The psychological contract has generated a significant literature. It been defined by Rousseau as the individual employee’s subjective perceptions of the obligations binding both the employee and the employer.^[50] Because it is subjective, it takes in matters outside a conventional formal contract, such as fair dealing, expectations of transparency, loyalty, and support in ethical decision making. The psychological contract ‘both fills the perceptual gaps in the employment relationship and shapes day-to-day employee behaviour in ways that cannot necessarily be discerned from a written contract’.^[51] Rousseau identifies a number of possible psychological contracts between employees and employers lying along a continuum, from ‘relational contracts’ at one end to ‘transactional contracts’ at the other. ‘Relational’ contracts look very like those governing employee expectations in a ‘soft’ HRM workplace; transactional contracts’, on the other hand, look very like those governing employee expectations at ‘hard’ HRM workplaces. According to O’Donnell and Shields, the psychological contract for APS employment has been moving along the continuum away from relational and toward transactional contracts and ‘hard’ HRM since the early 1990s:

How this distinction applied in practice in the APS was examined in a study by O’Donnell and Shields of the operation of performance management in the Departments of Finance and Administration (Finance) and Defence drawing on data gathered between 1998 and 2001. The study found that Defence—an atypical organisation in this respect—declined to move to transactional performance contracts with employees, opting instead, in the words of the then Secretary of the Department, Allan Hawke, to stay with a relational contract ‘based on building performance through feedback and a developmental focus—without scores and ratings’.^[53] He based this decision on the view that where the psychological contract is focused around short-term and monetised exchange, the process ‘can lead to distorted results and raise issues of equity, ratings moderation and forced distributions’.^[54]

The Department of Finance and Administration, in contrast, was characteristic of the growing majority of agencies that pursued transactional performance contracts.^[55] In 2001, after several years without any access to collective bargaining, 62 per cent of its employees were already on individual AWAs and employees were being further motivated through an individual performance agreement and assessment system. While Finance’s system called for a ‘solid contribution to organisational objectives’, the O’Donnell and Shields study found that, overall, it was weighted to reward certain ‘behaviours’ rather than particular outputs, effectively maximising management discretion over winners and losers. The behaviours sought by agency senior leadership were those defined by the senior leadership as characterising senior leadership, namely ‘expertise in the field, creativity, will to win, ability to learn and people management’. Clearly the aim of the system was to align employee behaviour to the behaviour of their senior managers. Not surprisingly, individual outcomes—as judged by senior leadership—were believed by many individuals to be biased and subjective and, according to O’Donnell and Shields, resulted in considerable cynicism about the objectivity of the scheme.^[56]

However, for the truly cynical, biased schemes are at least as effective in aligning employee behaviour to implicit management requirements as transparent schemes are in aligning employee behaviour to explicit requirements:

Whether compliance reflects conviction or cynicism, the awarding of a single rating point focuses employee attention at the same time that it focuses employer control. In the event, Peter Boxall, the then Secretary of Finance, was given by Government the management of DEWR and with it responsibility for policing all agencies’ bargaining outcomes.

What does responsiveness mean in this framework? Is its meaning set through the broad APS Values in the Public Service Act, a narrow transactional performance contract with senior management, or ‘the interests of the Government’ as what DEWR calls the ‘ultimate employer’? When these coincide, there is of course no issue. But if, in practice, they do not, transactional contracts will invite attention to managerial authority before service-wide ethos. If it is to the agency head that employees look, then responsiveness will be framed in terms of whatever employees think the senior management wants; if it is the ‘ultimate employer’, then responsiveness may be to whatever the employees think the Government wants.

The Community and Public Sector Union has repeatedly raised concerns about politicisation and about public servants who feel compromised and concerned about their roles and responsibilities in an increasingly politicised workplace. Of course the union as a third party does not have organisational alignment at heart; but we know directly from employees that nearly a third of them have not been prompted by their experience to agree that their senior management acts in accordance with the APS Values.^[58] Many of them were also aware (following Senate consideration of ‘A Certain Maritime Incident’ and ‘Staff Employed under the Members of Parliament (Staff) Act 1984 (MoP(S) Act)’) that the then Government had no enthusiasm for ministerial advisers being bound by a code of conduct embodying a set of values of its own. And yet the system—not the law but the system—has focused them on the kind of responsiveness developed through alignment with both of these groups: senior management, and ‘ultimate employers’ and their advisers.

There are other problems with transactional contracts. Because they emphasise vertical relations, they tend to weaken attention outward, to the public. In effect they induce a performance orientation like that created at the then DIMIA, or at the ATO: ‘“do our work, do it well and pass back to the other business lines what is theirs, because we’re not funded for it and all it does is make our performance look bad”’.^[59] The problem is that there has been a common view among agency heads (and the ultimate employer) that:

To do this, the public service needs employees who are licensed to take account of changing circumstances and to innovate, consistent with the rhetoric of ‘soft’ HRM. Nevertheless, in 2005–06, 59 per cent of APS employees did not agree that their agency involved them in decisions about their work.^[61] As early as 2002, the Prime Minister advised that his Government had ‘put the partnership between government and the community at the heart of our policy making.’^[62] Three and a half years later, 43 per cent of employees did not agree that their agency encouraged the public to participate in shaping and administering policy.^[63] And, as will be seen in the next chapter, outsourced service deliverers also report themselves to be pretty firmly cast in the role of rowers and not steerers.

In theory, the government as employer, regardless of the party in power, needs to establish genuinely mutual relationships with the people with whom it works inside and outside the APS itself. This theory is publicly endorsed by the heads of government as well as heads of the public service and key agencies.^[64] And yet, while government calls for exchange, creativity and innovation, it has wanted these to occur within a strictly controlled and increasingly asymmetrical power relationship based on transactional contracts. This issue is explored further in the next chapter.