Mediating Role of Psychological Contract Fulfilment on the Relationship between Strength of HR Signal and Organisational Commitment: Evidence from the Indian Manufacturing Sector

Abstract

This study examined the relationship between human resource (HR) signals’ strength and affective organisational commitment (AOC) through the mediating role of psychological contract fulfilment (PCF). Survey data were collected from 460 manufacturing sector respondents. Structural equation modelling confirmed that HR signals’ strength and PCF positively influenced AOC. PCF also mediated the relationship between the HR signal and AOC’s strength. Results have theoretical implications, as well as practical implications for the management to consider fulfilling its obligations to meet employee needs and expectations through appropriate HR strategies for enhancing employees’ AOC.

Keywords

Employment/industrial relations (ER/IR)India organisational behaviour/psychology talent management/career management

Introduction

Signal is an observable characteristic attached to individuals and is subject to manipulation (Spence, 1973). Studies incorporating signalling theory have mainly focused on using recruitment and selection signals involving prospective employees. However, the firm’s human capital is considered as an asset that delivers results to ensure stakeholders’ returns. Hence, it is imperative to investigate the role played by HR signals in influencing employee behaviours within the firm. We have considered human resource management (HRM) as ‘structural signals’—instruments people use to convey commitments and offer inducements for present and future behaviour (Rousseau, 1995). These signals get modified according to changing business conditions to elicit employees’ required behaviours. Signalling theory in management helps to understand how firms attempt to influence their stakeholders’ behaviours. Firms expect beneficial behaviours from their stakeholders, and their signals help elicit such behaviours. Signalling theory, therefore, lays stress on the intentional communication of positive information to various stakeholders about desired organisational attributes (Connelly et al., 2011).

Firms use signals to indicate a variety of messages to their stakeholders. Insider ownership (Filatotchev & Bishop, 2002; Sanders & Boivie, 2004), dividends (Bhattacharya, 1979) and the firm’s debt (Ross, 1973) are some instances of signals firms adopt to indicate a firm’s quality to its stakeholders. Studies on HRM suggest that signalling has been examined mainly in the field of recruitment (Ehrhart & Zeigert, 2005; Highhouse et al., 2007; Ma & Allen, 2009; Ryan et al., 2000; Rynes et al., 1991).

HRM has been viewed as signals to indicate behaviours required by the firm (Bowen & Ostroff, 2004). HRM has also been re-examined as signals that management sends to employees rather than practices, systems or bundles (Haggerty & Wright, 2009). They opine that there is a need for reconceptualisation of HRM due to variations in employees’ career or personal aspirations, changes in employees’ demographic profile, changing market conditions, need to attract and retain talent to remain competitive in the market and varying abilities of firms to meet employee costs. Employees have a basic expectation that their firms would implement and invest in HR practices and systems. However, to remain relevant, such practices and systems need to be changed or reconfigured, depending on the business environment, to elicit employees’ desired behaviours. HRM activities also serve as stimuli that employees observe and, subsequently, display behaviours. The inclusion of ‘change’ strengthens the stimulus and the corresponding behaviours. Other conceptualisations of HRM, such as practices, systems, bundles and high-performance work systems (HPWS), lack this feature. We observe less research on the importance of HR signalling within firms to stimulate employees’ desired behaviour. Thus, this article’s major objective is to use signalling perspective of HRM and explore how it helps firms stimulate desired employee behaviour.

In the present study, we consider HRM as signals from the management to the employees and examine its effect on affective commitment while considering psychological contract fulfilment (PCF) as the intervening variable. We adopt an attributional framework to link HR to employee behaviours, like affective commitment. We also adopt a social exchange process, involving the norm of reciprocity. Studies affirm that affective commitment influences various other behaviours such as turnover, absenteeism, organisational citizenship behaviours and stress (Mercurio, 2015). Similarly, studies have confirmed the existence of negative correlation between affective commitment and turnover (Albrecht & Andreeta, 2011; Cooper-Hakim & Viswesvaran, 2005), and an inverse relationship between affective commitment and absenteeism (Mowday et al., 2013; Solinger et al., 2008; Somers, 2009). Studies suggest a positive correlation between affective commitment and organisational citizenship behaviours (Liu, 2009; Meyer et al., 2002). Given the importance of affective commitment in influencing various employee behaviours, we have considered it as a dependent variable.

We identify PCF as an intervening variable that sheds light on the mechanism by which HR practices influence employee behaviours and outcomes (Guest & Conway, 2002; Uen et al., 2009). Furthermore, the literature supports the relationship between PCF and favourable behavioural or attitudinal outcomes (Newton et al., 2008; Tomprou et al., 2012). Studies also support the positive association between PCF and organisational citizenship behaviours (Shih & Chen, 2011). Moreover, studies also provide evidence supporting a mediating role of PCF in the relationship between HR practices and employees’ performance outcomes (Scheel et al., 2013; Uen et al., 2009).

We have used an attributional framework to explain the strength of HR based on the covariation theory of Kelley (1967). Kelley’s theory mentions three attributes of a stimulus—distinctiveness, consistency and consensus, which would lead to displaying desired employee behaviours. Distinctiveness refers to the features of a stimulus/situation, which allow it to stand out in the environment, capturing attention and arousing interest. Distinctiveness consists of four factors—visibility, understandability, the legitimacy of authority and relevance. Visibility is the degree to which HR practices are readily observable and salient. Understandability refers to the lack of ambiguity and ease of comprehension of HR practices. The legitimacy of HRM systems’ authority and its representatives allows individuals to submit to performance expectations as officially sanctioned behaviours. The relevance of HR practices implies that the stimulus/situation is defined so that the employee views the situation as relevant to an important goal, that is, the organisational goal. Consistency implies that the situation/stimulus is present over time and creates a consistent effect. Consistency comprises three components—instrumentality, validity and consistent HR messages. Instrumentality establishes an unambiguous cause–effect relationship between the HR system’s desired content-focused behaviours and associated employee reactions. Validity refers to HR systems displaying consistency between what they purport to do and what they do to create a strong situation. Consistent messages indicate the stability and compatibility of HR signals sent by HR practices. Consensus occurs when an agreement between employees about the HR systems’ event–effect relationship exists. Fairness is an integral component of consensus (Bowen & Ostroff, 2004). We measure HR system’s fairness through distributive, procedural and interactional justice. It affects the positive perception of HR systems and HR systems’ capability to influence employee behaviour. Thus, consensus, as the third attribute, refers to the HR systems’ fairness and agreement between message senders. Message senders attempt to promote high distinctiveness, consensus and consistency to enhance the attributional ability (Bowen & Ostroff, 2004; Kelley, 1967).

In addition to the three existing attributes, we include ‘change’ as the fourth attribute to define the HR signals’ strength. Incorporation of ‘change’ gets necessitated as signals are liable to modifications to convey messages to intended recipients (Rousseau, 1995; Spence, 1973). The construct ‘strength of HR signal’ appears similar to HR systems’ strength, with ‘change’ distinguishing the former from the latter. The construct strength of HR signal has also been considered in a multilevel framework to understand the role of HR signals in influencing a firm’s performance (Bandyopadhyay & Srivastava, 2021). Signalling may, therefore, be applied to study the effect of stimulus like HRM on employee behaviours.

Another motivation for the study is the government’s emphasis on the manufacturing sector’s growth as part of its ‘Make in India’ programme. Such a shift of government policy highlights the major role played by the secondary sector of the economy in creating jobs and its trickle-down effect on national development at large. It also underscores the manufacturing sector’s strategic role in developing a self-reliant country by investing in core industries crucial for security and economic development. The manufacturing sector has a significant impact on employment and job scenario. Therefore, the nation and firms must maintain productivity and healthy employee relations.

Industry characteristics also play a significant role in the study’s contextual relevance. The participating firms are technology-intensive, engaged in business to business (B2B) business and highly sensitive to raw material cost. Competing firms are few because of entry barriers, saturated market, technology availability and uncertainty in raw material availability. Employees may have limited options within the country for changing jobs, but employment opportunities exist in a global arena. Moreover, employees find competing offers even from other firms depending on the skill.

Additionally, disengaged and disinterested employees become a burden for the employer because of lower productivity and suboptimal workplace behaviours. Therefore, firms have a self-serving interest in promoting their reputation as preferred employers by stressing more on psychological contract elements to improve profitability and market performance. Therefore, it is vital to examine the Indian manufacturing sector’s proposed relationship. The findings would be of importance and utility to the practising managers and enrich the body of knowledge.

Therefore, the manufacturing sector’s choice presents a special context for the study. A multiplier effect on generating employment, in particular, and the economy, in general, and options for global employability of skilled employees offer pressing reasons for conducting the study in the manufacturing sector. The manufacturing sector firms are abundant in eastern India. The researchers, having worked in manufacturing firms in eastern India, have access to senior managers in such firms. This relationship has helped in gaining access and permission for the survey. Hence, the manufacturing sector has been chosen as a context to test hypotheses relevant in other industries.

The study adopts a signalling perspective of HR, including its attributional ability, and the social exchange process, based on reciprocity norms. Therefore, the study is a comprehensive examination of three different aspects of HR practices in a single fabric. Previous studies considered HR as a system or practice. However, we consider HR as signals, indicating HR practices’ adaptability and frequency of change to altering business conditions.

Literature Review and Hypothesis Development

We examine the effects of the strength of the HR signal on organisational commitment (OC). OC helps an employee to identify and be involved in the firm. It consists of affective, normative and continuance commitments (Meyer & Allen, 1991). We argue that affective organisational commitment (AOC) is a better predictor of organisational outcomes (Meyer & Allen, 1997). Several scholars have examined the role of AOC as predictors of employee behaviours like attachment to a job in addition to role-related issues such as job characteristics, professional behaviour and work experiences (Hrebiniak & Alutto, 1972; Koch & Steers, 1978; Morris & Koch, 1979; Steers, 1977; Welsch & LaVan, 1981). Employees with a higher level of affective commitment are motivated and display a strong urge to contribute to organisational performance (Alnıaçık et al., 2012). AOC is also a strong indicator of desirable organisational outcomes such as employee retention (Alcover et al., 2012), intention to leave, absenteeism, justice, organisational climate and culture (Breitsohl & Ruhle, 2013). Studies also confirm a positive relationship of affective commitment with withdrawal cognitions, job performance and organisational citizenship behaviour (Phipps et al., 2013). AOC is also related to the psychological contract with knowledge sharing (Anvari et al., 2014). The researchers confirm that AOC has a robust correlation with desirable behaviours at the workplace (Meyer et al., 2002).

The other two forms of commitment—continuance and normative commitment—deserve a brief mention. Continuance commitment focuses on the employee’s understanding of the costs associated with leaving the organisation. In contrast, normative commitment arises from a sense of obligation of the employee to the employer or the organisation (Allen & Meyer, 1996). Intuitively, we argue, based on the first principle, that AOC has the most impact on employees’ behaviours at the workplace. The study, therefore, considers AOC as the outcome variable, leaving aside the other two dimensions of OC. Following the aforementioned discussions, we propose the following hypothesis.

H₁: Higher the HR signal’s strength, more would be the AOC.

We propose PCF as the mediating variable in the relationship between HR signals’ strength and AOC. The concept of PCF indicates the fulfilment of promises made by one party to the other party in the employment relationship. It relates to the employee’s understanding of the degree to which the employer fulfils the obligations made to him. PCF, as a consequence, develops feelings of being valued, leads to more trust in the other party and has a positive effect on work outcomes for the individual and the organisation (Conway & Briner, 2002; Coyle-Shapiro & Kessler, 2000; Robinson & Morrison, 1995). Considering PCF as a consequence of HR signal’s strength makes sense because employees make meaning of their psychological contract after interpreting HR signals. Several studies have examined and confirmed the mediating role of the fulfilment of the psychological contract in the relationship between HRM and employee behaviours (Bastos et al., 2014; Conway & Briner, 2005; Costa & Bastos, 2013; Mowday et al., 1982). Studies have affirmed that employer’s fulfilment of the psychological contract and high OC levels lead to intended consequences like better job performance (Correia & Mainardes, 2010; Riketta, 2008). On the contrary, PCF breaches lead to lower OC and job performance (Chen et al., 2008). Therefore, studies examining the consequences of fulfilling, violating and breaking psychological contracts are needed (Rios & Gondim, 2010; Menegon & Casado, 2012).

Studies involving psychological contract breach are many, while those involving the state (fulfilment or non-fulfilment) of the psychological contract have been few (Millward & Brewerton, 1999; Raja et al., 2004). They advocate for more studies on the fulfilment or non-fulfilment of psychological contracts. Scholars contend that an employee’s psychological contract can also send important messages that result in specific behaviours by employees (Hui et al., 2004). Scholars opine that different factors impact different employees’ psychological contracts (Raja et al., 2004). In light of the aforementioned discussion, we propose to examine the effect of the strength of the HR signal on psychological contract fulfilment. Further, we intend to investigate the influence of PCF on AOC. We propose the following hypotheses.

H₂: Higher the HR signal’s strength, the more would be the PCF.

H₃: Higher the PCF, more would be the AOC.

H₄: PCF shall mediate the relationship between the strength of HR signal and AOC.

Conceptual Framework of the Study

We have developed the following conceptual model to examine the hypothesised relationship among the variables.

Figure 1.

Source: The authors.

Method

Sample

The sample consisted of 460 managerial employees from the manufacturing sector. The managerial employees had a minimum of 1 year on the job experience to ensure that they have an idea and exposure to the firm’s HRM activities. The selection criteria for the firms were geographical proximity, a minimum of 100 employees and ease of contact. We contacted the firm’s HR heads for approval to conduct the survey. The approval request, along with a letter of introduction from the institute, was sent to firms to explain the study’s purpose, its intended contribution, respondents’ anonymity and confidentiality of responses. After permission from the firm, the HR department randomly selected managers from various departments to participate in the survey. The study, thus, adopted a two-stage sampling. Convenience sampling was adopted to select the firms, while simple random sampling was adopted to select the managers from various departments.

The average age of the employees surveyed was 36 years, ranging from 20 years to 60 years. The mean tenure of employees was 7.5 years, while the overall average experience of the employees surveyed was 12.6 years. The participants were primarily males as 91.5% of the respondents were males and 8.5% were females.

Measures

The study has used the following scales to measure HR signal strength, PCF and AOC. We used a Likert 5-point scale to maintain uniformity. Table 1 presents details of the scales used for the study.

Table 1.

Description of the Scales.

Variable	Source	Number of Items	Number of Items Retained	Cronbach’s Alpha
Affective organisational commitment	Rhoades et al. (2001)	6	6	0.89
Strength of HR signal	Based on Bowen and Ostroff (2004), Kelley’s covariation theory (1967)	26	21	0.91
Psychological contract fulfillment (PCF)	Morrison and Robinson (1997)	18	13	0.91

Source: The authors.

Note: PCF: Psychological contract fulfilment.

Psychological contract fulfilment: We adopted a scale consisting of 18 items, covering pay, health, benefits, career development, training, promotion and employment relations (Robinson & Morrison, 1995). We used Likert’s 5-point scale with varied scale points from ‘fulfilled much less than expectation/promised’ to ‘fulfilled much more than expectation/promised’. The reliability coefficient—Cronbach’s alpha—for PCF is 0.91.

The HR signals’ strength: The scale measured the HR systems’ strength (Bowen & Ostroff, 2004; Kelley, 1967). Additionally, it incorporates certain items from the scales of the strength of HR systems by Coelho et al. (2015), Delmotte et al. (2012) and Qadeer and Butt (2013). The scale covers distinctiveness, consistency, consensus and change aspects of HR signals. We referred it to a group of HR experts from academia and industry for their expert opinions. Post the incorporation of opinions from the HR experts, we pilot tested the scale on 100 employees from nearby industries. The indices (reliability, inter-item correlation, item-total correlation) conformed to norms. The scale had 26 items. Some of the items talked about the role of the HR function in the firm having the sanction of the senior management, senior managers agreeing with decisions about HR systems, visibility (documented or practised) of HR systems and practices to employees, and relevance of HR systems to the business environment. The reliability of the scale was 0.91.

Affective organisational commitment: It was measured using Rhoades et al. (2001) scale having six items, and the Cronbach’s reliability coefficient was 0.89. Sample items of the scale are ‘I would be very happy to spend the rest of my career with this organisation’ and ‘This organisation has a great deal of personal meaning for me.

The value of Cronbach’s Alpha for all the scales is greater than that of 0.8, indicating the scales’ high internal consistency. The values of skewness and kurtosis of the variables are within +1 and −1, as suggested to consider normality (George & Mallery, 2003). It indicates that the data set may be normally distributed for statistical operations. Inter-item correlation coefficients among the items were less than 0.8, indicating that they were not highly correlated. The item-total correlation coefficients for all the items were more significant than 0.30. All items were retained in AOC, whereas we retained few items for HR signal strength, PCF.

Control variables: Age of the employee and tenure of the employee have been considered control variables in the study to prevent these variables’ influence on the observed relationship.

Results

The data were analysed using structural equation modelling (SEM) (SPSS 22 and AMOS 22) to test the hypothesised model. Descriptive statistics and correlation coefficients are presented in Table 2.

Table 2.

Descriptive Statistics and Intercorrelations Among Variables.

	Mean	SD	Strength of HR Signal	PCF	AOC
Strength of HR signal	3.31	0.97	1
PCF	3.20	1.00	0.64*	1
AOC	3.67	1.01	0.47*	0.51*	1

Source: The authors.

Note: PCF: Psychological contract fulfilment; * p < 0.01.

Inter-correlations among the variables reveal that all the correlations are significant (p < 0.01). These findings provide preliminary support to the hypotheses that were proposed and were explored with SEM.

Factor Analysis

We conducted exploratory factor analysis (EFA) to identify the major dimensions/factors for these variables. We extracted the factors using principal component analysis (PCA), varimax rotation and Kaiser normalisation. The EFA for HR signal strength revealed three factors, explaining 56.51% of the variance. The three factors were in line with the theoretical basis of the HR signal’s strength, which was composed of distinctiveness, consistency, consensus and change. The EFA for AOC revealed one factor, which explained 64.72% of the variance. EFA of PCF revealed four factors, explaining 76.30% of the variance. However, the study considered the strength of HR signal and PCF as single-factor variables. EFA results also established the construct validity of the scales.

Measurement Model

We performed the confirmatory factor analysis (CFA) to assess the model’s parameters’ estimates, specifically the factor loadings, variances, covariance of the factor and residual error variances of the observed variables. The CFA (the measurement model) indicates an acceptable fit. The cut-off criterion for normed −χ² (χ²/df) is three or less (Kline, 1998). In case of root mean square error of approximation (RMSEA), values less than 0.06 indicate good fit, while values up to 0.08 indicate moderate fit (Hu & Bentler, 1999). A comparative fit index (CFI) with values greater than 0.90 implies acceptable fit (Hu & Bentler, 1999).

CFA of the strength of HR signals showed the retention of 21 items that met the cut-off criterion of regression weights. We retained the six-item scale of AOC after the CFA. The fit indices meet the respective cut-off criteria. CFA of PCF had 18 items, and we retained 13 items post-CFA. The measurement model assessed the overall fit, and fit indices showed a good fit with the data. Table 3 presents the fit indices for all the variables.

Table 3.

Fit Indices of CFA.

Variables	χ²/df	CFI	PCFI	RMSEA
Strength of HR signals	2.11	0.96	0.78	0.05
Affective organisational commitment	2.72	0.99	0.46	0.06
Psychological contract fulfillment	2.65	0.98	0.53	0.06
Measurement model	2.13	0.92	0.82	0.05

Source: The authors.

Structural Model

We examined the hypothesised relationships among the variables by the SEM method. We used a recursive model to test hypotheses to overcome statistical identification-related problems (Hair et al., 2006). First, we examined the model without the mediator and the hypothesised relationships. It constitutes the total effects between the strength of HR signal and AOC. The hypothesised relationship is presented in Figure 2. The results indicate that HR signals’ strength significantly predicted AOC, with the standardised beta estimate being 0.51 and p < 0.001. In this case, the standardised beta estimate constitutes the total effect of the relationship between the strength of HR signal and AOC (see results in Table 4).

Figure 2.

Source: The authors.

Table 4.

Model Fit Indices: Unmediated Model—Relationship Between Strength of HR Signal and Affective Organisational Commitment.

	χ²/df	CFI	PCFI	RMSEA
Unmediated model	2.38	0.90	0.81	0.05

Source: The authors.

We modified the structural model and considered PCF as a mediator variable between the strength of HR signal and AOC (Figure 3). The different fit indices showed that the model considering PCF as mediator between HR signals’ strength and affective commitment conformed to acceptable levels. The fit indices are presented in Table 5.

Table 5.

Model Fit Indices: Mediated Model—Psychological Contract Fulfillment as Mediator Between Strength of HR Signal and Affective Organisational Commitment.

	χ²/df	CFI	PCFI	RMSEA
Mediated model	2.05	0.93	0.82	0.05

Source: The authors.

Figure 3.

Source: The authors.

The results indicate that the HR signals’ strength significantly predicted PCF, (H₂); β = 0.65 (p < 0.01). Hypothesis H₃ showed the relationship between PCF and AOC. The standardised beta estimate in the relationship between PCF and AOC is 0.45 and p < 0.01. Thus, the result supported hypothesis H₃. It implies a significant impact of PCF on AOC. We used the SEM to test the relationship between the strength of HR signal and affective commitment (hypothesis H₁). The standardised beta estimate of 0.22 and p < 0.01 confirmed that the HR signals’ strength significantly predicted AOC.

Psychological Contract Fulfilment as a Mediator

We met the criteria outlined by Baron and Kenny (1986) for mediation analysis. The standardised beta estimate in the relationship between the strength of HR signal and PCF was 0.66 (p < 0.01), while that for the relationship between PCF and affective commitment was 0.61 (p < 0.001). When we entered PCF as the mediator between the strength of HR signal and AOC, the standardised beta estimate was 0.22 (p < 0.001). The beta estimate reduced from 0.51 to 0.22 (p < 0.01), thereby indicating partial mediation. Therefore, the result indicates that PCF partially mediates the relationship between the strength of HR signal and AOC.

Findings by scholars in past studies support the findings of the study. The following section discusses the results supplemented by other scholars and the present research sample and context.

Discussion

The study intended to assess the relationship among HR signal strength, PCF and AOC. First, we discuss the mediating role of PCF, H₄, as it is a critical study objective. We discuss the results of mediation analysis from two perspectives. First, we explain partial mediation with the help of the social exchange process. Second, we discussed the role of other potential variables.

The fulfilment of a psychological contract is based on the social exchange theory. Scholars refer to the works of Blau (1964) and Gouldner (1960) to analyse the reciprocal relationship between the employee and the employer (organisation). The outcome of the mediation analysis implies that the process of social exchange between employees and employers (organisation) is relevant to manufacturing organisations. As part of a psychological contract, the fulfilment of promises made by the employer leads to employees exhibiting affective organisational contract. Therefore, a positive fulfilment of a psychological contract leads to favourable employee outcomes. The firms considered in the sample are reputed brands and preferred employers in the job market. These firms pay competitive compensation to the employees and invest and implement contemporary HR practices such as succession planning, talent management, career planning, learning and development and competency-based HRM. Potential employees get selected through competency-based recruitment and selection practices. Hence, the selection process ensures a high degree of person–job and person–organisation fit. Such a process ensures selected candidates get aligned to the culture and values of the company. Overall, the HRMs in the surveyed companies were strategically aligned with their strategic plans. The HRM systems and practices fulfilled employee expectations and exceeded them. Consequently, the motivated employees also fulfilled their obligations towards their employers.

Apart from the social exchange perspective, other variables also explain the relationship between the strength of HR signals and AOC. There exist legal contracts—well documented, precise, objective and legally enforceable in a court of law in the relationship between the employee and the employer. HR signals from the participating firms indicate implementation of such legal contracts, like the statutory regulations mandated by the government and terms and conditions of employment. The appointment letter, the code of conduct and code of ethics, and standing orders in a firm are essential tools to enforce the legal contract. Fulfilling the legal contract is vital as non-compliance may invite legal or disciplinary action by either the employer or the employee.

The existence and role of legal contracts, in addition to psychological contracts, in the employment relationship are acknowledged in various studies (Koh et al., 2004; Rousseau & Wade-Benzoni, 1994; Savarimuthu & Rachael, 2017). Such studies have affirmed that the extent of fulfilment of legal contracts influences the relationship between employees and employers. Thus, partial mediation by psychological fulfilment may be attributed to the role played by legal contracts in the employer–employee relationship.

Variables like employee engagement mediate the relationship between HRM and AOC of employees. Through their enhanced investments and implementation of HR systems and practices, organisations positively affect employees’ engagement, leading to higher levels of AOC. Previous studies have confirmed the mediating role of employee engagement in the relationship between HRM and employee outcomes or behaviours (Karatepe, 2013; Marescaux et al., 2013). Previous studies confirm the mediating role of employee engagement in the relationship between employee empowerment (arising out of HR practices) and employee performance (Saks, 2006; Truss et al., 2013). Similarly, evidence supports the mediating role of work engagement in the relationship between job resources (arising out of HRM practices) and employees’ job performance (Christian et al., 2011). Therefore, we infer that variables like employee engagement play an important role in the relationship between the strength of HR signals and AOC.

Based on the aforementioned discussions, we conclude that variables such as legal contracts, employee engagement and PCF explain partial meditation.

The significant positive relationships reported between the strength of HR signal and AOC (H₁), between the strength of HR signal and PCF (H₂), and between PCF and AOC (H₃) deserve discussion.

The positive relationship between HRM and AOC (H₁) finds support in the works of scholars such as Coffie et al. (2018). They confirm a positive relationship between HRM practices and AOC among Ghana’s banking sector employees. Similarly, we observed that HR practices positively contribute to the AOC among hotel industry employees in Egypt (Nassar, 2018). Evidence also suggests that HR practices positively affect AOC among employees in different sectors (Steyn et al., 2017). Therefore, we posit that organisations contribute to developing AOC among employees through various HR practices.

The role of HRM practices in shaping psychological contracts gets established by scholars (Aggarwal & Bhargava, 2009; Suazo et al., 2009). They argue that HRM practices, such as training and development, compensation and benefits, influence an employee’s perception of the psychological contract, affecting employee behaviour and attitudes, culminating in organisational performance. Scholars further indicate that if the company does not fulfil its obligations, employees might experience a breach in the psychological contract at a later point in time. Thus, it may be concluded that messages from employers to the employees in the form of HR signals contribute to the fulfilment/non-fulfilment of the psychological contract (H₂).

The third hypothesis (H₃) examined the relationship between PCF and AOC. The results are on expected lines and supported by social exchange theory, explaining much of the relationship between psychological contract and AOC. Employees experience a positive balance of psychological contract when their expectations are addressed by employers, resulting in a favourable disposition towards the firm. Such a favourable attitude towards the firm is reflected in employees experiencing personal attachment, a sense of belongingness to the firm and displaying advocacy (Raja et al., 2004; Restubog et al., 2006). They argued that fulfilment of psychological contract leads to employees’ affective commitment. Studies confirm a positive relationship between psychological contract and affective commitment (Aggarwal & Bhargava, 2009; Biswas, 2008; Lapointe et al., 2013).

The results indicate acceptance of a signalling perspective of HR and the attributional ability of HR signals in explaining the mechanism by which HR systems and practices influence employee outcomes. The social exchange process, represented by PCF, serves as an intervening variable in explaining the examined relationship. Reciprocity, a central feature of the social exchange process, ensures that employees observe HR signals on a quid pro quo basis. The study, therefore, combines a social exchange process with the attributional ability of HR practices in a signalling framework of HR practices.

Summary and Conclusion

This article examined the relationships among HR signal strength, PCF and AOC. Managers from manufacturing firms were respondents in the study. We concluded that there was a strong relationship among the HR signal’s strength, the fulfilment of the psychological contract and AOC. PCF also had a positive association with AOC. The study also confirmed the intermediary (mediating) role of PCF.

Contribution to the Literature

The study contributes to the literature by incorporating a signalling perspective in analysing employee behaviours arising out of stimulus like HR signals. The study contributes to the theory by viewing HR as signals by incorporating change into the covariation dimension. The study adds to the literature by considering the mediating role of transactional and relational PCF components. The study offers insights into how the two psychological contract components influence AOC.

Practical Implications

The psychological contract formation may occur through various human and structural sources such as recruitment managers, training and development of managers, supervisors, chief executive officer (CEO) and reconfiguring HRM systems. Firms should remain alert on such possible sources and develop standards/protocols to be followed during supervisors’ and managers’ interactions with employees and train the managers/supervisors to follow the protocols. Such an attempt would avoid the development of misunderstandings and false expectations in employees’ minds.

Firms need to pay more attention to the various elements of psychological contracts. HR and senior managers need to relook at HR systems and practices as signals to the employees to indicate appropriate messages rather than just a set of activities integrated over time and space. Firms also need to reorient HR systems and practices to cater to employees’ developmental requirements and long-term career needs.

In the current emerging business scenario, senior business and HR managers need to reconfigure/modify existing HR systems and practices. The organisation needs to adapt to competitive systems and practices to alter HR systems to excel. HR signals related to performance management, training and development, compensation and benefits need to be tweaked to suit evolving business conditions. For instance, the degree of stretch in the annual target setting, the ratio of fixed to variable components of compensation and the distribution of moderation ratios in performance management can be modified in the organisation to suit changing conditions. Therefore, HR and business managers may create and develop HR signals to convey various messages to the employees.

Limitations and Future Scope

Respondents of the survey were from the manufacturing sector only, which poses a limitation in generalisability. The study has not captured the variations that would have occurred on account of firms, where HR systems and practices are not well established and institutionalised.

Further, the study may be extended to service sector firms to capture such firms’ variations. Additionally, the study may be conducted in the owner- or promoter-driven firms to find the differences. Additional variables like trust and justice may be incorporated into the study. We may consider other output measures (for instance, organisational citizenship behaviour).

The study considered PCF as a mediator in the relationship between the strength of HR signal and AOC, limiting its ability to evaluate other aspects’ relative mediating abilities, like the legal contract or employee engagement. Future studies may consider multiple mediator models to evaluate such variables’ relative mediation abilities, enriching literature and being of practical relevance to managers. The sample included males primarily with very few female employees. Future studies may include a higher distribution of women employees for more generalisability across gender.

Footnotes

Declaration of Conflicting Interests

Funding

The authors received no financial support for the research, authorship and/or publication of this article.

ORCID iDs

Chiradip Bandyopadhyay

Kailash B. L. Srivastava

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