Executive summary
This study delves into the critical issue of employee turnover in Chinese small and medium-sized enterprises (SMEs) through the lens of psychological contract theory, proposing a shift from traditional external turnover factors to a focus on the psychological dynamics between employees and employers. It underscores the indispensable role of SMEs in the national economy, especially in the context of an aging population and a competitive job market. By synthesizing a vast array of literature, the research outlines the characteristics of SMEs, the evolution of employment concepts influenced by societal changes, and the application of psychological contract theory to address employee turnover. Psychological contracts, as defined by the study, involve unwritten mutual obligations and expectations between employees and organizations, which significantly impact job satisfaction and loyalty. The research highlights different types of psychological contracts, transactional, relational, balanced, and transitional, and their implications for employee engagement and turnover.
Introduction
The long-term stable development of small and medium-sized enterprises is an important guarantee for the smooth operation of the entire national economy; in today’s aging population and declining birth rate, how to attract and retain talent is a common problem faced by small and medium-sized enterprises, but for the long-term staff turnover problem, these companies have increased a considerable amount of operating costs and brought many unstable factors to their operations.
In response to these questions, we will use a revolutionary approach to analyze the psychology of employees and employers that is significantly different from traditional research that focuses on external turnover factors. This study will use psychological contract theory to systematically analyze the underlying factors of employee turnover in small and medium-sized enterprises in China and propose specific interventions.
The main contents of the research are as follows: First, the concept of small and medium-sized enterprises and the theory of psychological contract are sorted out by consulting a large amount of literature. Secondly, combining the relevant background and development history of small and medium-sized enterprises, and according to the psychological contract theory, the current situation and impact of employee turnover are analyzed. Third, the psychological contract theory, combined with the actual situation of each enterprise, put forward specific countermeasures.
Background
Because small and medium-sized enterprises have competitiveness, flexibility, adaptability, and creativity, their existence and development play an irreplaceable role in the healthy and sustainable development of the national economy. With the continuous development of the knowledge economy and the market economy, people’s work pressure and unemployment pressure have doubled. The fast-paced lifestyle has exacerbated the change of personal employment concept, and more and more individuals yearn for and pursue temporary and temporary contractual relationships. As Maslow’s hierarchy of needs theory knows, people are now looking for respect and the need for self-actualization, which leads to a high turnover rate of employees.
Classic research on employee turnover focuses on non-abstract factors such as pay and working conditions. Instead, psychological contract theory postulates a paradigm shift that sees employee-organization commitments as implicit but mutually intrinsic obligations. With this theoretical framework, the nuances that lead to turnover can be explained, and unspoken expectations will always be an important part of employee satisfaction and loyalty. As Porter Makin pointed out, the formal contract rarely involves content related to the satisfaction of the higher level of effective needs. Still, only the satisfaction of these high-level needs will make people feel the greatest satisfaction and the greatest possible mobilization of people’s enthusiasm, and this satisfaction is the most important component in the psychological contract.
Expected Contributions
Psychological contracts are defined by an employee’s understanding of organizational policies, practical work arrangements, and culture. The perception of various forms of commitment made by agents at all levels of the organization produces a series of beliefs about the mutual obligation rights between them and the organization, but not necessarily by agents at all levels of the organization. Professor E. H. Schein, a famous American management psychologist, proposed a psychological contract. He believes that a psychological contract is “a cooperation between what the individual will give and what the organization wants to get, and what the organization will provide in response to the individual’s expected gain.” It does not belong to the actual written contract, but it exerts the same impact as the tangible contract. The content of a psychological contract can be divided into different types according to the degree and way of the connection between the organization and the individual: transactional, relational, balanced, and transitional. Among them, a transactional psychological contract is the organization’s use of quantitative means to give material rewards to employees’ labor efforts and results. Relational psychological contracts focus on the long-term exchange of economic and social emotions based on mutual trust and loyalty. Organizations and individuals focus on mutual satisfaction, loyalty, and commitment. The balanced psychological contract emphasizes that there are clear performance terms between organizations and individuals, and they change over time. Transitional psychological contracts are short-term, “insecure” contracts with few or no clear performance requirements or incentives.
Small and medium-sized enterprises generally refer to independently owned and operated, small-scale, or in the entrepreneurial stage and growth stage of enterprises, that is, compared with the same industry in the large enterprises, not in a dominant position. People from all walks of life also have a broad and narrow understanding of small and medium-sized enterprises. In a broad sense, small and medium-sized enterprises generally refer to all enterprises except those identified by the State as large enterprises, including medium-sized enterprises, small enterprises, and micro-enterprises. Small and medium-sized enterprises do not include micro-enterprises. Micro-enterprises refer to enterprises with legal personalities, sole proprietorships, and partnerships, as well as individual and family economic organizations registered with industrial and commercial registrations with less than eight employees. In different countries with different stages of economic development, different industries define standards that are different, and with the development of the economy and dynamic changes. Countries generally define SMEs from both qualitative and quantitative aspects. Qualitative indicators mainly include the organizational form, financing method, and industry status of the enterprise, while quantitative indicators mainly include the number of employees, paid-in capital, and total assets. Quantitative indicators are more intuitive than qualitative indicators, and data selection is easy. Most countries are divided according to quantitative standards. For example, the US Small Business Act issued by the US Congress in 2001 defines small and medium-sized enterprises as having no more than 500 employees.
In China’s small and medium-sized enterprises, the high turnover rate of young, excellent employees and the serious brain drain of labor-intensive and service-oriented small and medium-sized enterprises are the two main characteristics of brain drain. According to data obtained from a survey of small and medium-sized enterprises conducted by China Internet Data Platform in 2019, 47% of young employees aged 20 to 30 in the enterprise have worked for less than one year in the previous enterprise. The main reason is that young job seekers have strong learning abilities, relatively small family burdens, and relatively few things to worry about when job-hopping. In addition, young talents have more fighting spirit and yearn for large enterprises with better development prospects. According to the “2021 Turnover and Salary Adjustment Report” released by 51Job Human Resources Research Center, SMEs with serious brain drain are concentrated in labor-intensive and service-oriented industries. The turnover rate of the manufacturing industry and sports, education, and media industries reached 17.8% and 16.9%, respectively, in 2020, both higher than the average turnover rate of the whole industry. Labor-intensive industries require skilled workers, and many large enterprises in this industry offer higher wages than small and medium-sized enterprises, resulting in a greater flow of skilled workers from small and medium-sized enterprises to large enterprises. The competition for outstanding talent resources in the service industry is more intense, so talents in the industry have more choices and employment opportunities, and they will naturally choose large enterprises with better salaries, treatment, and working environments.
The loss of a large number of talents in small and medium-sized enterprises will reduce the core competitiveness of enterprises. When some employees in key positions choose to leave after learning the core technology, it will cause immeasurable losses to the enterprise. At the same time, it will also increase the cost of employee recruitment and training. Therefore, psychological contracts are essential to address employee turnover and create overall HR stability. From the results of this study, middle managers, as a bridge of communication between bosses and grassroots employees, can achieve employee loyalty and, ultimately, organizational performance by implementing psychological contract management.
From the perspective of a transactional psychological contract, employees will agree with the company’s goals at the initial recruitment stage. Still, as the working hours increase, employees will gradually find that the development of the enterprise does not match their professional needs, which leads to slack and boredom in the work, and they gradually lose enthusiasm for the work. From the perspective of relational psychological contract, in order to reduce operating costs, many companies will reduce employee welfare expenses so that employees do not feel valued and cared for, which leads to the lack of a sense of belonging of employees, the relationship with the company is gradually alienated, and finally disappointed to leave.
The main objective of this study is to provide clear psychological contract management strategies for middle managers, improve employee loyalty, and improve the overall performance of the organization. Secondly, the results of empirical evidence will provide useful guidance for the application of psychological contract theory in China’s cultural and economic environment. The combination of a theory and actual realities is meant to generate the exceptional outcome of the previous discussion of the reasons for employee turnover, the factors of employee turnover, and the following proposal of remedial measures from the point of employee care and embrace.
Methodology
In this research, we use a mixed-methods approach to explore the dynamics of psychological contracts and their effect on job people turnover in the case of Chinese private companies. An online survey of 300 employees representing different industries was handed out to collect data on the awareness of social responsibilities and personal expectations. As such, 30 semi-structured interviews with middle managers were also conducted to analyze the approach they use in managing both organizational and employee psychological contracts. Data analytics involved survey statistics, and the transcripts of the interviewees were processed through thematic analysis, thereby providing contextual depth into the psychological contracts within an organizational setting.
In order to obtain a dataset robust enough to capture the complex relationship of psychological contracts reliably, the quantitative survey had questions designed to catch the aspects of psychological contracts together. Among these were statements that were to be scored using Likert Scale methods that reflect the extent to which a statement agrees or disagrees with the subject. Apart from closed-posed responses, open-ended questions were included in order to offer the respondents the chance to individually give their insights on what they perceive as “a meaningful psychological contract.” To correctly explain the survey data, it was stratified by age, job level, and economic sector based on the scale of SMEs across China, with a cross-sectional representation of the population who were employees. Thus, I wanted to differentiate if factors like demographics or sector-specific issues were to be considered in developing perceptions of psychological contracts or if there were common themes among SME workers.
To ensure that the semi-structured interviews will run smoothly, a guide was made with open-ended questions that will be used for the purposes of eliciting the perceptions of middle managers regarding the psychological contracts and their solutions and remedial measures in managing employee expectations and turnover. The insights from these interviews were very useful for supplementing the quantitative data and thus demonstrating the subtleties of managerial techniques in terms of their alignment with the employees’ needs. The quantitative data analysis involved the usage of classical statistical techniques, such as describing statistics, correlation analysis, and regression analysis, in order to observe patterns and correlations between the variables. The themes were generated after categorizing the answers of the respondents using the thematic analysis, where patterns or expressions redundantly came up. This two-dimensional approach granted a chance for a multidisciplinary view of the psychological contract situation among the SMEs, framing the very dynamics through the online survey and revealing the nuance of the phenomena through the interviews.
Findings and Analysis
The study demonstrates that the psychology of contracts closely correlated with employee retention is high. Employees frequently said the reason they quit was that they needed to be provided with the development of their career, recognition, and tools at their disposal for career advancement. A critical review of management’s approach revealed a fundamental mismatch of employee expectations, namely by not recognizing and rewarding employee contributions beyond the realm of financial rewards.
Extending on the original outcomes, I found that the accepted individual perception of psychological contract breaches was perceived significantly on the employee trust and loyalty towards their organization. Those employees who were of the opinion that the employers had failed to deliver implicit (unspoken) promises exactly were more prone to report they had lower levels of job satisfaction and even to think of leaving. This tendency was seen to be more pronounced among the youthful employees, in comparison with the older professionals, who valued career advancement opportunities and having a balanced life more than the rest.
The study also observed the inconsistency of psychological bond effects across various departments of the same company. As an illustration, workers in departments that have a direct customer collaboration, such as sales and service, reported higher levels of negative emotional reactions from breaking the psychological contract, as well as work volume and work hours, than those in the back-office functions. This hole calls into question the idea of the individualized approach to psychological contract management, taking into consideration different employee groups with their distinct requirements and expectations.
Later on, the findings of the research confirmed that the immediate line managers play the role of intermediaries in linking the staff to the organization as a whole. Supervisors who were perceived to be either helpful or equitable in their dealings were seen to be building psychological contracts between them and their team members more easily. Contrary to their counterparts, who lacked similar traits, distrust, and failed relationships grew.
Discussion
The outcomes of the study bring up the idea of psychological contracts in retention strategies for employees at the level of Chinese SMEs. This is thanks to the ongoing dialogue about employee expectations, which highlights that various types of rewards are more beneficial than traditional packages. On the one hand, the participants’ location and a wide range of professions will have a more elaborate effect on the future.
Secondly, regarding the psychological contracts of SMEs, the reason behind their complexity lies in the employer-employee relationship, in which non-material benefits like working environment, professional growth opportunities, and recognition are some examples that contribute to employee loyalty and satisfaction. The latter idea represents one that goes beyond just thinking about the economic aspect of the business; it also implements the well-being of workers by providing social and emotional needs for the psychological contracts.
In this regard, the manifestation of a discrepancy between workers’ expectations and management’s methods underscores a reason to advance effective and humane communication in organizations. Employers should frequently undertake revisions of the psychological contract, for example, launching staff surveys or engaging employees in a discussion on expectations for the employer package. Training lessons on psychological contracts for managers in a way of recognizing and then negotiating them to prevent dissatisfaction and job turnover should be available as well.
Practical Recommendations
SMEs are encouraged to take a comprehensive approach that involves open dialogue, timely feedback, and individual career development plans centered around the employees. Implementing mentorship programs and appreciating non-monetary contributions can consequently be the factors on which employee satisfaction and loyalty depend.
Personal Contribution and Reflection
This research project honed my analytical and project management skills. Overcoming challenges, such as recruiting participants during the pandemic, taught me resilience and adaptability. My involvement has deepened my interest in organizational psychology, specifically in how theoretical frameworks can be applied to solve real-world problems.
Impact on Professional Goals
The insights gained from this study directly align with my career aspiration to improve workplace environments and employee satisfaction within the SME sector. The knowledge and skills acquired through this research will be invaluable in my pursuit of a role in organizational development, where I can apply psychological contract theory to enhance employee engagement and retention.
Conclusion
In conclusion, we intend to unravel the psychodynamics behind employee turnover in Chinese SMEs in this study because its motivation is to provide practical guidance to business managers on how they can reduce turnover rates and increase organizational stability; this study aims to solve the hidden commitments between employees and organizations by training middle managers to use the management thinking of psychological contract theory and apply psychological contract theory to the potential benefits of Chinese SMEs, which can be achieved by providing organization-related theories and practices, Help meet challenges such as high employee turnover.
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