Psychological contract

The term "psychological contract" refers to the informal and implicit expectations held between employers and their employees. While many employers spell out expectations in work contracts or job descriptions, other employment expectations may be informal, implied, or intangible.

Overview

The psychological contract may be viewed as both transactional and relational. As a transaction, it may be evaluated from an economic perspective: Is the employee being fairly compensated for work? Is the employer benefiting from the work? Do the employer and employee share the same values and expectations, and do they respect one another and feel respected?

Though a psychological contract is part of a work relationship, it may begin even before a work relationship exists, such as during the recruitment and hiring process. Conversations that take place during interviews, for example, may create expectations of the prospective employee. Employers may provide a work contract for new employees and explain that specifics about the duties will be learned on the job. Any casual and likely vague discussions that take place may color an individual's beliefs about the job, workplace, and benefits (other than payment), and these expectations may lead to misunderstandings. Some aspects of a psychological contract include the expectation of a positive and supportive work environment in which individuals are encouraged to share ideas and the expectation that fair and consistent evaluations will be conducted on schedule.

Psychological contracts are closely linked to organizational citizenship, or an employee's engagement as a "citizen" of a company in ways that extend beyond their specific duties. Examples of good citizenship include helping a coworker with a project or presenting a positive image of the company outside of work, perhaps by describing company services or products to acquaintances or suggesting that an experienced person apply for a job opening.

Psychological contract breaches occur when workers feel they have been offered certain terms during the interview process and believe the employer is not living up to perceived promises. Individuals may be unexpectedly ordered to work extended hours that conflict with events in their personal lives, or they may discover that the job description provided is inadequate and misleading. In such cases, workers often feel unhappy and discontented. Many may not put forth their best efforts for the employer and typically will seek work elsewhere.

Sometimes informal workplace practices are part of a psychological contract, and management runs afoul of employees by changing them. As an example, if a workplace has allowed parents of children who participate in sports to start work earlier and leave before the end of the standard business day to attend games, this practice is part of the psychological contract between the employer and employees. Should a manager seek to change this practice or deny the benefit to another employee whose child begins participating in a sport or other activity, workers would regard this as a breach of the psychological contract. However, changes such as these can occur as a result of new management or ownership.

Trust

At the heart of the employer-employee relationship is the issue of trust. Trust develops over time if both parties feel they are being treated fairly, promises both contractual and implicit are kept, and open communication is maintained. A climate of trust is easier to establish and maintain at a small business, where senior management has personal contact and relationships with employees. Feelings of unfairness and powerlessness erode a trust relationship.

In the past, company loyalty was a mainstay of business. Individuals received jobs from companies, and they expected to remain employed by these companies throughout their working lives. As society and the economy changed, however, it became more common for workers to switch jobs or for employers to cut staff. In this new era of downsizing, managers were told to do more with less. As the employment field contracted, chances for advancement became severely limited. The psychological contract was further breached as companies continued to cut costs and reduce or eliminate pension plans, health benefits, and retirement accounts.

In modern work relationships, the psychological contract is important if employers wish to retain valuable employees. A psychological contract breach may result in employee disengagement—an emotional separation from the employer that often leads to a loss of loyalty. A disengaged employee may not be motivated to go the extra mile for an employer.

Disengagement is a major concern in business because it directly influences productivity and therefore profitability. It also affects worker retention rates and workplace safety. Disengagement may cause workers to remain silent instead of bringing problems to light to seek solutions; this can be a type of passive sabotage. Disengagement frequently spreads throughout a group, a result of a phenomenon known as emotional contagion. It can occur because of something as simple as facial expression—a smile uplifts others, while a frown can bring others' moods down—or behavior such as anger.

In addition, a company that keeps secrets can break the psychological contract. When employees feel blindsided by corporate decisions, such as job cuts, they lose trust in the employer. A company that values its employees should act fairly and inform them of changes.

Bibliography

Conway, Neil, and Rob B. Briner. Understanding Psychological Contracts at Work: A Critical Evaluation of Theory and Research. Oxford UP, 2005.

Ng, Thomas W. H., et al. "Psychological Contract Breaches and Employee Voice Behaviour: The Moderating Effects of Changes in Social Relationships." European Journal of Work and Organizational Psychology, vol. 23, no. 4, 2014, doi:10.1080/1359432X.2013.766394. Accessed 25 Oct. 2024.

Rabstejnek, Carl V. "Psychological Contract: Implicit Agreement Whose Violations Have Real Consequences." Human & Organizational Understanding & Development, Author, www.houd.info/psyContr.pdf. Accessed 25 Oct. 2024.

Zhexembayeva, Nadya. "Constant Change Is Rewriting the Psychological Contract with Employees." Harvard Business Review, 25 June 2024, hbr.org/2024/06/constant-change-is-rewriting-the-psychological-contract-with-employees. Accessed 25 Oct. 2024.