Performance Management and the Psychological Contract in the Australian Federal Public Sector

This study explores employee responses to individual performance management practices in two culturally dissimilar agencies of the federal public sector, the Department of Finance and Administration (DOFA) and the Australian Defence Force (Army). In so doing, it invokes Rousseau’s distinction between ‘relational’ and ‘transactional’ psychological contracts and Guest’s model of the causes, content and consequences of the psychological contract. In DOFA, neither system processes nor outcomes have lived up to the high employee expectations built up by management discourse about a new transactional culture of high rewards for performance excellence. Conversely, in the Army, expectations are less inflated, the constraints on promotion-based rewards are well understood and the system of developmental appraisal provides solid reinforcement for the prevailing hierarchical culture with its characteristic emphasis on a relational psychological contract. These findings raise doubts about whether individual performance pay is appropriate for public sector staff. They also suggest that the achievement and maintenance of a positive psychological contract requires close attention to the full range of causal factors, including human resource practices used as well as the modes of organisational communication in use, the contours of organisational culture, and employees’ prior experience and expectations.