What is a psychological contract? An employment guide

Sophie Heatley, Content Writer · 04 Sep

A psychological contract is distinct from your typical employment contract insofar as it is an unwritten, unofficial document. You could refer to it as a mental document, if you like, that you and your employer internally sign.

What is a psychological contract? 

The psychological contract, by definition, represents the understanding of mutual expectations between employees and employers.

In theory, the psychological contract is used to maintain a positive employee-employer relationship by founding a set of mutually agreed ground rules. It pays particular attention to the ‘human side’ of a working relationship, rather than the purely commercial or transactional side.

The contract is influenced by the everyday actions and statements made within the workplace, and how they are perceived by all the parties involved.

In other words, it is a promise formed through daily interactions in the workplace, whereby the organisation learns to understand what is expected from each individual.

Psychological contracts develop over time, evolving and adapting to the working culture of the organisation. That being said, they are relatively resistant to change, and can diverge between individual party members and between whole corporations.

Psychological contract

Who recognised the need for psychological contracts in the workplace?

The concept popped up when scholar Denise Rousseau set out to define an unwritten agreement between employee and employer. Rousseau set out to improve the way employees and employers understand their professional relationship.

Rousseau felt that the psychological contract could better specify the reciprocal expectations within a given organisation’s culture. The contract does this by identifying ‘mental models’ which demonstrate how employees and employers should interact with one another.

Why should we use psychological contracts?

Funny you should ask, because you’re probably already in one. Whilst the most effective psychological contracts work because they are generally transparent and well-communicated between employees and employers, whether you are aware of it or not, you will be following a set of unsaid rules, either based on common sense, personal moral codes or politesse.

It is these unsaid rules that we should hone in on. If understood and recognised collectively, they can provide a sound framework for employee-employer relationships.

If there is a set of ideals understood by the whole team, this can help maintain a sense of patronage, reciprocity and, most importantly, equality in the work place. If each team member feels they are abiding by the same arrangements or beliefs, this will encourage a feeling of solidarity and honesty among colleagues.

In this way, the psychological contract helps to encourage positive organisational behaviour and it plays an important role in increasing performance and productivity.

With this in mind, the psychological contract can also be used in recruitment as a way to define job specifications. When taking on new team members, beliefs asserted by the psychological contract will no doubt influence the way in which recruiters choose new team members.

Psychological contract

The interviewee may be quizzed on how they would respond to certain situations, situations which may have no importance in relation to the official employment contract, but which, on the contrary, are significant when it comes to the psychological contract.

In this way, the person-job fit has a lot to do with the psychological contract. The person specification may vary depending on the collective psychological contract of a workforce. There is a mutual understanding of the type of ethics and practices that go in in the workplace, and this understanding can help find the right person to fit the bill – someone who will also share these ideals and beliefs.

Can psychological contracts differ?

The psychological contract can be used by HR departments to measure any factors which may impact the way workers behave in the workplace.

When dealing with psychological contracts, there are a few things that HR departments need to be aware of.

For starters, the working conditions should be taken into account. Psychological contracts can vary greatly in scope. The set of expectations entertained by workers will range depending on the size of the company, the hours they or their peers work, their pay, their duties, and on many other conditions of employment.

Person-specific arrangements will therefore exist, depending on the professional and personal circumstances of the employee. These must be monitored by HR departments. Individual negotiations may take place between certain employees and employers. These idiosyncratic negotiations may lead to their expectations or general ideals differing from those held by other employees in the workplace.

It is important that HR departments are aware of these agreements. The agreements can easily be confused with favouritism or cronyism.

An effort must be made by HR departments to keep the foundation of the psychological contract standardised, so the base remains the same for every employee. This will support equality in the workplace, and contribute to maintaining an honest and impartial working environment.

Psychological conr

What are the problems associated with trying to circulate psychological contracts?

Other more controversial elements surrounding the psychological contract also arise. There are disadvantages to propagating psychological contracts without due surveillance.

Some workers may disagree with certain elements of the ‘contract’ due to generational or cultural differences.

Such differences can make the implicitness of psychological contracts even more confusing. People from difference generations or cultures may harbour very different views on reward systems, management styles and social or professional behaviours.

These nuances are often taboo topics, meaning the potential tensions between ‘accepted’ beliefs are not discussed openly in the workplace. The common ground therefore becomes less ‘common’ and less ‘grounded’.

Personal agendas may also lead to breaching the psychological contract. Certain employees may take for granted that their views are accepted by everyone else. This can lead to erroneous assumptions and therefore a violation of the psychological contract.

Unfortunately, evidence of this may only arise when the contract has actually been breached. It is difficult to see the flaws in any psychological contract until real tension becomes apparent. When an employee feels their views have not been respected or appreciated – when they suspect a breach in their psychological contract - the employee may lose trust in their organisation. This can lead to demotivation, underperformance and a fall in productivity.

This is why it is crucial for HR departments to pay close attention to the individual and collective expectations between employees and employers.

How happy are your employees? Are psychological contracts affecting the employer-employee relationship in your company?

The expectations must benefit both the employee and employer. The psychological contract should serve the interests of all parties, not just certain individuals.

One example of a failed psychological contract may be when an employee feels that working overtime will naturally be rewarded. However, this may not be company policy. If the employee is salaried, they may not be paid extra for the extra hours they put in. The manager may in unaware that those extra miles were in the hope of future appraisal. This is an example of when an expectation gap arises between an employee and employer.

Expectation gaps can place a lot of strain on the employee-employer relationship.

Psychological contract workplace

These gaps can also arise if employees are receiving different messages from different superiors. If one manager advises one thing, whilst another manager refutes it, this can be very confusing for the employee, as well as damaging for the company culture.

Any incongruences in expectations can lead to members of staff following different psychological contracts. It is imperative that organisations make sure the message they send out to employees is consistent. Otherwise, the managerial voice of the company becomes unreliable, and the psychological contract unclear and maybe even void.

Can we manage the psychological contract?

More often than not, any issue at work is a breach of the psychological contract rather than the actual employment contract.

The best way to resolve any tension surrounding the psychological contract is to make sure that any common ground is, in fact, common ground.

Employers and employees should not assume, but assure that everyone is on the same page.

Ironically, this can be solved by turning the psychological contract into a sort of written contract. This doesn’t mean someone has to put together an official document on how everyone should behave in the office. It means putting together a list of general well-to-do habits and expectations to be encouraged among staff.

The talent management team can do this. Meanwhile, the HR department should make sure that the incentives and guidelines are both cohesive with company values and in keeping with the expectations of the organisation’s culture.

This should be flexible and updated regularly. It could be sent out in a monthly ‘psychological contract’ email, outlining the companies goals and expectations for that turnover. Alternatively, the company could set up its own internal social media system, where feedback and comments on employee-employer reciprocity and support can be shared.

Indeed, a rigid written psychological contract will not have the capacity to adapt to the changing tide of staff, goals and company agendas.

In recent years, the job market has evolved dramatically. There is much less emphasis on job security, as many are now partaking in what has been labelled multi-hyphen careers – where working professionals take on different professions at the same time.

More and more people are also taking on freelance or remote working positions. This means that there is an increased demand for flexibility. The contemporary employment relationship is much more individualised than it was when Rousseau originally conceptualised the psychological contract.

Where psychological contracts are flexible, up-to-date and honest, positive results (should) abound.

What is a psychological contract

On the bright side, psychological contracts can be motivational!

As already established, psychological contracts have been proven to encourage reciprocation from employees. This leads to positive organisational attitudes, a commitment to the original contract of employment, a reinforced value of the obligation to perform well for the company, and a willingness to help colleagues.

On the other hand, if an employee fails to fulfil these unarticulated beliefs, this can lead to a negative attitude towards the organisation of the company, a deviance from accepted expectations of behaviour in the workplace, and an unwillingness to contribute to helping others or encourage company turnover.

Overall, the solution to avoiding any serious violations of the psychological contract is by communicating the mutual expectations of all parties involved.

A well-informed team will support their psychological contract, provided it strives to serve all members equally, and will seek to improve their performance for themselves and the future of their company.

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