The psychological contract refers to the unspoken, often informal and mutual obligation expected between an employer and employee. The psychological contract is based on mutual fairness, trust and the belief that each party will honor said contract. The psychological contract can be inferred from past actions, events and spoken statements. It often has more of an impact on a persons’ day to day behavior than that of a legal. Where the psychological contract is positive, increased employee commitment and satisfaction will have a positive impact on business performance.
When broken the psychological contract can have both negative and positive implications. When breached, the contract can decrease in job satisfaction, employee well-being and employee turnover. Also, the psychological contract can negatively impact employee commitment and engagement.
However, there are positives associations made when the psychological contract is disrupted. The breach allows for the adaptation of the contract and social behaviors through coping mechanisms. The “contract repair” stage allows for restoring the balance between employee and employer, along with each party upholding their responsibilities.
With changes continuously impacting the workforce, the psychological contract is an important aspect often overlooked. Current workplace changes include but are not limited to:
• Increase the number of employees working more flexible hours.
• Company downsizing.
• Constant product, market and technology changes.
• Traditional organization structures becoming more fluid.
• Increasing emphasis on human resources as a competitive advantage.
It is important to note that the psychological contract is highly dependent on employee resilience and cultural values. Also, it is better to prevent a breach than repairing the damage. Breaches cannot be avoided, therefore, it may be better to spend time negotiating or renegotiating each parties’ expectations and assumptions about the contract.
Strategic implications of the psychological construct:
- Process fairness: people want to participate when important decisions are made. When their interest is taken into account, they are treated with respect and they are consulted about change job satisfaction increases.
- Communications: an effective two-way channel of communication between employer and employees is necessary. This two- way dialogue allows for employees to express themselves.
- Management style: current changes in organizations have required managers to adopt a ‘bottom-up’ style. Crucial information, which management need, is known by employees from their interactions with customers and suppliers.
- Managing expectations: it needs to be made clear to new recruits what they can expect from the job. Managing expectations, particularly when bad news is anticipated, will increase the chances of establishing a realistic psychological contract.
- Measuring employee attitudes: employers should monitor employee attitudes on a regular basis in order to identify where action may be needed in order to improve performance.
GUEST, D.E. and CONWAY, N. (2002) Pressure at work and the psychological contract. London: CIPD.