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MNC Consulting Group > News > Article > Key Ethical Approaches in HRM and Psychological Contract
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What is human resource management (HRM)?

It is the practice of recruiting, hiring, deploying and managing an organization’s employees. HRM involves conducting job analysis, planning personnel needs, recruiting the right people for the job, orienting and training, managing wages and salaries, providing benefits and incentives, evaluating performance, resolving disputes, and communicating with all employees at all levels.

What is a psychological contract?

This refers to the relationship between an employee and his or her employer. It involves mutual outcomes and inputs of each party.

Key areas of interest 

For us to be able to understand the psychological contract of a company, we have to look at it from all points of view. This includes both the employer and the employee. In order to maintain a proper psychological contract in work place, it is important to be ethical in all that we do. A set code of ethics is very important to ensure that no one feels like their rights are being infringed on or even being ignored.

Ethical issues

A problem or situation that requires a person or organization to choose between alternatives that must be evaluated as right (ethical) or wrong (unethical).

  •  A proper code of ethics

This is important because it helps change the context under which people view employment. The dynamics have changed greatly, and the social values around us are influencing the quality of work done. This is because the environment that one works in affects the attitude towards work. In a friendly environment the output is better than in a hostile environment.

Recently, when operating a business one must abide to certain set code of ethics. This is under the notion of social responsibility by the corporate world. Employers should recognize that everyone working for them has a say and rights that should be put into consideration at all times. If the management is friendly to its subordinates, it makes working more of a team effort than a personal one. The company tends to gain more by using this approach.

  •  Personal beliefs

The next factor that comes into play is the personal beliefs that every single person has. Despite the fact that there is a set code of ethics, what one believes in his/her heart to be right or wrong also plays a great role in either making or breaking the psychological contract at work.

For instant, unjust and corrupt leaders are a good example of people with no sense of wrong and right. If employees abides by a set of principles instilled in them, then this makes workflow easier. However, a certain type of test should be conducted before hiring. The purpose of this test would be to find out what kind of principles the person lives by. Principled people will normally be more aware of the rights of everyone around them and hence reducing the chances of having disgruntled customers.

  •  Breach of contracts

Some situations may arise that may lead to the breach of contract between the management and the employees.  Such cases have led to conflict within the offices and this leads to low work output. An example of such a case is the issue regarding privacy. Sometimes it is hard to protect the interests of the company and at the same time those of the employees.

The companies have to monitor all activities of the employees like the emails sent out of company computers. However, it can be seen as a breach of privacy when they go through these emails .  Having a code of ethics in  human resource management department will be very important at this time. This is because the employees will be able to trust that despite the fact that emails will be sorted through, they are not going to be exposed to the public hence protecting said privacy.

  • Health issue

Another issue regarding privacy is the health issue. Some argue that you have to know the HIV status of all the people you employ. However, the employees reserve the right to keep their health status private. However, it is important to recognize that they have to look after the interests of all other employees and not just the one.

Some human resource management departments were faced with the dilemma on whether to treat them differently or not.  However, people have been made aware of the fact that it cannot be transmitted through contact and hence the rest are all safe. Ethically, you cannot demand that people submit such results. However, the individuals who have such diseases should be careful in their relations with other workers. Due to this reason, most companies prohibit relationships between people working together. Such standards ensure that there is no transmission of such viruses or other STI.

  •   Protection of whistleblowers

The other issue that has come up in regards to privacy is the protection of whistleblowers. Human resource departments have a hard time determining who is in the right and who isn’t. Whistleblowers are employees who report their bosses when they portray certain unethical behavior. This is a very tough situation because the employees are meant to be loyal to their bosses, there are situations where the good of many outweighs the good of one person.

However, if these bosses were to abide by the code of ethics set by the company then there would be no issue to resolve in the first place. By going out of the right path, they put the employees and themselves in a compromising situation that disregards the psychological contract. This is because the bosses also have a responsibility to ensure that the workers are comfortable working at their company. Having a situation where an employee has to turn against the company is not an ideal situation.

  •   Discrimination

Discrimination among the employees is another factor that human resource management departments have to deal with. Seeing as this is a fairly common practice the government had to come up with a framework to prevent discrimination against sex, race religion or even sexual orientation. Such practices within an office could lead to people being disgruntled and purposefully trying to sabotage the company.

It is important that everyone is treated equally. This is the basis of all codes of ethics, and no one should be treated differently for whatever reason. If people learn to view everyone equally, it helps to solidify the loyalty of the employees to the company. This in return means having a better work output and more success for the company. In the past, some people have been sued because of wrongful dismissal especially when it has to do with the factors listed above. In such situations the HRM has to make sure that if the dismissal has to take place, the grounds under which it is done are fair to all.

  •  Discretization 

Another problem that can come up is the discretization of the company. The company can ruin its reputation if it is reported to be involved in any unethical practices. The power of today’s media reaches far and wide. Most companies with legal issues always end up in the newspaper pages. This makes them ineligible for donations from most people.

Actually, no investor is willing to put their money in a company that for example, fires people due to their gender or sex or even discriminates against them. As history would prove, companies that have been involved in sexual harassment lawsuits end up closing down or having to change the entire leadership of the company.  Having a reputation of an ethical and fair employer is essential because only the best and most talented people will want to work with you and hence boost the company to great heights.

Merits of management that is ethical 

Having management that is ethical helps ensure that the employees are loyal to the company. If you treat people in a fair and equal manner then they respect you and are more loyal to you. Most companies have gone bankrupt due to insider trading incidents. This may not be ethical on their part, but it is understandable. If you don’t treat them right, some people will get vindictive and try to bring you down.

However, if you treat your employee’s right, they tend to learn a lot working with you and finally end up becoming masters in the field. This only proves to be of more advantage to both the employer and the employees. Loyal employees act as champions for products produced by the company. This ends up being the greatest marketing tool available. This is because they are marketing something they are passionate about, compared to employees who do not even like their jobs.

Psychological contract vs ethical issues

A psychological contract is a contract just like any other. This means breaching it, will have some serious repercussions for all involved. People react differently once the contract is breached. It all depends on a person’s personality. Most of the fallout is on the side of the company. They stand to lose more than the individual employees.

The main change is in the attitude of the people towards each other or towards their bosses. This is because the trust cultivated between the employees and the employer is broken. As we all know, it is very hard to restore broken trust. Even if it does happen eventually, the damage will already be done. The dynamics at the workplace will be very different, and it can’t go back to how it was before.

A change in dynamics can greatly affect employee work output. If an employee does not feel satisfied with their job, then most of them will end up quitting. If this keeps happening and nothing changes, the company will have issues concerning insufficient workforce. From here on, it becomes a downward spiral. Without enough workers, the duties become too many for those remaining and lawsuits regarding unfriendly working situations will come up. All in all the company loses a lot of resources in terms of cash and human resources.

In conclusion

It is important to conduct all activities, especially in the HRM department in an ethical manner. Following the set guideline helps reduce the chance of conflict ever occurring in the company. It is also important for people to realize that there are always consequences to breaching any contract.

About the Author

Thank you for reading this article. The author, James Ndambiri is an avid Business Advisor and Consultant: A Tax Surgeon, Proficient Accountant, Skilled Auditor, a Guru in Financial and Investment management, Expert in Business Strategy Formulation, Business Transformation Wizard, Family Business Advisor, Lecturer, Business Coach and a Family Man.

James is the Founder, Team Leader, CEO & Managing Partner of MNC Consulting Group. MNC Consulting Group is your most trusted and respected professional business consulting firm recognized by our clients for delivering excellent business advisory and consulting services that create value to their ventures.

With our focus set on value addition, we offer our clients the highest quality professional services in  Audit and assurance, Taxation, Human Resource Management,  Business Process Outsourcing and Consultancy and Advisory that address their business needs through attracting, recruiting and retaining knowledgeable and passionate professionals who enable us to deliver superior results while contributing positively to the community in which we live and work.


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