Aren't there two parties in an employment relationship? Antecedents and consequences of...

Journal of Organizational Behavior

J. Organiz. Behav. 24, 585–608 (2003)

Published online in Wiley InterScience (www.interscience.wiley.com). DOI: 10.1002/job.204

Aren’t there two parties in an employmentrelationship? Antecedents and consequencesof organization–employee agreement oncontract obligations and violations

AMANUEL G. TEKLEAB* AND M. SUSAN TAYLORDepartment of Management, Organization, and Entrepreneurship, Robert H. Smith School of Business,University of Maryland and Clarkson University College Park, Maryland, U.S.A.

Summary Past studies have paid little attention to an organization’s perspective on reciprocal obligationsin the employment relationship, despite its importance to overall satisfaction and the survivalof the relationship. This study assesses parties’ levels of agreement on the reciprocal obliga-tions of the psychological contract, and their consequences on parties’ perceptions of contractviolations. Furthermore, the study examines subsequent reactions of both parties to perceivedviolations. Results indicate that managers and employees tend to disagree on the employee’sobligations and violations of the contract but not on the organization’s obligations and viola-tions. More importantly, results from multivariate regression analyses indicate that employeetenure with the manager and leader–member exchange (LMX) as reported by the managerwere positively related to agreement on employees’ obligations. Agreement on employees’obligations was related to perceptions of violation by the manager, but in a direction oppositeto that hypothesized. Both managers’ perceptions of employee violations and employees’ per-ceptions of organization violations were related to employee outcomes assessed by the man-agers and the employees. Implications and suggestions for future research are discussed.Copyright # 2003 John Wiley & Sons, Ltd.

Introduction

Since the late 1980s, the psychological contract has been conceptualized as only one party’s—the

employee’s—perceptions of the organization’s obligations to the employee and the latter’s obligations

to the organization (e.g., Shore & Tetrick, 1994; Rousseau, 1990; Robinson & Morrison, 2000). This

conceptualization has generated substantial empirical research over the last 15 years, with studies

identifying both antecedents shaping the nature of the contract (e.g., information-seeking behavior;

Shore & Tetrick, 1994; Rousseau, 1995) and consequences of contract violations by the organization

(e.g., perceptions of violation; Robinson, 1996; Robinson & Morrison, 2000; Rousseau, 1995).

Copyright # 2003 John Wiley & Sons, Ltd. Accepted 17 April 2003

* Correspondence to: Amanuel G. Tekleab, Department of Management, Organization, and Entrepreneurship, University ofMaryland, College Park, MD 20783, U.S.A. E-mail: [email protected]

Yet, there is reason to argue that a comprehensive and valid understanding of the employment rela-

tionship is unlikely to develop until researchers begin to give similar consideration to the perceptions

and reactions of the other party in this relationship, the organization and its representing agents (Guest,

1998). Disagreement between parties on the reciprocal set of obligations (i.e., employees’ obligation

to the organization and the organization’s obligations to the employee), which has been referred to as

incongruence (Morrison & Robinson, 1997), is one aspect of the employment exchange that might

benefit from researchers’ attention to the perspective of each party (Coyle-Shapiro & Kessler,

2000). We argue that disagreement on reciprocal obligations may increase each party’s perceptions

of violation by the other. For example, if managers perceive that employees have a different set of

obligations from those perceived by the employees themselves, then employees are unlikely to meet

those obligations, and as a result managers may perceive contract violations on the part of employees.

Conversely, if employees perceive that the organization has a different set of obligations from those

perceived by managers, this discrepancy may lead to employees’ perceptions that the organization has

violated the psychological contract, since managers are unlikely to strive to fulfill obligations that they

do not agree are rightfully theirs. Enhanced violations have been shown to yield negative attitudinal

and behavioral reactions on the part of employees (Robinson, 1996; Turnley & Feldman, 2000).

Further, violations by one party are hypothesized to provoke subsequent violations from the other

(Rousseau & McLean Parks, 1993) and thus may send the employment exchange spiraling out of con-

trol, seriously damaging its quality and endangering its very existence.

Despite a growing body of research examining the organization’s perspective on the employment

exchange (Coyle-Shapiro & Kessler, 2002; Guest & Conway, 2002; Lewis-McClear & Taylor, 1997;

Lester, Turnley, Bloodgood, & Bolino, 2001), no research has yet studied the determinants of employ-

ees’ and employers’ agreements on the two parties’ reciprocal obligations within the employment

exchange, nor examined whether, as we speculate, increased violations are the natural by-product

of low agreement. In this paper, we contribute to that goal by assessing the antecedents of parties’

agreement on their reciprocal obligations in the exchange and the consequences of agreement. Thus,

we explore: (1) both parties’ (employees and employers) views of their reciprocal obligations, i.e. their

perceived obligations to the other party, and their perceptions of the other party’s obligations to them;

(2) antecedents and consequences of agreement between the two parties on the terms of their recipro-

cal obligations; (3) the effects of agreement level on each party’s perceptions of contract violations by

the other; and (4) the impact of perceived violations on each party’s reactions. Figure 1 presents the

conceptual model tested in this study.

Who Represents the Organization?

Psychological contract theory (Rousseau, 1995) states that organizations have multiple agents who

may describe the company’s view of reciprocal obligations under the psychological contract; e.g.,

top management’s communication of the firm’s overall mission may contain some of this information,

as may recruiters’ comments to job applicants. Messages from top management often refer to employ-

ees in general, but they do not state each respective employee’s obligations and inducements. Another

contract maker on behalf of the organization with the employee is the immediate manager of that

employee. Unlike the top management team, immediate managers are more likely to speak of the con-

tract with a specific employee. Moreover, as Shore and Tetrick (1994, p. 101) state, ‘The employee is

more likely to view the manager as the chief agent for establishing and maintaining the psychological

contract.’ Therefore, this research focuses on the immediate manager as the agent representing the

organization.

586 A. G. TEKLEAB AND M. S. TAYLOR

Copyright # 2003 John Wiley & Sons, Ltd. J. Organiz. Behav. 24, 585–608 (2003)

Fig

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AREN’T THERE TWO PARTIES? 587


Determinants of Agreement on Reciprocal Obligations:Employee Tenure with Manager

Prior studies of the psychological contract development have found consistently that new hires’ per-

ceptions of their obligations to the organization tend to decrease over time in the job, while their per-

ceptions of the organization’s obligations to them tend to increase (Robinson, Kraatz, & Rousseau,

1994). This effect is referred to as the instrumental perspective, in which one party overestimates

its own contributions to a relationship and underestimates that of the other (Taylor & Brown,

1988). As Robinson et al. (1994, p. 140) state, ‘continuing to work for the employer is, in itself, a

contribution that increases the employees’ perceived entitlement and decreases their perceived debt’.

Despite the existence of an instrumental effect that is expected to contribute to low agreement, if both

parties work together long enough, at some point we might expect their perspectives on the reciprocal

obligations to display greater convergence due to the sharing of information, complaints about per-

ceived violations, and so forth. In fact, Rousseau (2001) states that one factor that might lead to

mutuality (or agreement) between the parties is shared information between the parties.

Thus, we expect that longer employee tenure with the manager results in more information sharing

between them, which in turn should enhance their agreement on their reciprocal obligations within the

employment relationship. Hence, we predict the following:

Hypothesis 1a: Employee tenure with the manager will be positively related to agreement between

the manager and the employee on employees’ obligations to the organization.

Hypothesis 1b: Employee tenure with the manager will be positively related to agreement between

the manager and the employee on organization’s obligations to the employees.

Determinants of Agreement on Reciprocal Obligations:Leader–Member Exchange (LMX)

In addition to employee tenure with their manager, another variable that might enhance or impair the

sharing of information is the quality of the manager–employee relationship, or leader–member

exchange (LMX; Graen, 1976; Liden & Graen, 1980; Liden, Wayne, & Sparrowe, 2000). We suggest

that communication about reciprocal obligations between an organizational manager and his/her

employee is likely to be more effective when the two have a higher-quality exchange relationship,

characterized by increased breadth and extent of contribution, as well as level of trust (see reviews

by Graen & Uhl-Bien, 1995; Schriesheim, Castro, & Cogliser, 1999). Therefore, we expect that

high-LMX relationships will provide many opportunities to discuss reciprocal obligations and the trust

level needed to take advantage of these opportunities. Thus, a higher-quality LMX relationship, as

opposed to a low-quality one, seems likely to result in a higher level of communication about recipro-

cal obligations between the manager and employee, which, in turn, will tend to enhance their level of

agreement on these obligations. Note that this study focuses on both employees’ and managers’ per-

spectives of the existing relationship. Thus, we expect that LMX, whether reported by managers or

employees, should be related to agreement on obligations. Hence, we predict the following:

Hypothesis 2a: The quality of LMX between manager and employee will be positively related to

their level of agreement on employees’ obligations to the organization.



Hypothesis 2b: The quality of LMX between manager and employee will be positively related to

their level of agreement on the organization’s obligations to the employee.

Consequences of Agreement on Reciprocal Obligations

Predictions about managers’ and employees’ level of agreement on reciprocal obligations are impor-

tant because they are expected to affect each party’s perceptions of contract violations by the other.

Morrison and Robinson (1997) propose that incongruence (or disagreement) between two parties of

the relationship might cause a party of the relationship to perceive violations. Coyle-Shapiro and

Kessler (2000, p. 907) further elaborate by stating:

. . . [incongruence] occurs when the two parties to the exchange have different understandings of

the promises made. In this case, the employer may not perceive an obligation to exist whereas the

employee perceives not only does the obligation exist but the employer has failed in fulfilling it.

Similarly, we argue that parties who agree on their joint obligations are less likely to violate them unin-

tentionally, i.e., simply because they were unaware of the other party’s perceptions of their obligations

to the relationship. We are not arguing, however, that higher agreement will affect the party’s inten-

tional contract violations, i.e., one party’s intentional violation of its obligations. Nevertheless, with all

other factors constant, a high level of agreement on one party’s obligations (e.g. Party A’s obligations)

will make it less likely that the other party (Party B) will perceive a contract violation by Party A.

Note, however, that we expect a relationship between agreement on employees’ obligations and

managers’ perception of employees’ violation, but not employees’ perception of their violation. We

believe that the self-enhancement bias found in the self-esteem literature biases both parties against

recognizing and therefore against stating their own violations of their obligations under the psycholo-

gical contract. This self-enhancement bias will lower any correlation between the agreement of the two

parties on their own obligations under the contract and the ‘violating’ party’s self-statement about the

extent to which he/she has violated the psychological contract. Similarly, we expect a relationship

between agreement on organization’s obligations and employees’ perception of violations by the orga-

nization, but not managers’ perceptions of organizational violations. Again we argue that it is less

likely that managers will report contract violations by the organization against the employee than that

they will report contract violations by the employee against the organization, and so we posit:

Hypothesis 3a: Agreement on employees’ obligations to the organization will be inversely related

to managers’ perceptions of employee violation of the contract.

Hypothesis 3b: Agreement on organization’s obligations to employees will be inversely related to

employees’ perceptions of organization violation of the contract.

Consequences of Perception of Violations

A number of prior studies have found that employees’ perceptions of organizational contract violations

tend to yield many unfavorable employee reactions involving both attitudes and behaviors, for exam-

ple, job satisfaction, organizational commitment, organizational citizenship behaviors (OCBs), intent

to leave, anti-citizenship behaviors, and turnover (e.g., Coyle-Shapiro & Kessler, 2000; Robinson &

Morrison, 1995; Robinson & Morrison, 2000; Robinson & Rousseau, 1994; Tekleab & Taylor, 2000;



Turnley & Feldman, 2000). Consistent with these findings, we expect to replicate these effects for job

satisfaction, OCBs, performance evaluations, and turnover intentions.

Hypothesis 4a: Employees’ perceptions of contract violations by the organization will be nega-

tively related to their (i) job satisfaction, (ii) performance, (iii) OCBs and positively related to

(iv) intent to leave the organization.

However, it is also possible to extend findings of employee reactions to contract violations to the case

of an organizational representative, the manager. Rousseau and McLean Parks (1993) have argued that

violated contracts lead to adverse reaction by the injured party. Managers, acting as agents for the orga-

nization, often play a primary role in administering a contract to their employees (Shore & Tetrick,

1994). So, as the organization’s agent for contract administration, we expect that managers will react

unfavorably to employee contract violation and that their reactions will take the form of unfavorable

assessments of two key employee contributions on the job, their OCBs and their performance. Thus,

we hypothesize the following:

Hypothesis 4b: Managers’ perceptions of contract violations by the employee will be inversely

related to (i) their ratings of employee OCBs and (ii) ratings of the employees’ overall performance.

Organizational Context

Method

Sample and procedure

The second author contacted 478 non-faculty university employees and 283 managers as one part of a

3-year follow-up study examining the parties’ reactions to the large-scale implementation of a new

performance management system. The two parties were contacted through the university’s internal

This study was conducted in a large state university, which was undergoing a major change in the

performance management system. In an effort to improve the performance management system,

this university initiated a system change that was based on theories of procedural and interactional

justice. The nature of the research site, where non-faculty employment typically brings fewer finan-

cial rewards along with greater job stability, might have increased the salience of other outcomes

such as the mutual obligations of employees and their organization and the importance of perceived

contract violations. However, we don’t believe that these factors affected the directionality of the

effects found for participants’ levels of agreement on mutual contract obligations, their perceptions

of contract violations, or their reactions in this study. Therefore, we urge readers to consider the

similarity of this organizational setting to others to which they may wish to generalize.

It is also important to note that the type of dyad in this study would be slightly different from the

type of dyads found in other organizations, where some of the supervisors in this study were faculty

members who had additional assignment as administrators (e.g., department head). Thus, readers

may be cautious in interpreting the results from this study.



mail system and asked to return their completed surveys, identified only by a confidential ID number,

to the researchers in the return mail envelope provided. Both employees and managers were sent two

follow-up notices through the same internal mail system. 298 employees and 151 managers responded,

resulting in response rates of 62.3 per cent and 53.3 per cent, respectively. The researchers then formed

employee–manager dyads based on information about reporting relationships provided to them by the

managers, resulting in 130 matched dyads. Neither manager nor employee respondents included in

the study were different from those dropped in the matching process on any variable of interest

in the study.

In terms of the characteristics of the managers, 51 per cent were male, 92 per cent were between 30

and 60 years old, and 88 per cent worked for the university for more than 3 years, in administrative,

research/technical, or operation jobs. The demographic characteristics of employee respondents were

as follows: 75 per cent were female, 86 per cent were in the age range between 30 and 60, all worked

for the university for more than 3 years, and 64 per cent worked with the manager for more than 3

years. Employees worked as administrative assistants, research assistants, and accountants.

Measures

We chose to limit the number of scales and items in the research in order to increase response rate.

Attempting to limit survey completion time to no more than 30 minutes; we included some two item

scales for well-established measures, e.g., job satisfaction and turnover intentions. Most survey items

were either adopted from previous studies (e.g., Robinson et al., 1994) or selected from longer scales.

We piloted the survey on a sample of part-time working MBAs for the purpose of establishing read-

ability and completion time. Managers and employees were asked similar questions on LMX, employ-

ee’s obligations, organization’s obligations, contract violations by employees, and contract violations

by the organization. Moreover, we asked managers to rate their employees’ OCBs and to provide the

most recent performance evaluation they had given the employee in the form of an overall rating.

Unless described otherwise, the response scale for the following variables was a 5-point Likert scale

(1¼ strongly disagree to 5¼ strongly agree). We provide greater detail on the measures below. Appen-

dix A presents a list of all items used in this study.

Leader–member exchangeLMX was assessed with seven items taken from the LMX scale (LMX-VII; Graen & Scandura, 1987).

Employees reported their exchange relationship with their manager, as did managers with their

employees. The items had coefficient alphas of 0.89 in the employee survey and 0.70 in the manager

survey.

Employees’ obligations to the organizationBoth employees and managers were asked to indicate employees’ obligations to the organization using

six items similar to those in Robinson et al. (1994). The items had coefficient alphas of 0.77 in the

employee survey and 0.80 in the manager survey.

Organizational obligations to the employeeBoth employees and managers were asked to indicate the organization’s obligation to employees using

six items similar to the ones used in Robinson et al.’s (1994) study. The items had coefficient alphas of

0.92 in the employee survey and 0.81 in the manager survey.



Psychological contract violation by the employeeBoth managers’ and employees’ perceptions of contract violations by the employee were measured

with two items restated from Robinson et al.’s (1994) study. The items were stated in a fulfillment

scale, and then we reverse coded them to be consistent with the psychological contract violation con-

struct. The coefficient alphas for the items were 0.65 in the employee survey and 0.90 in the manager

survey.

Psychological contract violation by the organizationManagers’ and employees’ perceptions of the psychological contract violations by the organization

were measured with three items, which were similar to Robinson et al.’s (1994) measures. Two of

the three items were assessed in a fulfillment scale, and then we reverse coded them to be consistent

with the psychological contract violation construct. The coefficient alphas were 0.81 in the employee

survey and 0.85 in the manager obligation.

Employee job satisfactionEmployee job satisfaction was assessed with two items taken from the Index of Organization Reac-

tions (Dunham & Smith, 1979). The items had a coefficient alpha of 0.75.

Employee intent to leaveEmployee intent to leave was measured with two items taken from Cammann, Fichman, Jenkins, and

Klesh (1979), cited in Cook, Hepworth, Wall, and Warr (1981). The coefficient alpha for the measure

was 0.85.

Employee organizational citizenship behavior (OCB)Managers were asked to report employees’ OCBs with five items similar to the ones used in other

studies (e.g., Masterson, Lewis, Goldman, & Taylor, 2000). The items had a coefficient alpha of 0.85.

Employee performanceManagers were asked to report the overall evaluation that they gave to their respective employee in the

most recent performance evaluation, ranging from 1 (unsatisfactory) to 5 (outstanding).

Analysis

We tested our hypotheses with four different analytical procedures that responded to the nature of the

research questions. First, we ran paired t-tests to examine whether there were differences in percep-

tions of obligations and violations by the manager and the employee. Then, we followed Edwards’

(1995) procedure (i.e., use of multivariate regression analyses) to test hypotheses on antecedents of

agreement on obligations (Hypotheses 1 and 2). Edwards (1995) suggests that using difference score

or any derivation of these scores hides the true relationship between the predictors and the dependent

variables from which the difference scores are derived. Thus, estimating both dependent variables

simultaneously would show the direction of the relationships, providing better understanding of pre-

dictors and consequences of agreements. As Edwards (1995) suggests, we drew the regression lines for

each dependent variable if at least one of the coefficients is significant. The lines were then examined

to determine if they approached or departed from each other when the independent variable increased

from low to high. Agreement is supported when the two lines approach each other as the independent

variable increases from low to high. We refer interested readers to Edwards (1995) for a detailed

description of the procedure.



To test Hypotheses 3a and 3b involving agreements as predictors, we used polynomial regression

analysis procedure (Edwards, 1994, 2001). Polynomial regression analysis has been advocated as the

preferred procedure for difference scores to examine agreements as predictors of outcome variables

(e.g., managers’ perception of employee violations of the contract). Edwards (1994, 2001) provides

a detailed description of the advantages of this analytical procedure; we refer interested readers to

his work. However, we briefly describe the procedure as it fits to the needs of this study. Edwards

(1994, 2001) suggests a two-step procedure, referred to as Model 1 and Model 2. In Model 1, we

entered (a) managers’ perceptions and (b) employees’ perceptions of obligations. The significant R2

in this step indicates a direct relationship between the predictors and the outcome variable (e.g., man-

agers’ perception of employee violation of the contract). In Model 2, we entered (a) the square of the

managers’ perception, (2) a product of the managers’ and employees’ perceptions, and (3) the square

of employees’ perception. Entering these variables is an important aspect of the procedure for exam-

ining the role of agreement on the outcome variables (see Edwards 1994, 2001). A significant incre-

mental R2 in this model indicates a curvilinear relationship between the predictors and the outcome

variable. Finally, we ran hierarchical univariate regression analyses to test consequences of perceptions

of violations (Hypotheses 4a and 4b).

Results

Means, standard deviations, correlations, and reliabilities of the variables used in the analyses appear

in Table 1.

We first conducted exploratory tests of similarities/differences in perceptions between the managers

and the employees. Paired t-tests show that managers’ and employees’ perceptions of employee obli-

gations were significantly different from each other. Specifically, managers perceived lower level of

employees’ obligations than did employees (M¼�0.19, SD¼ 0.81, t¼�2.65, p< 0.01, see Table 2).

On the other hand, the two parties did not differ in their perceptions of the organization’s obligations to

the employees’ (M¼ 0.08, SD¼ 0.98, t¼ 0.926, p> 0.05, see Table 2). We also performed similar

comparisons of the two parties’ perceptions of violations by either party. Not surprisingly, managers

reported a higher level of employee violations than did employees (M¼ 0.36, SD¼ 0.94, t¼ 4.390,

p< 0.001). However, the two parties did not differ significantly in their perceptions of the organiza-

tion’s violations of its obligations to employees (M¼�0.08, SD¼ 1.08, t¼�0.83, p> 0.05). The two

parties also differed in their report of LMX in that managers reported higher quality of LMX than did

employees (M¼ 0.32, SD¼ 0.81, t¼ 4.48, p> 0.001).

In Hypothesis 1a, we predicted a direct relationship between employee tenure with the manager and

agreement between the manager and the employee on employees’ obligations to the organization. As

discussed in Edwards (1995), we examined the relationship between the predictor (i.e., tenure) and

each of the dependent variables (managers’ perceptions and employees’ perceptions of employees’

obligations) to arrive at a conclusion for agreement between the two parties. As shown in Table

3(a), results from the multivariate regression indicate that tenure working together is marginally

related to managers’ perception of employees’ obligation (�¼ 0.14, p< 0.10), while it was negatively

and significantly related to employees’ obligation to the organization (�¼�0.28, p< 0.01). We also

present the figures representing these relationships. Figure 2(a) shows that as tenure increases, agree-

ment on employees’ obligations tends to increase, which is indicated by the convergence of the two

lines. Thus, these results provide support for Hypothesis 1a.

In Hypothesis 1b, we predicted a similar effect of tenure on agreement on organization’s obligations.

Tenure was not related to either employees’ or managers’ perceptions of organization obligations (see



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les.



Table 3b). Figure 2(b) graphically demonstrates that the two lines are nearly parallel to each other.

Thus, results failed to support Hypothesis 1b.

In Hypotheses 2a and 2b, we predicted that LMX would be directly and positively related to agree-

ment on employees’ obligations and organizations’ obligations, respectively. As shown in Table 3(a),

Table 2. Paired-sample test results

Variables Employees’ Managers’ Paired Mean differencesperception perception differences t-values ( p-values)

Mean SD Mean SD Mean SD

Employee’s obligations to 4.04 0.62 3.85 0.61 �0.19 0.81 �2.653 (0.009)the organizationOrganization’s obligations 4.08 0.83 4.16 0.54 0.08 0.98 0.926 (0.356)to the employeePsychological contract violation 1.58 0.54 1.94 0.84 0.36 0.94 4.390 (0.000)by the employeePsychological contract violation 2.45 0.82 2.37 0.74 �0.08 1.08 �0.828 (0.409)by the organizationLeader–member exchange 3.42 0.85 3.74 0.44 0.32 0.81 4.476 (0.000)

Table 3. Multivariate regression analyses: predicting agreement on obligations

(a) Agreement on employees’ obligations

Independent Variables Dependent variables

Wilks’ Managers’ perception of Employees’ perception oflambda employees’ obligations employees’ obligations

(�) b SE � b SE �

Intercept 0.63 2.04 0.46 3.70 0.49Tenure working together 0.89*** 0.02y 0.01 0.14y �0.04 0.01 �0.28**Leader–member exchange (employee) 0.98 0.11 0.07 0.15 �0.03 0.07 �0.04Leader–member exchange (manager) 0.93* 0.36** 0.13 0.26** 0.16 0.14 0.11

R2 0.15 0.08F 6.45*** 3.59*

(b) Agreement on organization’s obligations

Independent variables Dependent variables

Wilks’ Managers’ perception of Employees’ perception oflambda organization’s obligations organization’s obligations

(�) b SE � b SE �

Intercept 0.57 2.95 0.42 4.35 0.65Tenure working together 1.00 0.00 0.01 0.00 �0.01 0.02 �0.05Leader–member exchange (employee) 0.99 �0.01 0.06 �0.02 0.11 0.09 0.11Leader–member exchange (manager) 0.93* 0.33** 0.12 0.27*** �0.16 0.18 �0.08

R2 0.07 0.02F 2.32* 1.60

yp< 0.10; *p< 0.05; **p< 0.01; ***p< 0.001.



Figure 2. Relationship between employee tenure with the manager and agreement on perceptions of employees’and organization’s obligations. (a) Tenure and employee obligations. (b) Tenure and organization’s obligation



employees’ reports of LMX were not related to either employees’ perceptions of their obligations or

managers’ perceptions of employee obligations to the organization. Figure 3(a) shows that the two

lines (i.e., the lines with squares and asterisk symbols) are nearly parallel; hence, employee report

of LMX was not related to agreement on employee obligations.

On the other hand, manager reports of LMX were positively related to their perceptions of employ-

ees’ obligations (�¼ 0.26, p< 0.01), but not related to employees’ perceptions of their obligations to

the organization (�¼ 0.11, p> 0.10). However, as shown in Figure 3(a), the two lines move in the

same direction and the gap between the two lines does not seem to narrow as LMX increases. Thus,

to examine the means at both ends, we ran ANOVA by forming four groups based on (1) managers’

reports of LMX, (2) employees’ reports of their obligations, and (3) managers’ reports of employees’

obligations. We assigned ‘0’ for cases with low LMX and low managers’ reports of employee obliga-

tions, ‘1’ for cases with low LMX and low employees’ reports of employees’ obligations, ‘2’ for cases

with high LMX and high managers’ reports of employees’ obligations, and ‘3’ for cases with high

LMX and high employees’ report of employees’ obligations. We compared the means for cases

assigned ‘0’ and ‘1’ to examine whether the two reports of employee obligations were significantly

different from each other when LMX as reported by the manager was low. The ANOVA results showed

that they differed significantly (M¼ 3.40, SD¼ 0.45 and M¼ 3.65, SD¼ 0.33, respectively,

p¼ 0.005). Comparison of cases assigned ‘2’ and ‘3’ revealed that the means were marginally signif-

icant (M¼ 4.37, SD¼ 0.33 and M¼ 4.53, SD¼ 0.32, respectively, p¼ 0.094) when LMX as reported

by the manager was high. Thus, we concluded that both parties agree on employees’ obligations as

indicated by the convergence of the two lines (i.e., the diamond and triangle lines). That is, managers’

reports of LMX were related to agreement on employee obligations to the organization, which

provided partial support for Hypothesis 2a.

In Hypothesis 2b, we predicted a similar role of LMX on agreement on the organization’s obliga-

tions to employees. Again, only LMX reported by the managers was positively related to their percep-

tions of the organization’s obligations to employees. In Figure 3(b), the lines with diamonds and

triangles cross each other at the midpoint. These lines show that LMX as reported by the manager

is initially positively related to agreement on organization’s obligations, but then it is negatively

related to this agreement. On the other hand, the lines with squares and asterisk symbols show that

LMX reported by the employee is not related to agreement on organizational obligations since the

two lines are essentially parallel. Overall, these results provide a partial support for Hypothesis 2b.

We predicted in Hypothesis 3a that agreement on employees’ obligations would be negatively

related to managers’ perceptions of employee violations. As can be seen in Table 4, the overall model

was significant (R2¼ 0.17, F¼ 12.86, p< 0.001), indicating that there is a main effect of the predictors

on managerial perception of employee violations. On the other hand, Model 2, which includes the

squared and interaction terms, explained additional variance but was only marginally significant

(R2¼ 0.04, p< 0.10). Further examination of the table shows that managers’ perceptions of employ-

ees’ obligations were negatively related to their perception of employee violations (�¼�0.41,

p< 0.001), while employees’ perceptions of their obligations were not related to managers’ percep-

tions of employee violations.

Since there was an indication of a curvilinear relationship between agreement on employees’

obligations and managers’ perception of employee violations (i.e., significant change in R2 in

Model 2), we created a figure (i.e., surface) representing this relationship and examined whether

the curvilinear relationship was on the Y¼X line (i.e., the line from the near corner of the figure to

the far corner, see Figure 4), Y¼�X line (i.e., the line from the left corner of the figure to the right

corner, see Figure 4), or both. To determine the curvilinearity of the figure along the Y¼X line, we let

a1¼ b1þ b2 and a2¼ b3þ b4þ b5, where b1 is the beta for managers’ perception of employees’ obli-

gations, b2 is the beta for employees’ perception of employees’ obligations, b3 is beta for managers’



Figure 3. Relationship between leader–member exchange and agreement on perception of employees’ andorganization’s obligations. (a) Leader–member exchange and employees’ obligations. (b) Leader–member

exchange and organization’s obligations



Table 4. Hierarchical regression analyses: predicting perceptions of violations by employees and the organization(a) Employee violations


Managers’ perception ofemployees’ violations

b SE �

Step 1Intercept 1.94 0.07Managers’ perception of employees’ obligations (EmpObl_mgr) �0.57*** 0.11 �0.41***Employees’ perception of employees’ obligations (EmpObl_emp) 0.11 0.11 0.08

R2 0.17F 12.86***Step 2Intercept 1.85 0.08Managers’ perception of employees’ obligations (EmpObl_mgr) �0.48*** 0.12 �0.35***Employees’ perception of employees’ obligations (EmpObl_emp) 0.13 0.12 0.10EmpObl_mgr2 0.14 0.10 0.12EmpObl_mgr*EmpObl_emp 0.28y 0.15 0.15y

EmpObl_emp2 0.08 0.10 0.07

R2 0.21F 6.59***�R2 0.04�F 2.17y

(b) Organization violations


Employees’ perception oforganization’s violations

b SE �

Step 1Intercept 2.45 0.07Managers’ perception of organization’s obligations (OrgObl_mgr) �0.15 0.13 �0.10Employees’ perception of organization’s obligations (OrgObl_emp) �0.09 0.09 �0.09

R2 0.02F 1.13Step 2Intercept 2.36 0.11Managers’ perception of organization’s obligations (OrgObl_mgr) �0.12 0.14 �0.08Employees’ perception of organization’s obligations (OrgObl_emp) 0.07 0.11 0.07OrgObl_mgr2 �0.02 0.21 �0.01OrgObl_mgr*OrgObl_emp 0.11 0.19 0.05OrgObl_emp2 0.13* 0.07 0.23*

R2 0.06F 1.50�R2 0.04�F 1.74

yp< 0.10; *p< 0.05; **p< 0.01; ***p< 0.001.



perception of employees’ obligations squared, b4 is the beta of the cross-product of managers’ and

employees’ perceptions of employees’ obligations, and b5 is the beta for employees’ perception of

employees’ obligation squared (Edwards, 1994, 2001). We then determined the curvature of the sur-

faces along the Y¼�X line by letting a1¼ b1� b2 and a2¼ b3� b4þ b5.

The values from these equations provide two important features of the surface. First, if a2 is different

from zero, then the hypothesis that the surface is flat along the Y¼X or Y¼ �X line is rejected,

which means that agreement or disagreement, respectively, and outcome variables have curvilinear

relationships. Second, the sign of a2 indicates the nature of the surface, where a positive value indicates

that the surface is concave and a negative value indicates the surface is convex along the Y¼X line. In

addition, a negative value indicates the surface is concave and a positive value indicates it is convex

along the Y¼�X line. To provide support for Hypothesis 3a, we should find that managers would

perceive higher violation when managers perceive higher obligations than employees do. Pictorially,

we should see a flat, non-significant coefficient on the Y¼X line, and a positive slope on the Y¼�X

line.

Figure 4 presents the surface of the relationships. On the line Y¼X, there is a concave (or ‘U’ shape)

curvilinear relationship between agreement and managers’ perception of employee violations

(a1¼�0.35, p< 0.05; a2¼ 0.50, p< 0.05). This result implies that when the two parties agree that

obligations are either very low or very high, supervisors perceive higher employee violations. Note,

however, that managers perceive higher violations when they agree that employees owe less to the

organization than when they agree that employees owe more to the organization.

On the Y¼�X line, which shows the relationship between disagreement and managers’ perceptions

of employee violations, the surface is a straight line, as demonstrated by a significant value for a1

(a1¼�0.62, p< 0.001) but non-significant value for a2 (a2¼�0.05, p> 0.10). Note that managers

Figure 4. Agreement on employees’ obligations and managers’ perception of employee violation



perceived higher violations when they perceived employees’ obligations lower than employees’ per-

ceptions of their own obligations to the organization. Overall, these results were opposite to our expec-

tation, and failed to provide support for Hypothesis 3a.

We predicted in Hypothesis 3b that agreement on an organization’s obligations would be negatively

related to employees’ perception of violations by the organization. As presented in Table 4(b), employ-

ees’ perception of organizational obligation was not related to either employees’ perception of orga-

nizational violation or the managers’ perceptions of organizational violations. Neither was managerial

perception of organizational obligation related to either party’s perception of the organization’s viola-

tion of its contract with employees. This means that the surface will be flat both on the Y¼X and

Y¼�X lines. Although the flat surface on the Y¼X line provided initial support for Hypothesis 3b,

the non-significant slope on the Y¼�X line failed to support this hypothesis. Hence, these results pro-

vide partial support for Hypothesis 3b.

Hypothesis 4a predicted that employees’ perception of violations by the organization would be

negatively related to their job satisfaction, OCBs, and performance, and positively related to their

intent to leave. As shown in Table 5, employees’ perceptions of violations by the organization were

negatively related to their job satisfaction (�¼�0.27, p< 0.01), and positively related to their intent to

leave the organization (�¼ 0.17, p< 0.001). However, employees’ perception of the organization’s

violation was not related to managers’ reports of employees’ OCBs and performance ratings. These

results provide support for Hypotheses 4a (i) and 4a (iv), but not for Hypotheses 4a (ii) and 4a (iii).

Hypothesis 4b predicted that manager perception of violations by the employee would be inversely

related to their report of employees’ OCB and overall performance rating of the employees. Hypoth-

esis 4b was supported (�¼�0.56, p< 0.001).

Table 5. Univariate regression analyses: predicting manager and employee reactions to violations

(a) Employee reactions as outcome variables

Predictors Employee job satisfaction Employee intent to leave

b SE � b SE �

Constant 4.91 0.23 1.23 0.32Managers’ perception of employees’ violation �0.34*** 0.08 �0.36*** 0.28* 0.11 0.22*Employees’ perception of organization’s violation �0.26*** 0.08 �0.27** 0.24* 0.11 0.17*

R2 0.24 0.10F 19.45*** 7.00***

(b) Manager reactions as outcome variables

Predictors Manager report of Manager report ofemployee OCB employee performance

b SE � b SE �

Constant 4.77 0.19 4.71 0.22Managers’ perception of employees’ violation �0.64*** 0.06 �0.69*** �0.54*** 0.07 �0.56***Employees’ perception of organization’s violation �0.04 0.07 �0.04 �0.04 0.08 �0.04

R2 0.47 0.33F 55.08*** 29.46***

yp< 0.10; *p< 0.05; **p< 0.01; ***p< 0.001.



Discussion

This study examined antecedents and consequences of employees’ and managers’ levels of agreement

on each party’s obligations in the employment exchange. In particular, we assessed employee tenure

with the manager and the quality of LMX as hypothesized antecedents of the level of agreement

between the two parties on the reciprocal obligations. We also examined whether agreement in turn

predicts the perceptions of violation. Furthermore, we assessed the consequences of perceived viola-

tions by each party on employee-related outcomes.

In general, we found that tenure with the manager predicted agreement on employees’ obligations.

This result implies that managers and employees have discrepant perceptions of obligations when their

tenure together is short. However, those who have worked together for a relatively longer period of

time tend to agree on employees’ obligations. Specifically, employees tend to feel obligated more

when they work for relatively less time than they do for a longer period of time. However, in line with

the instrumental explanation (Taylor & Brown, 1988), employees tend to perceive reduced obligations

when they work with their manager for longer periods of time. This is also consistent with prior studies

on the psychological contract (see Robinson et al., 1994). On the other hand, managers tend to perceive

more employees’ obligations when they work longer with their subordinates. Hence, these results

show the differing cognitions underlying agreement on employees’ obligations. That is, the two parties

agree on obligations because employees lower their perceived obligations to the organization while

managers perceive more obligations as the employee works for a longer period of time. We note, how-

ever, that this conclusion is based on between-person, not within-person, analysis. The results of this

study failed to support the prediction that employee tenure with the manager would be related to agree-

ment on organization’s obligation. Although unexpected, it could be that there was not sufficient var-

iance to be explained in organization’s obligations. Indeed, the paired t-test indicated that the two

parties agree on the organization’s obligations. Thus, employee tenure with the manager is not relevant

for agreement on organization obligations to employees.

As expected, we found that LMX reported by the manager predicted agreement on employees’ obli-

gations and organization’s obligations. Specifically, the higher the quality of LMX, the better informa-

tion shared on reciprocal obligations. It is important to note that the managers’ perceptions of the

organization’s obligations to employees increase as the quality of LMX improves. This is in line with

the LMX literature: the better the quality of LMX, the better the opportunity to reciprocate, in this

case, perceiving more organizational obligations to the employees.

Despite this, we didn’t find a relationship between LMX, as reported by the employee, and agree-

ment on reciprocal obligations. Although this is an unexpected finding, it is also interesting because

LMX as reported by managers has more predictive power than that reported by the employee. This

may not be surprising because, as shown in Table 2, the two parties significantly differ from each other

in reporting the quality of LMX. We note, however, that we are not challenging prior findings (e.g.,

Cropanzano, Prehar, & Chen, 2002; Cropanzano, Rupp, Mohler, & Schminke, 2001; Liden, Sparrowe,

& Wayne, 1997; Masterson et al., 2000; Wayne, Shore, Bommer, & Tetrick, 2002) that LMX assessed

by employees would have predictive value. In the context of agreement on obligations, which takes

both parties’ perceptions into consideration, these results reveal that LMX reported by the manager is

more important than that reported by employees.

We expected that the level of agreement on employees’ obligations would be negatively related to the

manager’s perception of employee violation of obligations to the organization. This was not supported,

since managers tended to perceive fewer employee violations when both agreed that employees owed at

a medium level, whereas they perceived higher employee violations when both agreed that employees

owed very high or very low obligations to the organization. In addition, managers perceived low levels



of violations when they perceived higher employees’ obligations than did employees. One possible

reason could be that the relationship between a manager’s perception of employees’ obligations

and employee violation of the contract was stronger than the relationship between employees’ percep-

tion of their obligations and violation of their obligations to the organization. This might have forced

the overall relationship to be negative on the disagreement line, i.e., Y¼�X axis, implying that agree-

ment on obligation may not necessarily be useful, particularly if these results are replicated in other

studies. We strongly suggest other researchers to re-examine these relationships with other samples.

Consistent with studies on the employee’s side of psychological contracts, we found that the driving

force for employees’ job satisfaction and their intent to leave is their perception of organizational con-

tract violations. Even more interesting given the rarity of such data, managers’ perceptions of

employee contract violations were negatively related to managers’ report of employees’ OCBs and

performance. These findings suggest that managers’ judgments of employees’ contributions are

affected by their perception that the employee has violated their obligations to the organization under

the psychological contract, and are consistent with exchange theory propositions that both parties react

negatively to perceived violations by the other (Rousseau and McLean Parks, 1993). Note, however,

that although we interpret these findings to mean that managers reciprocated perceived contract viola-

tions against the organization by their employees by giving lower performance and OCB ratings, an

interpretation consistent with past research (see Coyle-Shapiro & Kessler, 2002), the cross-sectional

nature of this study does not permit firm conclusions about the directionality of these relationships.

Thus, it is also possible that managers’ perceptions of employee contract violations might have

resulted from their observations of low levels of employees’ OCBs and performance.

We predicted that employees’ perceptions of organization violation would be negatively related to a

managerial report of employees’ OCBs and performance. However, these hypotheses were not sup-

ported. One possible reason could be that employees might not have agreed with the manager that they

violated their contract to the organization; hence, they didn’t deserve lower ratings or OCB reports.

Indeed, as shown in Table 2, employees reported significantly lower levels of their own violations than

managers did in their reports. In the case where both agree on organization violations, managers’ per-

ceptions of organization violation were positively related to employee turnover intentions and nega-

tively related to employees’ job satisfaction. Thus, consistent with Rousseau’s (1995) and Rousseau

and McLean Parks’ (1993) predictions, those who perceive violations react adversely to such viola-

tions.

Results should be interpreted in terms of study limitations, one of which was the use of a concurrent

design that did not allow us to draw conclusions of causality or to make statements about changes in

agreement over time. Hence, we suggest that future researchers collect data longitudinally and attempt

to replicate these findings. Another limitation was that the reliability for employees’ perception of

employee violation of the contract measure was relatively low. Although this low reliability measure

did not seem to indicate unexpected findings in this study, we acknowledge the limitation and encou-

rage use of better measures in the future.

Despite these limitations, our results have theoretical and practical implications. Theoretically, this

study extends extant research on the organization’s perspective of parties’ mutual obligations in the

employment relationship and hopefully stimulates the need for more research incorporating the per-

spectives of both parties. In addition, it provides a stepping-stone to further extend our understanding

of the reciprocal obligations from both parties in the contract. In addition to the psychological contract

literature, this study contributes to LMX literature, in that few studies (with the exception of Colella &

Varma, 2001) assess LMX from both parties, but this study is the first to directly compare the two

assessments and show how they predict agreement on obligations. As such, this study indicates that

LMX reported by managers has more predictive value than that reported by employees. Practically,

this study suggests to organizational agents that creating a conducive environment for communicating



reciprocal obligations may be one basis for minimizing perceptions of violations. Finally, the results of

the study signify the importance of clarifying employees’ obligations by organizational agents, since

managers’ perceptions of employees’ violations were found to affect their assessment of employees’

performance and OCBs.

Future research direction

Our study focused on two predictors (employee tenure with the manager and LMX) of agreement on

employees’ and organizations’ obligations. However, we believe that the search for additional deter-

minants of agreement on reciprocal obligations between the employer and the employee is critical

because prompt communications about reciprocal obligations set the stage for future perceptions of

violations. For example, pre- and post-employment practices might be important variables influencing

agreements between the two parties. Specifically, organizations’ provisions for realistic job previews

for applicants prior to employment and effective socialization for new hires might well create sources

of information for better understanding of their reciprocal obligations.

Following prior research on LMX, this study also assumed that LMX would indicate a better oppor-

tunity for the manager and the employee to communicate about reciprocal obligations. However, we

didn’t specifically assess the content of information; neither did we collect data on the opportunity for

communication. Thus, we encourage future researchers to focus on variables, including opportunity

for communication and the contents of such communication, which would possibly mediate the rela-

tionship between LMX and agreement on obligations.

Another critical issue concerns organizational representatives who speak on behalf of the organiza-

tion. Prior research, including this study, has identified the immediate supervisor as a primary agent

who may describe the organization’s side of the psychological contracts (Shore & Tetrick, 1994).

Although this recognition seems well grounded due to the psychological and physical closeness of

the supervisor to the employee, it is possible to argue that the inclusion of other organizational agents

(e.g., human resource managers, interviewers, top managers) in research on the organization’s per-

spective is a wise path for future research. Indeed, Rousseau (1995) presented this entire group as

potential respondents to the organizational side of the psychological contracts. One alternative that

future researchers may implement is to aggregate, in some form, the responses from different organiza-

tional agents. Another alternative may be to rely on different organizational agents at varying periods of

the employment process, or for different outcome variables. For example, human resource managers

may espouse an overall organizational philosophy that drives the contracts for different groups of

employees; interviewers may be contacted to indicate what initial reciprocal obligations they commu-

nicate to applicants; and managers/supervisors may be requested to respond to reciprocal obligations

and violations in reference to a particular employee after the latter works for the company for some time.

In summary, this study highlights the importance of understanding the employer’s perspective on the

psychological contract. We hope that future studies in this area will benefit from this study by extend-

ing our understanding of the neglected, but important, party to the employment relationship—the

organization.

Author biographies

Amanuel G. Tekleab is a Doctoral Candidate at the Robert H. Smith School of Business, University of

Maryland. He received his BSc from Addis Ababa University, Addis Ababa, Ethiopia. His current



research interests include psychological contracts, organizational socialization, teams, justice, strate-

gic human resource management, and compensations. He has accepted an Assistant Professor position

at Clarkson University starting in August 2003.

M. Susan Taylor is Dean’s Professor of Human Resources and Director of the Center For Human

Capital, Innovation and Technology (HCIT) at the Robert H. Smith School of Business, University

of Maryland, College Park. Her research interests include the effects of procedurally just HR systems,

the changing nature of the employee–organization relationship, and executive career mobility.

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Appendix: Scales Used in the Study

(A) Measures assessed by both employees and Managers

Employee survey Manager survey

Leader–member exchange Leader–member exchange

i. I always know how satisfied my supervisor i. My employee always knows how satisfied Iis with what I do. am with what he/she does.

ii. My supervisor understands my problems ii. I understand my employee’s problems andand needs well enough. needs well enough.

iii. My supervisor recognizes my potential some iii. I recognize my employee’s potential somebut not enough. but not enough.

iv. My supervisor would personally use his/her iv. I would personally use my power to helppower to help me solve my work problem. him solve my employee’s work problem.

v. I can count on my supervisor to ‘bail me out’ v. My employee can count on me to ‘bail him/herat his/her expense when I really need it. out’ at my expense when he/she really needs it.

vi. I have enough confidence in my supervisor to vi. My employee has enough confidence in me todefend and justify his/her decisions when defend and justify my decisions when I am not presenthe/she is not present to do so. to do so.

vii. My working relationship with my supervisor vii. My working relationship with my employer isis extremely effective. extremely effective.

Employee obligations to the organization Employee obligations to the organization

To what extent do you feel you are obligated to To what extent do you feel your designated employeeprovide each of the following to (company): is obligated to provide each of the following to (company):

i. Volunteer to do tasks that fall outside my i. Volunteer to do tasks that fall outside his/her jobjob description. description.

ii. Develop new skills as needed. ii. Develop new skills as needed.iii. Perform my job in a reliable manner. iii. Perform his/her job in a reliable manner.iv. Deal honestly with (company). iv. Deal honestly with (company).v. Work extra hours if needed to get the job done. v. Work extra hours if needed to get the job done.

vi. Follow (company) policies and procedures. vi. Follow (company) policies and procedures.

Organization obligations to the employee Organization obligations to the employee

To what extent is (company) obligated to To what extent is (company) obligated to provide each ofprovide each of the following to you: the following to your employee:

i. An attractive benefits package. i. An attractive benefits package.ii. Fair treatment. ii. Fair treatment

iii. A relatively secure job. iii. A relatively secure job.iv. Feedback on my performance. iv. Feedback on performance.v. Training. v. Training.

vi. Leadership. vi. Leadership.

Employee violations of contract to the organization Employee violations of contract to the organization

i. I have done a good job of meeting my i. My employee has done a good job of meetingobligations to (company). (R) his/her obligations to (company). (R)

ii. I have fulfilled the most important ii. My employee has fulfilled the most importantobligation to the (company). (R) obligation to the (company). (R)

Organization violation of the contract to the employee Organization violation of the contract to the employee

i. (Company) has done a good job of meeting i. (Company) has done a good job of meeting itsits obligations to me. (R) obligations to my employee. (R)

ii. (Company) has repeatedly failed to meet ii. (Company) has repeatedly failed to meet itsits obligations to me. obligations to my employee.

iii. (Company) has fulfilled the most important iii. (Company) has fulfilled the most importantobligations to me. (R) obligations to my employee. (R)



(B) Measures assessed by Employees1. Tenure with the manager

i. Years working for the current supervisor ______.

2. Job satisfactioni. All in all, I am satisfied with my job.

ii. Compared to most jobs, mine is a pretty good one.

3. Intent to leavei. It is likely that I will leave my employment with (company) within a year.

ii. I intend to keep working at (company) for at least the next 3 years. (R)

(C) Measures assessed by managers1. Employee performance

i. What overall rating did you give your designated employee’s performance for this evaluation? ______.

2. Employee OCBsi. My designated employee goes out of his/her way to help co-workers with work-related problems.

ii. My designated employee encourages others to try new and more effective ways of doing their job.iii. My designated employee performs his/her job duties with unusually few errors.iv. My designated employee defends (company) when other employees criticize it.v. My designated employee defends (company) when outsiders criticize it.



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