Pay Attention to the Psychological Contract

A psychological contract refers to the unwritten, intangible set of expectations, beliefs, and obligations that define the relationship between an employer and an employee. Unlike a formal employment contract, which is legally binding and outlines specific duties, responsibilities, and compensation, a psychological contract encompasses the informal and often unspoken aspects of the employment relationship.

Key Characteristics of a Psychological Contract

1. Unwritten and Intangible: Psychological contracts are not documented formally. They are based on mutual perceptions and understandings that develop through interactions and experiences over time.
2. Mutual Expectations: These contracts involve what each party expects from the other. For example, an employee might expect job security, opportunities for growth, and fair treatment, while an employer might expect loyalty, hard work, and a willingness to go above and beyond.
3. Dynamic and Evolving: The terms of a psychological contract can change over time as the needs and circumstances of both the employee and employer evolve. What is considered fair and balanced at one stage of an employee’s career might change as their personal and professional priorities shift.
4. Relational and Transactional Elements: Psychological contracts can be categorized into relational and transactional. Relational contracts are long-term and based on mutual trust and loyalty, while transactional contracts are short-term and focus on specific exchanges of labor for rewards.

Importance of Psychological Contracts

• Employee Engagement and Motivation: A well-balanced psychological contract can increase employee engagement, motivation, and job satisfaction. Employees who feel their expectations are being met are more likely to be committed to their organization and perform better.
• Organizational Performance: Organizations that manage psychological contracts effectively can benefit from improved performance and lower turnover rates. Employees who perceive their psychological contract as fair are likelier to stay with the company and contribute positively to its goals.
• Trust and Fairness: The psychological contract is crucial for building trust between employees and employers. When employees feel that their employer is keeping its informal promises, it fosters a sense of fairness and mutual respect.

Breach of Psychological Contracts

A breach occurs when one party perceives that the other has failed to fulfill its obligations. This can lead to feelings of betrayal, decreased job satisfaction, and reduced organizational commitment. Common consequences of a breached psychological contract include increased turnover, lower productivity, and higher levels of employee disengagement.

Examples of Psychological Contracts

1. Promotion Expectations: An employee might be verbally promised a promotion after completing specific training. If this promotion does not materialize, the employee may feel that the psychological contract has been breached.
2. Work-Life Balance: An organization might have an unwritten rule that employees can leave early on Fridays. Employees might feel that their psychological contract has been violated if a new manager enforces strict hours.
3. Job Security: Employees might expect job security in exchange for their loyalty and hard work. If the company undergoes layoffs without clear communication, it can lead to a breach of the psychological contract.

Managing Psychological Contracts

• Communicate Clearly: Regular and transparent communication helps align expectations and reduces misunderstandings.
• Foster Trust: Building a culture of trust and fairness can help maintain a positive psychological contract.
• Adapt to Changes: Recognize that employees’ needs and expectations change over time and be willing to adapt accordingly.

Yes, psychological contracts change over time, and there are several ways this can occur:

1. Organizational changes: Major organizational shifts, such as restructuring, mergers, or leadership changes, can alter the implicit expectations and obligations between employees and employers. For example, a company that previously emphasized job security may shift towards a more flexible workforce, changing the psychological contract around long-term employment.
2. Societal and economic changes: Broader societal trends and economic conditions can influence psychological contracts. The COVID-19 pandemic, for instance, dramatically shifted expectations around remote work and work-life balance for many employees and employers.
3. Career progression: As employees advance, their expectations and perceived obligations often evolve. An entry-level employee might prioritize learning opportunities, while a more experienced worker may expect greater autonomy and decision-making power.
4. Generational differences: Different generations often have varying expectations about work. Younger generations may emphasize work-life balance and purpose-driven work more than older generations.
5. Technological advancements: The rapid pace of technological change can alter how work is performed and what skills are valued, shifting the psychological contract.
6. Personal life changes: Major life events for employees (e.g., starting a family or approaching retirement) can change their priorities and expectations from work.
7. Ongoing experiences and interactions: Day-to-day experiences and interactions between employees and employers continuously shape and refine the psychological contract.
8. Explicit renegotiation: In some cases, employers and employees may openly discuss and revise their mutual expectations, especially during performance reviews or when job roles change significantly.

It’s important to note that these changes in psychological contracts can sometimes lead to perceived breaches if not properly managed or communicated. Organizations and employees need to be aware of these potential shifts and work to maintain alignment in their mutual expectations over time. Regular communication, transparency, and flexibility are crucial to adapting psychological contracts as circumstances change.

Psychological contracts are under constant assault in most workplaces. Just look at all the tension around returning to work, quitting quietly, and whatever the new term de-jour is. We have entered an era in which continuous reinvention is the only way to manage continuous turbulence. This means that, when it comes to the psychological contract, we are (inadvertently) lying to our employees everywhere. Gone are the days when “you support this one-time transformation, and things will return to normal for a few years.” Now is the time for honest dialogue and explicit re-negotiation. We must allocate some of our time and resources to perpetual reinvention to survive and thrive in the perpetually turbulent world. That is the new normal. And psychological contracts are under a lot of tension. Plan to deal with that.