low careerism and limited psychological contract breach. Therefore, hypothesis 5a is partially confirmed, but hypothesis 5b was rejected. The last set of hypotheses (hypotheses 6a and 6b) explores the mediating role of trust, between psychological contract breach, feelings of contract violation and attitudinal outcomes. We followed the same procedure as described earlier in hypothesis 1b. The first two conditions for mediation were satisfied (see table 1) and as a result we performed a series of hierarchical regressions in order to test the third condition. Table 4 provides the results of these analyses. Steps 1 and 2 report the results of the first two requirements for mediation, and Step 3 reports the results of the mediation analysis. Table 4 shows the results of hypothesis 6a and 6b. Step 3 in the upper left part of the table shows the mediating effect of trust in the relationship between psychological contract breach and job satisfaction, and in the upper right part with organizational commitment. The effect of psychological contract breach on job satisfaction drops, but still remains statistically significant after we control for trust. The unstandardized regression coefficient of breach drops to -.06 (p<.000) from -.11 (p<.000), when we account for the effect of trust, demonstrating partial mediation effects. The results of the Sobel test (Sobel = -.05, p < .000) indicate that the decrease


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in the unstandardized regression coefficient is statistically significant. Similarly, in the case of organizational commitment, the unstandardized regression coefficient of breach drops to -.35 (p<.000) from -.81 (p<.000), when we account for the effect of trust, demonstrating partial mediation effects too. The Sobel test showed that this decrease is also statistically significant (Sobel = -.47, p < .000). Similar results were obtained for hypothesis 6b, as shown in the lower part of table 3. The unstandardized regression coefficient of contract violation on job satisfaction drops to -.09 (p<.000) from -.12 (p<.000), when we account for the effect of trust, demonstrating partial mediation effects (Sobel = -.12, p < .000), whereas the coefficient of contract violation on organizational commitment drops to -.23 (p<.01) from -.57 (p<.000), when we account for the effect of trust, demonstrating again partial mediation effects (Sobel = -1.37, p < .000). Discussion The findings revealed that the worldwide changes in the financial sector have also affected the Greek banking sector and their employees’ attitudes towards their employers. Greek banking employees perceive that their psychological contract is being breached with strong affective reactions (i.e. violated) to varying extent by their employers (confirmation of hypothesis 1a). Partial mediation effects of violation between breach and job satisfaction as well as organizational commitment were demonstrated. The confirmation of the hypothesis 1b actually explains that emotions acting as the black box intervene between the cognition input and the behavioral output (Fisher & Ashkanasy, 2000; Zhao et al., 2007). In our case, violated feelings intervene between perceptions of breach and attitudinal outcomes regarding both the job itself (job satisfaction) and the organization (organizational commitment). Accordingly, employees’ perceptions of their and the employee’s psychological contract fulfillment are also related negatively to breach and violation confirming hypothesis 2a. This


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finding actually indicates that psychological contract acts as a continuum with the one side of perceived breach followed by felt violation, and the other side demonstrated by the perceptions of fulfillment. Both employee’s and employer’s fulfillment as perceived by the employee were positively related to organizational commitment and job satisfaction (confirming hypothesis 2b). Employees who perceive that their psychological contract is being fulfilled actually tend to demonstrate higher levels of organizational commitment and job satisfaction. To some extent, measuring the generic term of violation by using two different global measures viz. perceived breach and perceived employer’s fulfillment, that have the same relationship with the attitudinal outcomes but with opposite direction, promotes its discriminant validity (Anastasi, 1976). Surprisingly enough, experiencing the organizational change was not related significantly with perceptions of breach, but did with felt violation providing partial support of hypothesis 3. Previous research and theory has shown that employees’ experiences of organizational change tend to correlate with perceptions of breached psychological contract (Edwards et al., 2003; Pate et al., 2000; Turnley & Feldman, 1998). Yet in the present study, perception of breach as well as fulfillment – though not straightforwardly predicted by our hypotheses - were not associated with organizational change. This finding may lie in the fact that, especially employees in the banking sector, are actually more familiar with organizational change as this has become such a common practice, but still emotionally tend to react demonstrating their opposition. According to Piderit’s (2000) work, who analyzed ambivalence in attitudes to organizational change, an individual’s cognitive response to a change may be in conflict with his emotional state. For example, an employee may think that downsizing is essential for his organization’s survival but at the same time he/she experiences strong feelings of betrayal, sadness and anger.


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Another interesting finding was the partial support of the fourth hypothesis. History of perceived breach related with perceptions of breach but not with felt violation as predicted. This finding may actually have a logical explanation consistent with the theory of psychological contract violation adopting a different point of view. Our study, in accordance with previous research (Robinson & Morrison, 2000), demonstrated that employees with a history of perceived breach tend to become more vigilant regarding their current psychological contract and therefore can more easily detect possible breaches. However, due to their previous experiences of breach, employees may have increased their emotional defensive mechanism against prospect emotional violation. Therefore, employees with a history of perceived breach not only become more vigilant in detecting possible breaches, but also tend to be less vulnerable towards these kinds of incidents. Our findings revealed partial support of hypothesis 5a, as there was a strong interaction between careerism and psychological contract breach regarding organizational commitment, but not job satisfaction. Specifically, it was shown that employees with low career motive demonstrate low levels of breach and high organizational commitment. In a lay personâ&#x20AC;&#x2122;s terms, people who are highly committed to their organization are not interested in using their employing organization as a stepping stone, but also tend to be less vigilant on possible breaches. However, the moderation effect of careerism on the relationship between the psychological contract breach and job satisfaction was not revealed. This can be explained by the fact that job satisfaction indicates an on-the-job indicator, whereas careerism refers to the motive an employee has regarding the organization but not the nature of the job. In other words, a careerist can be a person who is interested in her career development, but this does not entail that she is also willing to change her profession. Hypothesis 5b was not supported, indicating that the affective


Organizational Change and Psychological Contract Violation

24

element of the generic violation has different dynamics than perceived breach. To some extent, this finding is in line with the previous findings as explained so far in this study. Our results revealed similar mediating effects of trust between breach, violation and the two types of attitudinal outcomes: organizational commitment and job satisfaction. In particular, our results suggest that trust partially mediates the relationship of perceived breach with organizational commitment and employeeâ&#x20AC;&#x2122;s job satisfaction. Similar patterns were demonstrated for the relationship between violation and the same attitudinal outcomes. There are two main observations for these findings. Firstly, and in line with previous empirical research (Lo & Aryee, 2003; Robinson, 1996; Robinson & Rousseau, 1994; Rousseau, 1989), trust is considered as an essential composite of psychological contract and plays a pivotal role in psychological contract management both on levels of cognition and emotion. Additionally, Zhao et al. (2007) investigated the role of trust as an affective rather than cognitive concept. We do not fully support the argument that trust refers solely to an affective state rather than a cognitive one, as this concept is considered as multi-faceted (see Luhmann, 1979, and Gambetta, 1988, for a discussion). Yet, we do reinforce the argument that trust partly accounts for emotional reactions by providing the partial mediation to the relationship of felt violation with organizational commitment. These results have a number of implications both for research and practise. From a practical point of view, there are implications for Human Resource professionals and Human Resource practitioners. We showed that employees who realize that their organization has broken its promises experience negative feelings that can have an impact on both job satisfaction and organizational commitment. Company executives should be aware of this potential source of decreased job satisfaction and organizational commitment and act quickly on broken promises


Organizational Change and Psychological Contract Violation

25

and negative feelings that may follow. In addition, understanding the nature of psychological contract breach and feelings of contract violation in relation to organizational change might be useful in identifying the most appropriate process for addressing employeesâ&#x20AC;&#x2122; emotional responses. For example, change agents or those responsible or involved in organizational change might use participation in the change process or open communication in which employees feel safe to openly express their negative feelings. Apart from experiences of organizational change, employees who have previously experienced a breach of their psychological contract tend to become more vigilant on one hand and less emotionally vulnerable on the other, since they have increased their defensive mechanisms. When considering this finding, one should look at trust building as a way of preventing psychological breach and violation. Trust is not a new concept since it is found to be positively related with various positive work behavior and organizational outcomes. Managers are advised to foster perceptions of trust among employees to avoid the impact of previous bad history related to psychological breach and create the appropriate conditions for psychological contract fulfillment. From a research point of view, the study has a number of strengths as well as limitations. Overall, our findings support the conceptual distinction of psychological contract violation into perceived breach and felt violation. The present study reveals differential dynamics for perceived breach and feelings of violation indicating that, in the future research, this conceptual distinction may need to be taken into account (see also Zhao et al., 2007). Along with these lines, measuring fulfillment also promote the discriminant validity of perceived breach, as the former was highly related with perceived breach and violation and also positively related with the focal attitudes. Yet fulfillment measured only the perception of fulfilling the psychological contract, neglecting its emotional impact. Therefore, it might be interesting, both in an academic and managerial way,


Organizational Change and Psychological Contract Violation

26

to examine the direct affective response of psychological contract fulfillment. Towards this direction, the work of Conway and Briner (2002) provided interesting findings as they measured mood in a diary study. Though not directly measuring the feelings of fulfillment as it was done in the analogous research of Morrison and Robinson (2000), they provided interesting direction of the role of emotions in psychological contract research and theory. Finally, another significant implication of the current study is that it is one of the first of its kind exploring the role of psychological contracts in organizational change. Recently, Bellou (2007) in a study also carried out in Greece, identified that employee perceptions of both organizational obligations and individual contributions changed after a merger or acquisition. Nevertheless, contrary to our study, her research used a more diverse sample from various sectors of the Greek economy focusing only on mergers and acquisitions, whereas the current study explored the effects of different organizational change interventions exclusively in the Greek banking sector. There were also a number of methodological limitations to the current study. First, data were collected at a single point in time, through self-report measures only. We have discussed in the results section the steps we have taken in order to reduce the possibility of common method variance, and we believe that it is not a significant problem in this study. Also, the use of crosssectional research design limits the ability to make firm conclusions about the causal relationships among the study variables. Second, because the data were collected from an occupational grouping within a specific context, i.e. the rapid and constant changes occurring in the banking sector, the results may not generalize to the wider Greek business population. Finally, we did not collect data on aspects which are likely to influence the dynamics of psychological contract violation (e.g. openness to change, feelings of fulfillment, behavioral


Organizational Change and Psychological Contract Violation outcomes). Nevertheless, we argue that examining violation as a multi-dynamic concept may reveal interesting findings and help practitioners to manage psychological contract more systematically and thus more properly.

27


Organizational Change and Psychological Contract Violation

28

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Piderit, S. K. (2000). Rethinking resistance and recognizing ambivalence: a multidimensional view of attitudes toward an organizational change. Academy of Management Review, 25(4), 783-794. Podsakoff, P. M., MacKenzie, S. B., Lee, J.-Y., & Podsakoff, N. P. (2003). Common method biases in behavioral research: A critical review of the literature and recommended remedies. Journal of Applied Psychology, 88(5), 879-903. Porter, L. W., Steers, R. M., Mowday, R. T., & Boulian, P. W. (1974). Organizational commitment, job satisfaction and turnover among psychiatric technicians. Journal of Applied Psychology, 59(5), 603-609. PricewaterhouseCoopers. (2004). Mergers and acquisitions of Greek companies 2004. Athens, Greece. Raja, U., Johns, G., & Ntalianis, F. (2004). The impact of personality on psychological contracts. Academy of Management Journal, 47(3), 350-367. Restubog, S. L. D., Bordia, P., & Tang, R. L. (2006). Effects of psychological contract breach on performance of it employees: The mediating role of affective commitment. Journal of Occupational and Organizational Psychology, 79, 299-306. Robinson, S. L. (1996). Trust and breach of the psychological contract. Administrative Science Quarterly, 41, 574-599. Robinson, S. L., Kraatz, M. S., & Rousseau, D. M. (1994). Changing obligations and the psychological contract: A longitudinal study. Academy of Management Journal, 37(1), 137-152.


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Organizational Change and Psychological Contract Violation

Table 1 Descriptive statistics, Correlation Matrix and alphas of Study Variables Mean

S.D

1

2

3

4

5

6

7

8

.80

9

10

1. Age

33.91 8.14

2. Tenure

8.23

7.76

.82**

3. Breach

13.05 3.80

.19**

.20**

.79

4. Violation

8.12

4.16

.21**

.20**

.57**

5. Fulfillment-Employer

7.20

1.77

-.07

-.08

-.52** -.57**

6. Fulfillment-Employee

8.45

1.37

.06

.07

-.18** -.19** .44**

7. Experiences of change

4.09

2.24

.27**

.28**

.11

.17**

-.02

.10

8. Careerism

8.73

3.10 -.36** -.44**

-.08

.04

-.06

.07

.00

9. History of breach

12.25 3.32

-.03

-.09

.20*

.08

-.05

.01

-.07 -.06

.73

10. Org. Commitment

28.60 5.71

-.09

-.06

.03

-.05

-.06

11. Trust

22.65 4.58 -.20** -.23** -.66** -.46** .57** .23** -.03

.12

-.16* .63**

12. Job satisfaction

3.63

1.02

-.07

-.08

.96 .88 .89

-.54** -.42** .55** .20**

-.42** -.50**

Notes: ** p < .001. * p < .05 Alphas are presented in the diagonal

11

.59*

.23** -.09 -.03

.00

.72 .71

.49** .43**

34


Organizational Change and Psychological Contract Violation

35

Table 2 Hierarchical regression analyses examining the mediating effect of violation B

SE B

95% CI

β

Step 1

SE B

95% CI

β

-.82

.08

-.98, -.65

-.54**

.62

.06

.51, .74

.57**

-.22

.09

-,40, -.05

-.16

-.67

.10

-.86, -.47

-.44**

Step 1

Psychological contract breach a

-.11

.02

-.14, -.08

-.42** Psychological contract breach c

Step 2 Psychological contract breach

B

Step 2 b

.62

.06

.51, .74

.57**

Step 3

Psychological contract breach b Step 3

Violation

-.09

.02

-.13, -.06

-.38** Violation

Psychological contract breach a

-.06

.02

-.09, -.02

-.21*

Psychological contract breach c

Note: CI = confidence interval; a Dependent variable: Job satisfaction; b Dependent variable: Violation; c Dependent variable: Organizational Commitment; * p < .01. ** p < .000.


Organizational Change and Psychological Contract Violation

Table 3 Hierarchical regression analysis examining the moderating effect of Careerism on Psychological Contract Breach and Feelings of Contract Violation on attitudinal outcomes

Variable

R2

Job Satisfaction R2 change F change

β

R2

Organizational Commitment R2 F β change change

Step 1 Breach

.18

.18

49.69**

-.42**

.29

.29

97.32**

-.56**

Careerism

.18

.00

1.12

-.06

.30

.01

3.28

-.11*

.18

.00

.98

.06

.32

.02

21.14**

.14**

Violation

.25

.25

75.68**

-.50**

.18

.18

49.62**

-.42**

Careerism

.25

.00

.01

.00

.18

.00

.37

-.04

.25

.00

.56

-.05

.18

.00

.00

.00

Step 2 Breach X Careerism

Step 1

Step 2 Violation X Careerism

Notes: “βs” are taken from the last equation; * p < .05; ** p < .01;

36


Organizational Change and Psychological Contract Violation

37

Table 4 Hierarchical regression analyses examining the mediating effect of trust B

SE B

95% CI

β

B

SE

95% CI

β

B Step 1

Step 1

Psychological contract breach a -.11

.02

-0.14, -0.08 -.42** Psychological contract breach c

Step 2

.08

-0.98, -0.65

-.54**

-.79

.06

-0.91, -0.67

-.66**

.60

.08

0.43, 0.75

.48**

-.35

.10

-0.54, -0.15

-.23**

-.57

.08

-.74, -.41

-.42**

-.50

.06

-.63, -.37

-.46**

.69

.07

0.55, 0.82

.55**

-.23

.08

-0.38, -.08

-.17*

Step 2

Psychological contract breach b -.79

.06

-0.90, -0.67 -.66** Psychological contract breach b

Step 3

Step 3

Trust

.06

.02

Psychological contract breach a -.06

.02

0.03, 0.10

.28**

Trust

-0.10, -0.24 -.24** Psychological contract breach c

Step 1

Step 1

Feelings of contract violation a

-.12

.01

-1.15, -0.94

-.50**

Step 2

Feelings of contract violation c Step 2

Feelings of contract violation b

-.50

.06

-.63, -.37

-.46**

Step 3

Feelings of contract violation b Step 3

Trust Feelings of contract violation

-.81

.06 a

-.09

.01 .01

0.03, 0.08 -0.12, -0,06

.26** -.38**

Trust Feelings of contract violation

c

Note: CI = confidence interval; a Dependent variable: Job satisfaction; b Dependent variable: Trust; c Dependent variable: Organizational Commitment; * p < .01. ** p < .000.


Organizational Change and Psychological Contract Violation

Figure Captions Figure 1. Significant interaction between Psychological Contract Breach and Careerism on Organizational Commitment

38

Profile for Ioannis Nikolaou

Experiencing organizational change in Greece: the framework of psychological contract  

ACCEPTED FOR PUBLICATION IN THE INTERNATIONAL JOURNAL OF HUMAN RESOURCE MANAGEMENT

Experiencing organizational change in Greece: the framework of psychological contract  

ACCEPTED FOR PUBLICATION IN THE INTERNATIONAL JOURNAL OF HUMAN RESOURCE MANAGEMENT

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