Quick intro to psychological contracts and why they are vital for EX and engagement

Emma Bridger

09 Mar 2023
Employee Experience
Employee Engagement
Psychological Contracts
As we continue to transform our organisations in a post-pandemic world there’s an increasing need to put employees at the centre of our approach. A critical part of this involves re-evaluating the psychological contract we have with our people. In this blog we look at:

  • What are psychological contracts?
  • What can you do to get them right?
  • The future?

What are psychological contracts?

According to the CIPD the term “psychological contracts” relates to “expectations, behaviours, ambitions, and obligations as perceived by the employer and the worker”.

It is a concept that can be traced back to the 1960’s and was further developed by Denise Rousseau, who is a professor of organisational behaviour and public policy at Carnegie Mellor University.
It provides a rationale for organisations to look at the human side of the employment relationship (beyond terms and conditions of employment).

The legal contract of employment refers to an agreement which is normally written and signed that relates to the mutual, formal obligations between employee and employer. The psychological contract, on the other hand, looks more at the relationship, the commitment & what each can expect in return. The psychological contract is not written down and unlike the legal contract, is not enforceable (although courts may consider the common law duty to show mutual trust & confidence).

What counts as a psychological contract?

Whilst there is not a definitive list of what expectations & obligations form part of the psychological contract, as it is something that is more personal between an individual and their employer, the CIPD comment that broadly the following things are a part of it:

  • Job security
  • Career prospects
  • Training and development
  • Perceived fairness of pay & benefits
  • Manager support
  • Employers’ contribution in relation to the impact on communities and society

Whilst employee's psychological contracts are often with a line manager; they are also impacted by leadership and HR decisions. People’s experience at work is shaped by all these, but as the direct line manager is responsible for making day to day decisions, it is of no surprise that for most the psychological contract is the relationship between an individual and their line manager.

Why is it significant?

In terms of creating the right experience for people and getting engagement in return, the psychological contract is significant. If people feel that they are making value added contributions to the organisation and feel that they are getting things in return (i.e., job security, appreciation, growth, autonomy), this will likely result in a good experience.

The psychological contract is built on a sense of fairness and trust, in that the employer is making good on the “deal” between them. When the employer breaches this, it can lead to negativity which can impact on job satisfaction, commitment to the organisation (when people want to leave), dips in performance, productivity, innovation, and engagement.

What can you do to get it right (or fix it when it goes wrong)?

Sometimes changes to the psychological contract are unavoidable e.g. external factors such as changes in the labour market.

The CIPD share some key tips on rebuilding the psychological contract when it is breached:

  1. Relationships will break down no matter the efforts put in, but managers are the key to the building and maintaining of them.
  2. If the breach is unavoidable then invest time in re-negotiating the deal with individuals in order to rebuild the trust and confidence.
  3. Spend time building resilience skills to help people cope better when the psychological contract is breached.

The future?

The last couple of years have shown that organisations can and must adapt and change. The psychological contract itself has changed over time. For example, in the past it was based around the promise of job security with “jobs for life.” However, this view of work is now seen as outdated, with the psychological contract now focusing on growth for long term employability across different areas and a more personalised experienced.

According to CIPD the changes affecting the expectations of workers include:

  • Uncertain economic conditions
  • Tech changes with the automation of production processes and reshaping skill demands
  • Rise in the “gig economy” creating a competitive, global marketplace
  • Continuing desire to work flexibly
  • Downsizing
  • Human capital (we prefer to use the term employees of people) being increasingly recognised as a source of competitive advantage
  • Traditional structures for becoming more fluid
  • Corporate scandals, enabled by the media, undermining employees trust in their employer.
In summary, take time to understand the current relationship between your people and your organisation and how near or far it is from your desired psychological contract.

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