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We are living in the era of knowledge economy. It is the era where, besides financial, physical and information resources, the human capital also has the capability to become an strategic advantage for the organization. Thus, for the long term benefit of the organizations, it is essential to develop a healthy and mutually beneficial relationship between organizations. It is an established fact that over the last century, especially in last few decades, no other event has not been more impactful on the employment relationship than the waves of mergers, acquisitions and downsizings.


These are the events that play a decisive role for job switching by the employees. However, no one can deny the fact that these decisions are strategically important. Thus, the solution for such human resource related problems emanating from these tough decisions can be tackled only through building, fostering and maintaining proper employment relationship. In order to build that relationship, it is important to understand the concept of Psychological Contract that exists between the employer and employee.

It refers to the unwritten expectations by the employees from the employers and vice versa about the nature of the working relationship. One example for such psychological contract may be the expectations of employee about tangibles like wages, bonuses, and intangibles like perceived fairness in terms of chances for promotion. Similarly, the employee can expect the employee to put his 100% efforts and integrity. These are the kinds of expectations that shape up the psychological contract. Being psychological, such contracts are subjective in nature and may be perceived by different parties to the contract differently.

Thus, in order to build better and mutually beneficial employment relationship on the long term basis, it is often advised to communicate those expectations as much as possible to the other party, although achieving the level of communication where every expectation is understood by the other party in the same way is not possible. Thus, the efforts are directed to maximize the level of the communication of expectations from sides, the employers and employees. Useful tools for employers in this regards are employee handbooks, policy manuals, job descriptions etc.

For employees, the tools to communicate their expectations are usually in interviews and then in various forms of feedback he has periodically been asked to communicate his own expectations. To sum up, if both the parties communicate their expectations clearly and try their best to reach a mutual consensus about their expectations and then make all efforts to live up to those expectations, a healthy, long term and mutually beneficial relationship can be established, resulting in human resource of the organization emerging as its strategic advantage. References Dessler, G. (2007).

Human Resource Management (11th Edition). Alexandria, VA: Prentice Hall. Gerhart, B. , Hollenbeck, J. R. , Noe, R. A. , & Wright, P. M. (2008). Fundamentals of Human Resource Management. New York: McGraw-Hill. Ivancevich, J. M. (2009). Human Resource Management. New York: Mcgraw Hill Higher Education. Jackson, J. H. , & Mathis, R. L. (2007). Human Resource Management. Mason, OH: South-Western College Pub. Mondy, W. (2007). Human Resource Management. Alexandria, VA: Prentice Hall. Pynes, J. E. (2009). Human Resources Management for Public and Nonprofit Organizations: A Strategic Approach. San Francisco: Jossey-Bass.

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