A psychological contract helps to define the terms of the social exchange relationship that exist between employees and their organisations (Robin Morrison, 1995a; Shore & Barrksdale, 1998)
A psychological contract was first used in the early 1960 but the contract become popular during the economic downturn in the early 1990. A psychological contract is different from a legal contract because a legal contract offers only the limited representation of the reality of the employment relationship while a psychological contract looks at the reality of the situation as perceived by the employer and employee.
Over the years it has been stated that a psychological contract is important for understanding the wellbeing of the employees, their attitude and performance.
Due to the different kinds of occupations and job type available, it will be inappropriate to have the same model of contract that will cover the qualities of employees worldwide. Therefore, the concept of psychological contract may be differentiated and categorised as being Transactional or Relational in nature. A Relational contract is based on Emotional involvement and merely financial reward. Relational contracts are the opposite of transactional contract because they are long term contracts and consist of an investment between employer and employee. This kind of contract is present in careers that require intensive training such as law, etc. Transactional contract on the other hand is an exchange of high performance and flexibility for employability and quality of life. A transactional contract is a short term contract. It is more about getting most out of the relationship in the organisation while it last. It does not offer job security but it offers employees an environment for growth and ...