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Article

Psychological Contract and Young Talent Retention in Vietnam: Development and Validation of a Hierarchical Reflective Structural Model

by
Ngan Dam
1,
Dieu Hack-Polay
2,
Mahfuzur Rahman
3,* and
Ali B. Mahmoud
4
1
Global Pareto, Hamilton House, 9 Hucknall Road, Nottingham NG5 1AE, UK
2
Department of Graduate Studies, Crandall University, Moncton, NB E1G 3H9, Canada
3
Lincoln International Business School, University of Lincoln, Lincoln LN6 7TS, UK
4
The Peter J. Tobin College of Business, St. John’s University, 8000 Utopia Parkway, Queens, NY 11439, USA
*
Author to whom correspondence should be addressed.
Businesses 2023, 3(1), 36-51; https://doi.org/10.3390/businesses3010003
Original submission received: 22 December 2022 / Revised: 6 January 2023 / Accepted: 9 January 2023 / Published: 12 January 2023
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Abstract

:
This research investigates the relationship between relational psychological contract and the retention of young talents in Vietnam. The study surveyed young employees pertaining to (Generations Y and Z) at BBB Company. The results show an equal weight of transactional and relational psychological contracts in the job satisfaction and retention of young Vietnamese employees. The research compared the relative importance of future growth potential against existing good practices. The results indicate that these two constructs have equal importance, as the value for r square is almost equal. This suggests that from a strategic standpoint Human Resource Management (HRM) ought to prioritise the development of practices that enhance both relational and transactional psychological contracts among young talents in Vietnam. This derives from a cultural transition, which means that both the weights of national culture and globalisation are influencing the choices and loyalty of the younger generations in the workplace. These findings have significant implications for the understanding of how generational differences and culture influence how a company retains their young talents and the importance of psychological contract for young employee commitment in Vietnam in an increasingly competitive environment.

1. Introduction

Retention has been considered to be strategically important to any company. However, it seemed to receive less attention from employers when they often decide upon investing on modern equipment, expanding business, and saving cost more than training and developing people, especially in developing countries [1]. Besides, it has been long argued that younger generations (Y: 1982–1999 and Z: 2000–2012) exhibit lower levels of loyalty and commitment to employers on the long run, which implies the need for generation-tailored retention policies [2]. Cropanzano et al. [3] suggest that successful exchanges are established as a result of an organisation showing care for its people, and that in turn, employees express commitment and loyalty. A growing body of research in human resource management indicates that the theory of psychological contract is subjective and hence subject to cross-cultural variations [4,5]. However, most of the previous investigations took place in developed countries, despite the scant scholarly attention to developing nations [6]. Hence, the purpose of this research is to find out whether there is any relationship between the psychological contract and the retention of young employees in Vietnam, an emerging economy.
The research examines the relationships between the psychological contract and the retention of young talents who have potential to be future leaders in Vietnam. This research brings a number of distinctive contributions to the literature. It first brings to light the dynamic forces between psychological contracts and employee commitment in the Vietnamese cultural context from Western settings by examining the work motivation of Generations Y and Z young people; this is an area that has not been extensively researched [7]. Secondly, this research contributes to the current literature by looking at the impact of culture on the psychological contract, a research direction that has been long alluded by scholars in this area [8].
BBB Company was established in 2006, with nearly 500 colleagues in Vietnam. The bank is a joint venture between a Vietnamese bank and a foreign bank under the control of the State Bank of Vietnam. The bank employs 130 workers, of whom 90 are young people who are under the age of 35 years. Although the two mother banks are leading banks in two countries, there are still difficulties for BBB Company (the name of the company has been substituted for anonymity reasons) to compete with many other international and domestic giants in the financial market. Therefore, the company’s corporate strategy is cost optimisation. In the organisational context, promotion and salary would be based on the number of working years and ages rather than talent. As a result, the majority of young employees receive low pay and limited opportunities to be promoted to a higher position.

2. Literature Review

2.1. Psychological Contract and Young Talent Retention

The theory of psychological contract has long been founded in the human resource management and work psychology literature [5,6]. The psychological contract encapsulates latent expectations and obligations underpinning the relationships between employer and employees in the workplace [9]. Though not written, therefore not forming part of the formal contract of employment, expectations and obligations pertaining to the psychological contract exert powerful influences on workplace dynamics, e.g., communication, commitment, retention, etc. [10]. The psychological contract has been revealed to take form in the institutional context and is portrayed as a significant construct in contemporary workplaces [11].
Previous research classifies psychological contracts based on the nature and tangibility of perceived commitments and obligations and thus are categorised as transactional and relational [5,12]. Transactional psychological contracts indicate specific, transparent, short-term obligations associated with monetary rewards like the amount of pay that employees receive in exchange for their level of performance [13]. In contrast, relational psychological contracts are more likely to involve broad, long-term commitments and obligations that are more socio-emotional in nature, which is the case, for instance, when employers commit to providing support and development to employees who, in turn, offer loyalty and commitment to their employers [6,9,14].
The literature establishes a critical link between psychological contract and retention [14]. These authors, building on the work of Guest and Conway [9], found that, if the psychological contract is breached, it is not just performance that is affected, but the strategic positioning of the organisation can be impacted due to issues of retention. In cultures outside the West (e.g., Vietnam and Southeast Asia generally), cultural factors have a significant bearing on shaping the psychological contract. Such cultural factors compound the consequences of the psychological contract breach, resulting in dissatisfaction with work and ultimately difficulties in retaining talent [7]. Clinton and Guest [11] evoke the institutional context as a moderating factor when establishing the link between psychological contact and employee retention.
Talent development has been viewed as an element of talent management [15]. Accordingly, talent development concentrates on the “planning, selection and implementation of development strategies for the entire talent pool to ensure that the organisation has both the current and future supply of talent to meet strategic objectives and that development activities are aligned with organisational talent management processes” [7] (p.6). Previous research has identified two approaches to talent development. The first is called ‘exclusive approach’ and can be adopted by paying special attention to a selected group of managers, whereas the other is termed ‘alternative’ (or inclusive) and focuses on the development of all managers as targets for key positions [16]. In contrast, combining the two approaches above into a hybrid approach can offer more benefits to the organisation in the long term. However, all of these approaches focus on the manager level. Although these approaches suggest that all employees are considered as talents for the organisation, they reduce the opportunities for employees to be promoted to leadership positions [17].
Furthermore, paying attention to one specific group would depress others and seriously affect their performance and engagement. As such, it is important to develop talent at all levels in the organisation. Christensen [18] suggests a model with six key components that can contribute to the success of talent development and retention comprising of performance assessment, development planning, skills development, succession planning, and career planning. He found that the success of the model requires that both parties, i.e., employees and managers, participate in the development process bearing in mind an emphasis on building working capacity to aligning with corporate strategy.
Two levels of factors, i.e., organisational and employee, have been thought to affect retention [19]. Wallis et al. [20] identify several factors at the organisational level, such as workforce challenge and meaning, advancement chances, authorisation, autonomy, responsibility, and new opportunities. Learning and development process is proved to be a significant retention activity in comparison with others, especially selective promotion and salary action [21]. Moreover, Kundu and Lata [22] denoted the indirect impact of career opportunities, training and development procedures, and physical working condition on retention. Besides, Learning and Development (L&D) has been shown to improve retention levels [23,24,25] because employees tend to look for opportunities offered by other employers when they perceive a lack of growth in their current organisation [26].
Given the significant investment made by parents in the education of their children in the Vietnamese context, being associated with a company that provides further training and career progression is likely to attract young talents. At the employee level, Christiaensen et al. [18] found a positive effect of age and seniority on retention; it is more likely for old and more experienced people to stay for a long time in an organisation. There has been an argument about the link between the level of education and retention. At the same time, Christiaensen et al. [18] and Kyndt et al. [27] demonstrate that the relationship is significantly negative; other scholars, however, who considered the relationship between the educational level and retention concluded that this relationship is non-significant. Nevertheless, in the Vietnamese context, such a transactional relationship has been proven to be significant [1,28,29].
Whelan and Carcary [30] point out strategic factors for talent retention, which include direct benefits and compensation or indirect benefits such as career development opportunities. On the other hand, Cook [17] pinpoints that talent development can improve retention and motivation for employees and hence benefit the organisation by keeping them healthy and innovative [31]. Bonneton et al. [32] surveyed talent and a control group within a multinational company and found that talent management practices positively predict talent retention. Govaerts et al. [19] studied the factors affecting employees’ retention, and their results proved two important issues. Firstly, employees’ age and retention rate were found positively related, which was explained by impatience and general attitude [2,14]. Secondly, allowing people to do more and learn more about what they are good at will motivate them to stay with the organisation. In the appointment and promotion process at BBB Company, the willingness of people is sometimes ignored and undervalued due to large power distance [33].

2.2. Conceptual Model and Hypothesis Development

Mahmoud et al. [34] argue that the concept of generation is typically employed as a grouping age cohorts approach. They further define ‘generation’ as groups of people born in a similar time and explain that scholars have used it for analysing and tracking people’s behaviours and characteristics on a range of issues [5,34]. This is in line with Twenge et al.’s [35] argument, through which people who belong to one generation are believed to experience and share much the same historical, cultural and social events, which have an impact on the development of their values and attitudinal dispositions. There are six generational cohorts, which are Veteran (1925–1946), Baby Boomer (1946–1960), X (1960–1980), Y (1980–1995), Z (1995–2010), and Alfa (2010+) [36]. As such, the young workforce represents Generation Y or the millennials alongside Generation Z [34]. The characteristics of the millennials and Generation Z [34,37] will be used as benchmarks for the traits of the currently young workforce. Millennials are currently the largest generation in the workforce [34], and 75% of the workforce is forecast to comprise of millennials by 2025 [38]. Accordingly, they are said to be the first digital generation that was born at the beginning of the technology world. Therefore, they have various opportunities to be qualified in digital knowledge, familiar with the tools and devices, adaptable to changes, and short-time planning; they would rather enjoin the world by themselves, and they find it easy to accept cultural differences [34]. Millennials are described as better educated and more ethnically diverse than any previous generation [39]. Recent data revealed that the millennials are thought to have saved more for retirement than Gen Xers did at the same age [40]. Although millennials can be identified as being rebellious, individualistic, irresponsible, and self-centred [41], they, however, have been described by many authors as being good team players [42]. We, therefore, hypothesise that:
H1a: 
Having regular meetings as a transactional psychological contract will impact on retention.
Millennials are also characterised as having ambitious goals and being self-confident and prone to prove themselves [43]. As a result, at work, they tend to relish challenges and want to be recognised, appreciated, and respected by the organisation [37] in return for their contribution and commitment. It has long been thought that millennials and Gen Z are orientated by success—primarily better pay and benefits [34]. However, significant emerging literature also poses that financial incentives are not sufficient to motivate these generations [34], suggesting that younger people desire both. Hence, we hypothesise that:
H1b: 
Paying attention as a transactional psychological contract will impact on retention.
H1c: 
Recognition as a transactional psychological contract will impact on retention.
Compared to the earlier generations, millennials are regarded as less trustworthy and less loyal, and, thus, they need strong motivators to encourage them to dedicate effort and time [34]. Thompson and Gregory [44] describe millennials as a generation spoiled by “helicopter parents”. This creates a dependent generation with limited coping skills that is mainly reliant on others and hence is more vulnerable to facing failure [45].
According to Wheeler [46], millennials value a well-defined career path with clearly-set future goals and benchmarks that would support their own professional growth. Therefore, when career development lacks clarity or is under-delivered, which is considered as the psychological contract breach, younger generations are more likely to search for better satisfying opportunities and hence have higher chances of leaving their current organisation. Hypotheses H1a to H1c culminate in the assumption that transactional psychological contracts predict the attraction and retention of young talent in Vietnam.
Previous research emphasises that in order to retain employees of younger generations, it is important to understand them [47,48]. Although millennials are said to be hard-working, technologically savvy, and independent learners, they are also impatient and show less commitment to employers than previous generations. They tend to stay in the organisation as long as they can keep growing. Utah State Bar Innovation in Practice Committee [49] suggests that employers should work with the millennials instead of trying to control them, and that a mentoring scheme is highly recommended within the organisation to improve communication and relationship at work. However, such labelling seems to be a generic stereotype for the millennials that walk out due to personal and individual differences and thus cannot be fully taken for granted by the employer. By contrast, many corporations set their talent strategy to attract and retain young employees on the basis of treating them uniquely and trying to adapt their organisational practices to the generational dynamics. However, it has been suggested that organisations can also be effective in attracting and retaining great people if they keep true to themselves and adhere to their cultural values, especially during turbulent times like the current COVID-19 pandemic [50].
Vietnam is a typical transitional economy, and the characteristics of its labour market are significantly affected, with the majority of workers in agriculture and low-productivity areas, and many of them are low and unskilled workers [51]. Moreover, the Vietnamese population is said to experience the “golden population structure”, with the median age at 32.5 [52], and nearly half of the labour force (49.5%) aged from 15 to 39 [53]. Hence, Vietnam has the advantage of the majority Gen Y and Z being in the labour force, but there is a lack of high-qualified workers due to insufficient concentration on learning and development. The Vietnamese government considers vocational training as an essential part of education and HR development due to the requirement of technical skills in the majority of the most hunted jobs in Vietnam’s transitional economy [54]. However, only 20% of the working-age population is reported to have vocational education or training, which was not adequate for practical organisational needs [55], and nearly 80% of graduates have to have specific training from an employer in order to enhance performance. Most young people entering the workforce seek to join a company that objectively evaluate their performance and help them fill skills and performance gaps [53]. Deriving from this, we hypothesise that:
H2a: 
Effective performance evaluation as a relational psychological contract will impact on retention.
The Vietnamese culture bears the influence of Chinese ideologies and religions due to the dominated millennium of Chinese feudal dynasties [56]. Building on the 6-D Model [33], the Vietnamese culture scores an estimated low level of individualism, equal to 20. This means that the Vietnamese culture has a relatively high level of collectivism, which means that they prefer group work and group benefit instead of personal goals [29]. Based on these cultural characteristics of the Vietnamese society, teamwork is expected to offer peer support and therefore increase confidence and career progression. Thus, we hypothesise that:
H2b: 
Encouraging teamwork as a relational psychological contract will impact on retention.
Generally, Vietnamese companies perceive the importance of training and development, especially in IT, for their business success but have a limited budget for these activities. Employers usually pay more attention to investing in new modern equipment and expanding business rather than training and developing employees [29]. Furthermore, the theoretical educational system is not practical and efficient enough to meet the working standard as well as companies’ needs [55]. The majority of graduates lack practical skills, adaptive ability into workplace, teamwork, and work discipline. Private and state-owned companies have started to invest more in employee training to improve this [57]. According to the new Education Law, in-house training is encouraged and related training taxes are exempted, which reduces the financial burden for newly established training institutions [51].
Vietnam has a pragmatic culture, with a high score on long-term orientation, which shows the encouragement of thrift and efforts in modern education as a way of achieving results and preparing for the future. Besides, these are anticipated to defer to anyone of higher status, as established by kinship, decency, gender, and age [53]. However, numerous companies concentrate on developing market and cost optimisation instead of investing in their people and improving job satisfaction [58]. In many companies, HR departments are administrative functions instead of a strategic part of the organisation [59], especially in local companies. Nevertheless, due to the influence of globalisation, many foreign and joint ventures have entered the market, which attract talents in the market by their better offer for salary, benefits, compensation, working environment, L&D opportunities, and so on, which is incomparable with local ones and creates the war of talent. This also provides more opportunities for talents and difficulties for organisations to retain them. The influence of globalisation on the Vietnamese society and organisations leads to the hypothesis that:
H2c: 
Constructive feedback as a relational psychological contract will impact on retention.
Hypotheses H2a to H2c culminate in the assumption that relational psychological contract has a significant impact on the retention of young talents in Vietnam. Therefore, this study specifies the impacts of psychological contracts on retention with two specific constructs (Figure 1): transactional and relational psychological contracts.

3. Methodology

This study has proposed a hierarchical reflective model based on the need to focus on employee satisfaction to retain existing employees. By using empirical data and a structural model, it proposes an empirically testable theory. As suggested by Jenkins [60], this study used an empirical survey to measure whether there is a causal network relationship. From the timeframe perspective, this study used a cross-sectional survey technique to get views from the respondents following Malhotra [61]. To achieve the maximum response rate, the questionnaire was constructed by using Qualtrics and distributed through an anonymised link.
This paper examined common method bias (CMB), nonresponse bias, and retrospective bias, which are very efficient tools, particularly for survey-based studies. First, the initial scale was validated through open-ended consultation with academics, policymakers, and managers/owners of SMEs. Secondly, this study applied Harman’s single factor test, following Podsakoff and Organ [62]. The un-rotated factor analysis accounted for 35% of the variance, which is far less than 50%; thus, there was no threat related to common method bias [63]. The result from t-tests on the average of very early and very late respondents confirmed the absence of retrospective bias by having very non-significant differences.

Questionnaire Survey

At the time of our study, the Head Office of BBB Company has about 130 employees in total. A total of 90 were at the age of 35 or younger and hence counted as young. Our inclusion criteria, i.e., working at BBB Company’s Head Office and aged ≤35 years old, identified the population size of the current study as 90 instead of 130 subjects. The questionnaire was distributed to the whole population (N = 90). A total of 82 questionnaires were received (91%), of which 63 of them were completed (70%). A total of 9 respondents of the 82 that returned questionnaires did not complete the first block of the questionnaire and hence were excluded in the analysis. Seventy-three people who completed the first and the second blocks about training and career development were drawn upon to determine the satisfaction levels of the young employees with the implemented L&D strategy. From the following Table 1, it can be comprehended that the data were collected from a diverse cross-sectional populatio.
All of the received and complete responses (n = 73) were analysed. Most of the respondents aged 25–29 (56%) were female (71%), held an officer position (84.9%), had more than a year experience (77%), and were educated to a university degree (76.7%). A total of 48 respondents were under 30 (66%), which indicates that BBB Company had a young workforce at the time of this study. Finally, data from 73 questionnaires were analysed.
All of the items of the questionnaire were measured on a five-point Likert-scale. Before conducting the primary survey, the questionnaire was piloted on a small sample of young Vietnamese professionals to ensure the appropriateness of wording, contents, scales, sequence, and format. This study highlighted the transactional and relational psychological contracts to examine employee satisfaction by using a hierarchical reflective model. Hierarchical construct (also known as the multidimensional construct) is drawn as a construct, with multiple scopes at several hierarchies to capture an overall latent variable [64]; in this study these are transactional and relational psychological contracts (Figure 2).
Further advantages of the application of these constructs (hierarchical constructs) are highlighted for reducing the model complexity and increasing theoretical discretion [63]. Further, the “level of abstraction for predictor and criterion variables” is strongly facilitated through the application of the hierarchical constructs [65].
The study aims to examine the relationship between the psychological contract and the retention of young employees in a Vietnamese organisations context. Considering this explorative nature, this study specifies the psychological constructs as a hierarchical reflective model with two reflective constructs (see Figure 1): transactional and relational. Besides, all of the constructs of this model share the common theme of employee satisfaction. Therefore, the model meets the expectation of potentially high correlation, as suggested by Bollen and Lennox [66]. In Figure 2, there are two orders: first and second. In the first order, there are the two latent variables of transactional and relational psychological contracts for employee satisfaction, which are related to each of the respective indicators (manifest variables (MVs)).
In the second order, psychological constructs influencing employee satisfaction are shown in a hierarchical reflective model that is constructed by six MVs (three + three) of two first-order constructs. Table 2 demonstrates the equations for estimating the hierarchical reflective model on the transactional and relational psychological contracts. There are two-order models: the first-order model and second-order model. The equation for the first-order model specifies first-order MVs (yi), latent variable (ηj), loadings (Δy), and an error term (εi). The equation of the second-order model specifies the first-order factors (ηj) in terms of the second-order latent variables (ξk) and error (ζj) for the first-order factor and second-order latent variable loadings (Г). This study used partial least square (PLS) to assess the transactional and relational psychological contracts. PLS based SEM (PLS-SEM) is also known as the component-based SEM and is very popular in social science for ensuring theoretical parsimony [63].
This study used constructs with more than one dimension and indicator by the application of a higher-order reflective structural model. Given the limitations of co-variance-based SEM (CB-SEM) concerning small sample size, measurement level, distributional property, and lack of identification, this study used variance-based SEM, as suggested by previous research [65]. Again, the nature and dimension of psychological constructs are continuously changing and getting new shapes, which is why variance-based SEM is more suitable than covariance-based SEM [63].

4. Findings

For a number of scholars, the examination of the findings of investigations into the psychological construct and its link to employee retention need to be approached using theories that support the equal importance of transactional and relational psychological contracts. These scholars argue that both transactional and relational psychological contracts have to be fulfilled to achieve job satisfaction, loyalty, and escompte performance. In the same perspective, promises alluding to enhanced compensation as well as those relating working conditions and feedback are equally crucial in steering commitment and retention. These perspectives exemplify that transactional and relational contracts go hand in hand to ensure dignity at work, thus driving performance and retention. Driven by well-established theories, this approach to hypotheses development ensures the validity and reliability of the latent variables of psychological contracts (transactional & relational) prior to drawing conclusions on the hypotheses and identifying the study’s contribution.

4.1. Analysis of Measurement Model

This study used PLS graph 3.0 [65] to investigate the relative importance of two different psychological contracts (transactional & relational) with PLS path modelling aimed at developing and validating the approximation [64]. Following the path weighting scheme, this study used non-parametric bootstrapping [65], where the calculations of the standard error of the estimates were obtained using 500 replications and the approach of repeated indicators. Therefore, both second-order and first-order factors (transactional and relational psychological contracts) are the same. This study also conducted a confirmatory factor analysis to test the reliability and validity of the structural model. Table 3 shows that the individual item loading is higher than 0.70 (p < 0.01). The construct validity and reliability of the items were assessed by testing the composite reliability (CR), Cronbach’s α (CA), and average variance extracted (AVE). The results confirmed the suitability of the items by having values that are well above the threshold points, which also indicates the scale consistency for each item. On the other hand, an AVE value higher than the modest threshold 0.50 indicates that each construct captures adequate variance from its items and all the constructs are conceptually proven [63]. Therefore, the convergent validity of all the scales is ensured in this model of psychological contracts in employee satisfaction. Therefore, the empirical findings of this study clearly indicate the suitability of this measurement model in terms of reliability, convergent validity, and discriminant validity.

4.2. Assessment of Higher-Order Structural Model Hypotheses Testing

This study developed a hierarchical reflective model to show the transactional and relational psychological contracts towards employee satisfaction in Figure 2. The second-order constructs (overall psychological contracts for employee satisfaction—also see hypotheses) are reflected in the first-order constructs. The results indicate that 93% of the variance in the transactional psychological contract is attributed to changes in regular meetings, paying attention, and recognition (see Table 4). In comparison, the changes in performance evaluation, encouraging teamwork, and constructive feedback account for 94% of the variance in the relational psychological contracts (see Table 4). The results also show that (Table 5) the path coefficients from overall psychological contracts to second-order (transactional and relational) are significant at po0.01 and should, therefore, be included in the employee satisfaction model. Further, this study estimated the correlation between overall psychological contracts against two constructs as sub-dimensions to measure the structural validity of the model (see Figure 3). The respective standardised β values (see Figure 3) indicate that the perceptions of the transactional and relational psychological contracts are firmly and significantly correlated with overall employee satisfaction. In total, the path coefficients are positive and significant at po0.01 (see Table 5) and hence support the underlying hypotheses (see Table 6).

5. Discussion

Employee retention has become a key part of the organisational behaviour debate in the past few decades. This stems from an ageing population but also intense competition among players in the marketplace bot locally, globally, and virtually. The study was designed to examine the relationship between the psychological contract and the retention of young employees in a Vietnamese context. The research shows that the psychological contract plays a crucial role with regards to the dynamic relationships between employees and the workplace and retention [14]. Our findings show that both aspects of the psychological contract (i.e., transactional and relational) should equally receive substantial attention by decision-makers in order to retain young talents, particularly those belonging to Gen Y and Gen Z. The data offers evidence that young employees have different expectations of the psychological contract [34]. This research responds to the scant research studying the young generational cohorts (i.e., Gen Y and Gen Z) in the workplace as well as the recent call for paying more scholarly attention to the study of generational differences in the workplace [7,34], as that would help organisations offer healthier work environment to its most valuable asset, i.e., people, and hence deliver better value to all of the stakeholders, including the employees, customers, and ultimately the organisation itself.
Generations Y and Z employees appear to desire the best of both worlds, e.g., expected increased tangible benefits and recognition and respect. Despite the widespread use of technology in various spheres of the workplace, Generations Y and Z still want to meet and have physical contacts with managers and peers. This attitude of young Vietnamese employees is linked to the dual rootedness and embeddedness in traditional society [67] and global perspectives [68].
Hypothesis 1 posits that regular meetings (H1a), paying attention (H1b), and recognition (H1c) are strongly associated with the transactional psychological contracts (H1) for young talent retention. The model on the effect of transactional Vs relational psychological contracts shown in Figure 1 was used to test these hypotheses. We found a positive relationship of regular meetings (0.834; t= 18.334), paying attention (0.856; t= 21.938), and exploitation (0.833; t= 22.700) with transactional psychological contracts (p  <  0.001).
Hypothesis 2 proposes performance evaluation (H2a), encouraging teamwork (H2b), and constructive feedback (H2c) as relational psychological contracts (H2) for young talent retention, shown in Figure 1. The results in Table 6 and Figure 3 revealed a positive relationship of performance evaluation (0.832; t = 21.527), encouraging teamwork (0.855; t = 23.221), and constructive feedback (0.844; t = 22.025) with relational psychological contracts (p < 0.001).
These findings have significant implications for the understanding of how culture influences the way a company attempts to retain their young talents and the importance of psychological contract to the success of a retention strategy in Vietnam. In a similar cultural context, Chin and Hung [69] found the psychological contract breach in a Chinese context has a significant association with turnover intentions [69]. The results relating to the weight of culture confirm the institutional context dear to Clinton and Guest [11]. Our findings further confirm the limitations of current theoretical perspectives, which have not emphasised enough the psychological contract with regards to Gen Y and Z [7], especially in the developing world and emerging economies such as Vietnam.
The research highlights the insufficiency of benefits and compensation but proves that retention for young talents derives from an integrated package of formal and informal, tangible, and psychological constructs [70]. Within the banking sector in Vietnam, changing jobs is widespread, especially for young employees, reflecting the power of the market. If BBB Company cannot guarantee conditions that foster favourable relational and transactional contracts, then retention could be problematic due to internal and international migration steered by the desire for better employment. The exposure of young Vietnamese talents to the global environment gives them the confidence to aspire and ask for more. Such exposure challenges Vietnamese employers with the complexity of achieving and maintaining healthy levels of job satisfaction and retention amongst young people. That is, hybridity developed by the blend of cultures, people, and economy will signify a novel socio-cultural and organisational terrain whose handling will require innovative sets of strategic approaches. The study has confirmed the validity of various forms of psychological contracts as central to strategic retention frameworks within HRM strategies.

6. Conclusions and Future Research

The study examined the relationship between the psychological contract and the retention of young employees in Vietnam. The results indicate that these two types of practices/initiatives have equal importance, as the value for r square is almost equal. Therefore, the people who are making HR strategy should also give equal importance both on these.
With the significant growth in the Vietnamese economy in the past two decades, with a GDP growth rate equal to 7% in 2019 vs. 4.8% in 1999, employment opportunities have been enhanced for young talents. This signifies choice. The opportunities for young talents have also been significantly enhanced by globalisation, which presents opportunities outside of Vietnam to young people who can now eye positions in Asia (Singapore, Malaysia, China, etc.) and the Middle East as well as in Western countries, etc. This economic outlook means that pay and benefits (provision of training and development opportunities)—transactional psychological contract—are just one side of the retention coin. To satisfy young talents who can now see beyond their companies and the national boundaries, Vietnamese organisations must use the other side of the coin too; though less tangible, relational psychological contract is key in the retention equation.
A comprehensive retention strategy in contemporary Vietnamese organisations will inexorably involve critical activities such as internal and external executive development and coaching to improve strategic leadership and management aptitudes of young talents in view to empower them to take the reins of the organisation in the future. This assumption is valid for several reasons: first, with an ageing population, the future of organisations seems to be focused on serving largely Gen Y and Gen Z audiences and thus the need to empower those who understand their needs; second, the study confirmed that recognition is a critical part of the formation and maintenance of relational psychological contract, which is linked to retention.
Young employees in the research also value communication as a key endeavour for retention. This is inextricably associated with the need for clarity and the drive for performance within these generations and the promotion of clear career paths. A Gen Y or Z retention strategy cannot ignore the formation of a systematic and transparent performance management system. At present, BBB Company’s performance management system is solely line-management driven, causing suspicions of unfairness and the breach of both relational and transactional psychological contracts. This suspicion of unfairness can be founded on historical and cultural practices linked to collectivism inherent to Vietnamese society, which has raised concerns about corruption that many in Gen Y and Z now reject. The benefit is providing fair and effective performance assessment, with approaches such the 360-degree feedback, could be practised to examine closely how these might answer young talents’ concern about equity.

Study Limitations and Future Research

The limitation of the study is linked to the limited sample size. This study has used the absolute minimum size needed. A larger sample would increase the generalisability of the study and provide room for comparisons within sectors and regions. The study focused on young employees aged 35 or under. However, future studies could consider intergenerational comparisons and managerial control [71,72], which might yield meaningful data to deal with potential intergenerational conflict in Vietnamese workplaces. At the same time, BBB company is not a very typical company in Vietnam; therefore, it was better to investigate the importance of labour market competition first. Based on the collected results, retention was significantly related to some other HR areas such as appraisal, KPI, performance management, salary scheme, employment relation, and so on, but the limited scope of the study made it difficult to investigate these parameters deeper. However, this result could be biased by the cost minimisation strategy, which is very typical for a company like BBB. Notwithstanding these limitations, the study presented current concerns about relational and psychological contracts among young people, which may be a significant turnover driver if these issues are not vigorously addressed.

Author Contributions

Conceptualisation, N.D., D.H.-P. and M.R.; methodology, A.B.M. and M.R.; software, M.R.; validation, D.H.-P., M.R. and N.D.; formal analysis, A.B.M.; investigation, N.D.; resources, D.H.-P.; data curation, A.B.M.; writing—original draft preparation, D.H.-P. and N.D.; writing—review and editing, D.H.-P.; visualisation, M.R.; supervision, D.H.-P.; project administration, M.R.; funding acquisition, N.D. All authors have read and agreed to the published version of the manuscript.

Funding

This research received no external funding.

Institutional Review Board Statement

The study was conducted in accordance with the University of Lincoln Research Ethics policy and E-QMS SOP E-01 Ethics Committee Operations and approved by the Human Ethics Committee of University of Lincoln, UK.

Informed Consent Statement

Informed consent was obtained from all subjects involved in the study.

Data Availability Statement

The data presented in this study are available upon request from the corresponding author. The data are not publicly available as this paper is from a thesis.

Conflicts of Interest

The authors declare no conflict of interest.

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Businesses 03 00003 g001 550
Figure 1. Hypothesis on the transactional vs. relational psychological contracts.
Figure 1. Hypothesis on the transactional vs. relational psychological contracts.
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Figure 2. Hierarchical reflective model on the transactional vs. relational psychological contracts.
Figure 2. Hierarchical reflective model on the transactional vs. relational psychological contracts.
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Figure 3. Main Loadings of the Model.
Figure 3. Main Loadings of the Model.
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Table
Table 1. Demographic Profiles of Respondents.
Table 1. Demographic Profiles of Respondents.
ParticularsCategoriesPercent
Age Group20 to 249.6
25 to 2956.2
30 to 3534.2
GenderMale28.8
Female71.2
PositionOfficer84.9
Deputy Manager/Manager12.3
Working timeLess than 1 year23.3
1 to 3 years39.7
More than 3 years37.0
EducationBachelor’s degree76.7
Master’s degree or above23.3
Table
Table 2. Estimation of transactional vs. relational psychological contracts as a reflective hierarchical model.
Table 2. Estimation of transactional vs. relational psychological contracts as a reflective hierarchical model.
First Order
yi = ∆y.ηj + εi
yi = manifest variables
∆y = loadings of first order latent variables
ηj = first order latent variables
εi = measurement error of manifest variables
Second Order
ηj = Г.ξk + ζj
ηj = first order factors
Г. = loadings of second order latent variables
ξk = second order latent variables ζj = measurement error of first order factors
Table
Table 3. Psychometric properties for first order constructs.
Table 3. Psychometric properties for first order constructs.
ConstructsItems SummaryLoadingsCRCArho_AAVE
TransactionalRegular meetings0.8340.8790.7930.7950.707
Paying attention0.856
Recognition0.833
RelationalPerformance evaluation0.8320.8810.7980.7980.712
Encouraging teamwork0.855
Constructive feedback0.844
Table
Table 4. R Square.
Table 4. R Square.
ConstructsR SquareAdjusted R Square
Transactional0.9350.934
Relational0.9360.935
Table
Table 5. Analysis of Structural Model Path Coefficients (Mean, STDEV, T-Values).
Table 5. Analysis of Structural Model Path Coefficients (Mean, STDEV, T-Values).
Original Sample CoefficientSample Mean CoefficientStandard Deviation (STDEV)p ValuesT Statistics
Overall Psychological Contracts -> Transactional0.9670.9670.007<0.0001134.847
Overall Psychological Contracts -> Relational0.9680.9680.006<0.0001151.103
Table
Table 6. Results on Hypotheses.
Table 6. Results on Hypotheses.
HypothesisPath Coefficientt-ValueConclusion
H1a: Regular meetings as a factor of transactional psychological contracts and employment relations will not be independent from each other. 0.83418.334Supported
H1b: Paying attention as a factor of transactional psychological contracts and employment relations will not be independent from each other.0.85621.938Supported
H1c: Recognition as a factor of transactional psychological contracts and employment relations will not be independent from each other0.83322.700Supported
H2a: Performance evaluation as a factor of relational psychological contracts and employment relations will not be independent from each other.0.83221.527Supported
H2b: Encouraging teamwork as a factor of relational psychological contracts and employment relations will not be independent from each other.0.85523.221Supported
H2c: Constructive feedback as a factor of relational psychological contracts and employment relations will not be independent from each other.0.84422.025Supported
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MDPI and ACS Style

Dam, N.; Hack-Polay, D.; Rahman, M.; Mahmoud, A.B. Psychological Contract and Young Talent Retention in Vietnam: Development and Validation of a Hierarchical Reflective Structural Model. Businesses 2023, 3, 36-51. https://doi.org/10.3390/businesses3010003

AMA Style

Dam N, Hack-Polay D, Rahman M, Mahmoud AB. Psychological Contract and Young Talent Retention in Vietnam: Development and Validation of a Hierarchical Reflective Structural Model. Businesses. 2023; 3(1):36-51. https://doi.org/10.3390/businesses3010003

Chicago/Turabian Style

Dam, Ngan, Dieu Hack-Polay, Mahfuzur Rahman, and Ali B. Mahmoud. 2023. "Psychological Contract and Young Talent Retention in Vietnam: Development and Validation of a Hierarchical Reflective Structural Model" Businesses 3, no. 1: 36-51. https://doi.org/10.3390/businesses3010003

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