1. “The Employment Relationship: Crucial Challenges for HR”
Dynamic Business Environment:
Today, we are living in the age of change and dynamism. The world as we know it is increasingly
changing at a faster pace defined by global competition, faster flow of information , easier
communication & increasing complexity of business environment.
With these rapid changes, new paradigms of business are constantly getting created, while the status
quo is continually challenged by forces of technological breakthroughs, economic growth, market
evolution, societal changes, shifts in consumer tastes and political events.
Changing Employment Relationship:
The pace and nature of changes in the environment in which businesses of today operate, the nature of
employment relationship is undergoing fundamental changes. Reengineering, shifting market
downsizing, and make other factors have contributed to rapid changes in existing jobs and creation of
new ones. There are no rigid job definitions. Functional flexibility is the new rule of the game. The
role and composition of teams has expanded. Organisations are increasingly using temporary staffing
and contractual labour as a means to mitigate the cyclical changes as well as manage costs and
efficiencies.
These changes have the following implications on Human Resource Management for both
organizations and employees:
1. Companies no longer assure lifelong employment to their employees
2. Employees do not profess complete and lifelong loyalty to the employer.
3. A talented and committed human resource base is emerging as a source of great competitive
advantage.
4. Increasing focus on HR practices & policies to retain and motivate the workforce
The companies need to invest in their human capital fully well knowing it could be their riskiest
investment. Hence there are risk – mitigation / hedging methods in HR which are observed in recent
times like the ‘Employment Bonds’ that are being used by the organisations as tools to minimise the
potential loss of a bad people investment.
In this quest to win the ‘War for Talent’, employers often make promises that are likely to be met only
if the pace of growth in the business continues steadily. However, the business realities of the
downturn in the recent past have shown us that growth may not be uninterrupted or steady all the

2. while and managing human resources may have to re-adjust to satisfy other stakeholders, particularly
shareholders, by cutting down on promises made earlier, as a consequence, the relationship between
employee & employer is impacted.
Organizational Psychology is a subject which applies the principles of psychology to one of the most
important areas of people’s life – work. Specifically, with the human aspects of the workplace and
aim at improving people’s efficiency, and hence organizational effectiveness, through the knowledge
of human behaviour.
Employment Relationship in Future Organizations addresses the issues of change within employee
relationships resulting from the impact of factors such as:
 International competitive pressures
 technological change
 Changing individual expectations and behaviours
The new employment contract is analysed from inside and outside organizations and the issues are
addressed from both a human resource management and work psychology perspective.
Emerging Challenges for HR – Employment Relationship:
 Trust
Valuing the employment relationship implies that both the parties viz. The employers & the
employees should value trust in the relationship. Employers should pay attention to building
employee’s trust in the organisation through transparency and management credibility. This means
clarifying what is on offer, meeting commitments, or when necessary, explaining what has gone
wrong and monitoring employee attitudes from time to time. Non-fulfilment of perceived obligations
may lead to disconnect. Congruence between what has been promised & what the employees receive
from the organisation strengthens trust in the employment relationship.
 Psychological Contract
Psychological Contract between the employer and the employee involves the beliefs about the
obligations that are predicted on the unstated perception that a promise has been made between the
two stakeholders. Psychological contract is dynamic. It implies the inferences of the ‘Employee value
Proposition’ as promoted by the organisation. It refers to the way the employment relationship is
interpreted. It helps build the people dimension into thinking about organisational strategy. Now, the
purpose of business strategies becomes how to get the best return from their employee’s energies,
knowledge and creativity. Managing the favourable balance of this ever changing Psychological
Contract is going to be one of the biggest challenges for the HR practitioners going forward.

3.  Well Being
The workforce today has matured beyond wanting only compensation at par. They demand more from
the job – well being. The organisations today have also recognised that an employee’s emotional and
physical well being is essential for overall efficiency and maximum productivity of the employee.
Hence a slew of measures will be required to be initiated by the HR Managers of tomorrow.
 Information
One of the cornerstones of any relationship is the openness of communication and the amount of
information sharing that is done in good faith. Employment relationship is no different. Organisations
going forward will have to design policies which enable them to seamlessly share relevant
information on a continuous basis with their employees and engage them in the state of affairs from
time to time as important stakeholders driving in a transparent and accessible environment.
 Fairness
Adopting fair practices and ensuring that there are no inherent bias that creeps into any of the HR
related processes whether it is the recruitment, performance evaluation, compensation parity or even
for that matter, facilitating the exit of an employee, there should be no room for any prejudice,
preconceived mindsets and meritocracy should be the norm. This is a very difficult target to achieve,
especially given that some of these processes rely on a great degree of an individualistic assessment of
the situation. When fairness in process is religiously followed, it significantly reduces the employee –
employer litigation matters. Any lapse in maintaining a stringent check on the fair and unbiased
treatment can lead to the severing of an employment relationship.
 Involvement
Numerous empirical studies over the years have shown that a positively engaged workforce is more
likely to be closer to their optimum performance. Intellectual stimulus and creating a challenging an
compelling environment for every employee’s involvement is going to be a great challenge for the HR
Managers going forward. To keep up the morale of the workforce and to ensure that there are enough
opportunities create to differentiate the quality of internal talent pool, creating platforms for employee
involvement will be vital for maintaining a healthy employment relationship. In the absence of such
available platforms, boredom, monotony, lethargy and atrophy can easily creep in dislodging the
balance & harmony of the employment relationship

4. Consequences of Mismanagement of Employment Relationship:
The problem occurs when the employee perceives that the organisation has failed to meet its
obligations towards the employees and vice versa. This is a cognitive experience when either of the
parties forms judgements regarding the level of breach of the unstated psychological contractual
relationship.
This perception not only leads to negative feelings about the unmet expectations associated with
specific promises, but also to more general feelings of organisational belongingness in term of not
being mutually valued and respected. Such alienation in the minds of the employees would lead to the
following behavioural reactions:
 Lack of commitment
 Increased Absenteeism & tardiness
 Frustration
 Job Insecurity
 Disengagement
Ultimately resulting in Voluntary Turnover / Attrition which eventually results in elevating people
costs to the organisation and lower productivity.
Conclusion:
This is a turbulent time for the HR managers. With increasing number of legal cases involving
employees and the employer, mostly revolving around employments bonds, HR managers have a
strategic role to play. From acquiring the right talent and designing perfect employment agreements to
helping the employees sustain or have a peaceful exit, HR managers have quite a lot on their plates.
Organisations trying to improve the quality or efficiency of employee’s work can gain a great deal
while taking into consideration the holistic view of the Employment Relationship from the point of
view of the employee and vice versa. Empathy from both sides is the key in this symbiotic
association.
A strong organisational culture aligned with the vision and the strategy of the company can elicit the
highest performance and retention of the top talent thereby enabling the organisation to truly emerge
as a great place to work in.
Submitted by
Himanshu Kapadia
Welingkar Institute of Management Development & Research, Mumbai
PGDM 2010 - 2012 | Batch 3
M: +91 - 98202 52331 | E-Mail: drrhimanshu@gmail.com

5. References:
 ‘Employment Relationship’ – by Archana Tyagi & Rakesh Kumar Agarwal – Indian Journal
of Industrial Relations – Vol. 45, No. 3, January, 2010
 Anderson, N & Schalk R (1998), “The Psychological Contract in Retrospect and Prospect” –
Journal of Organisational Behaviour, 19:637-47
 Blau, P.M. (1964), Exchange and Power in Social Life, New York, Wiley.
 Mayer, R.C. Davis, JH & Schoorman F.D. (1995), “An Integrative Model of Organisational
Trust”, Academy of Management Review, 20: 709-34
 Organ, D.W. (1988), Organisational Citizenship Behaviour: The Good Soldier Syndrome, DC
Heath & Company, Lexington, MA
 “The War For Talent” - Steven Hankin of McKinsey & Company in 1997, by Ed Michaels,
Helen Handfield-Jones, and Beth Axelrod, Harvard Business Press, 2001 ISBN 1578514592,
ISBN 9781578514595.