A tale of two psychological contracts: examining the differences in entrepreneurial and bureaucratic contexts

PURPOSE: This article discusses how the entrepreneurial context influences psychological contracts. It highlights the differences between employment agreements in entrepreneurial settings and those in traditional bureaucratic organizations. DESIGN: We extend psychological contract theory by incorporating the role of salience and illustrating how the risk and uncertainty of entrepreneurial settings influences the formation of psychological contracts and results in psychological contracts which vary significantly in structure and content from those in stable, bureaucratic settings. INSIGHTS: We show that psychological contracts in the entrepreneurial context differ in the types of content or currency exchanged, the forms of agreement between the two parties involved, and the impact of contract breach and violation. Our insights are summarized in a set of testable propositions. RESEARCH LIMITATIONS: The conceptual nature of this study suggests the need for empirical research to validate and expand upon these findings, especially in diverse entrepreneurial contexts. PRACTICAL IMPLICATIONS: The insights provided are crucial for entrepreneurs in managing teams, retaining talent and navigating complex investor relationships. This understanding can aid in the transition of businesses from startups to larger organizations. SOCIAL IMPLICATIONS: This research enhances our comprehension of employment dynamics in entrepreneurial settings, offering a foundation for future investigations into the evolving landscape of entrepreneurship, particularly in the context of personalized employment arrangements and team dynamics. ORIGINALITY / VALUE: This research represents a meaningful step in understanding psychological contracts within under-researched entrepreneurial settings, such as small firms and startups. We contribute by expanding the psychological contract literature previously focused on larger organizations.