What is the psychological contract and in what ways might it impact on employee job satisfaction?
Books and reportsCONWAY, N. and BRINER, R. (2005) Understanding psychological contracts at work: a critical evaluation of theory and research. Oxford: Oxford University Press. Show
GUEST, D.E., ISAKSSON, K. and DE WITTE, H. (eds) (2010) Employment contracts, psychological contracts, and employee well-being: an international study. Oxford: OUP UNGEMAH, J. (2015) Misplaced talent: a guide to better people decisions. Hoboken, NJ: John Wiley & Sons. Journal articlesCOYLE‐SHAPIRO, J. and KESSLER, I. (2000) Consequences of the psychological contract for the employment relationship: A large scale survey. Journal of Management Studies. Vol 37, No 7, pp903-930. DAVIS, A.S. and VAN DER HEIJDEN, B.I.J.M. (2018) Reciprocity matters: Idiosyncratic deals to shape the psychological contract and foster employee engagement in times of austerity. Human Resource Development Quarterly. Vol 29, No 4. pp329-355. JACOBS, K. (2020) Has coronavirus brought a new normal? People Management (online) 23 April. LUB, X.D., BAL, P.M., BLOMME, R.J. and SCHALK, R. (2016) One job, one deal ... or not: do generations respond differently to psychological contract fulfillment? International Journal of Human Resource Management. Vol 27, Nos5-6, March. pp653-680. RAYTON, B. and YALABIK, Z. (2014) Work engagement, psychological contract breach and job satisfaction. International Journal of Human Resource Management. Vol 25, No 17, October. pp2382-2400. RUOKOLAINEN, M., MAUNO, S., DIEHL, M-R., TOLVANEN, A., MAKIKANGAS, A. and KINNUNEN, U. (2018) Patterns of psychological contract and their relationships to employee well-being and in-role performance at work: longitudinal evidence from university employees. International Journal of Human Resource Management. Vol 29, No 19. pp2827-2850. ZHAO, H. A. O., WAYNE, S. J., GLIBKOWSKI, B. C. and BRAVO, J. (2007) The impact of psychological contract breach on work‐related outcomes: a meta‐analysis. Personnel Psychology. Vol 60, No 3, pp647-680. CIPD members can use our online journals to find articles from over 300 journal titles relevant to HR. Members and People Management subscribers can see articles on the People Management website. Without ever having to sign on the dotted line, a psychological contract may be one of the most valuable things an employer ‘signs’ with their employee. But, it doesn’t even exist! This blog post explains the reality of psychological contracts, why they’re important, and what happens when employees break their psychological contract and mentally ‘check out’ from their work. For fantastic employee experiences, download our Employer Branding eBook today. What Is The Psychological Contract?The psychological contract is an agreement, unwritten but understood, that outlines the expectations, beliefs, ambitions, and obligations that characterize the relationship between employer and employee. From day one, it influences how employees behave. And, it’s built on the actions that everyone at the company takes (a byproduct of corporate culture, more generally). Even though it doesn’t technically exist, the psychological contract is still incredibly important and impactful. That’s because, even though it can’t be seen or touched, it can be felt. What’s The Difference Between a Normal Contract and a Psychological One?When an employee joins your company they sign an employment contract that determines the conditions of their employment. This will typically stipulate their pay while covering their rights, responsibilities, duties, and employment conditions while they are working for you. A psychological contract, on the other hand, is never in writing. That means that it doesn’t cover the essentials of employment, but the feelings that influence employment. How Do You ‘Create’ A Psychological Contract?It’s virtually impossible to create a psychological contract. Instead, if you have spent any time investing in your corporate culture, chances are that your organization has already created a psychological contract with your employee. It might even have happened long before they joined your team! That’s partly why an employee brand is important. It helps define and share your corporate culture with the world. In that sense, your employer brand has immense value. In fact, according to a study carried out by LinkedIn, 83% of companies agree that an employer’s brand has a significant impact on the talent a company can recruit. The CIPD factsheet on the psychological contract explains why a psychological contract is often difficult to define: “People’s perceptions of employers’ obligations are often informal and imprecise. They may be inferred from actions (even towards other employees), or from what has happened in the past.” So, you can’t craft your own contract. But, what you do is reap the benefits of a great one, or suffer the consequences of a poor one. We’ll build on that later on in this article! Create Psychological Contracts With Your Employer BrandWhere Does The Psychological Contract Come From?Developed by organizational scholar Denise Rousseau, the psychological contract evolved in the 1960s and draws heavily on insights from both psychology and organizational behavior. The CIPD says that it “describes how the parties themselves understand their relationship, their own views of commitment and what they can expect to receive in return.” That’s what makes it contractual – both parties agree to give certain things in exchange for others! Alchemy for Managers explains that the psychological contract is a set of ‘promises’ or ‘expectations’ that are exchanged between the parties in an employment relationship. It follows logically that when these promises or expectations are met, things work smoothly. Is The Psychological Contract Effective?Generally speaking, yes. The psychological contract is effective because it governs how people work on a day-to-day basis. But, it’s only effective when it’s maintained. When something happens to violate it, things get very, very dangerous. How Does The Psychological Contract Relate To Employee Motivation?As anyone who has ever managed a poorly-performing employee will tell you, when someone feels like their work conditions aren’t meeting their expectations, their heart just isn’t in it and their performance will suffer. While you can’t fire someone for just ‘doing the job’, there’s a very big difference between a motivated employee and someone who isn’t very invested in what they’re doing, or how well it’s done. When an employee isn’t committed, it’s clear from their attitude and behavior that they’re just not as interested in the work anymore. Here are 31 ways to help keep employee motivation high. Can The Psychological Contract Go Wrong?Absolutely it can! And when it goes wrong, it goes spectacularly wrong. In a basic contract, employers agree to provide employment and money in exchange for an employee’s services to meet a certain set of expectations. But, the ‘conditions’ of a psychological contract aren’t spelled out anywhere (even if you have a culture code, there’s still wiggle room around what is and isn’t acceptable behavior). These expectations live unconsciously in employees’ heads. When employees feel like their expectations are matched by the company’s behavior, everything is fine. Can The Psychological Contract Lead To Higher Staff Turnover?Because a psychological contract is based on an employee’s sense of fairness and trust, when an organization is perceived to break its promises, violate its norms or not honor the ‘deal’ between them it doesn’t just reduce job satisfaction, it also lowers employees’ commitment and performance. It also increases the chances that employees will leave the company – or, at the very least, force them to consider alternative jobs (Click here for our full guide to staff turnover’s many reasons). Disgruntled employees can even potentially damage a company’s reputation – particularly if they take to social media to voice their concerns (which they might do, whether your written contract prohibits this or not). Try Our Staff Turnover Calculator4 Key Signs That A Psychological Contract Is BreakingHere are four typical signs that an employee ‘opted out’ of their psychological contract:
However, while it might be relatively easy to see the signs, it’s not always easy to know what made them change their behavior. If there’s no obvious reason for them to have started behaving differently, something might have changed in their work environment that broke their contract, violated their trust, or made them feel disillusioned. The logical consequence of this disillusionment is that employees will stop putting any extra effort in. After all, it’s human nature to give and take. If an employee feels that they’re not getting as much as they give, the chances are that they’ll reduce their efforts proportionately. What Causes a Psychological Contract To Break?While there are many, varied reasons for an employee to feel like their company or employer has violated their trust, a few commonalities stand out. Employees tend to feel let down by a company when:
How Do You Fix A Broken Psychological Contract?While a company often has a different identity in an employee’s mind, we’re all humans. So, repairing a broken psychological contract is as simple (and as complex) as rebuilding a relationship with someone to regain their trust. It’s not easy, but it is possible. Companies can start to regain trust by looking for other ways to meet employee expectations, setting more realistic expectations, or explaining – calmly, clearly, logically, and with empathy – why things have changed. But, most importantly, companies can put initiatives in place that really help them listen to their employees and then find ways to address their concerns. That’s why employee engagement surveys are so important – particularly in tough times! Specific Areas Where HR Can Impact The Psychological ContractHR teams have a responsibility to manage people and development practices – which means they also have an obligation to do what they can to help manage employees’ psychological contracts with their organizations. While much of this remains out of HR’s control (because it lies in employees’ heads!), HR can positively impact:
HR Analytics That Help Report On Employee EngagementWhat HR Can (And Can’t) Do to Fix A Broken Psychological ContractIt’s worth remembering that HR leaders can only do so much to help fix a broken psychological contract. If the company makes decisions that are unpopular with employees, HR team members can’t afford to take the blame personally or to beat themselves up about it. The CIPD reminds managers to consider these important points, whenever a change happens that disappoints team members:
It’s also important to consider that the only constant in life is change. And, that employee expectations are increasing all the time. Perhaps HR leaders and their teams can only really afford to do their best to create and maintain a consistent psychological contract with their employees, and themselves. After all, HR team leaders and members are employees too! What is a psychological contract in employment?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.
What is a balanced psychological contract and why is it important?As with an effective workplace culture, a balanced psychological contract shows an employee they are valued and respected for the role they play within the business. This then leads to increased productivity and, thereby, a positive impact on business performance.
How do people management practices affect the state of psychological contracts?The state of any psychological contract will be influenced by a business or organisation’s people management practices.
What happens if an employer breaches a psychological contract?If an employer breaches an employment contract, then there are legal ramifications. While a psychological contract might be much more informal, breaching it still has very real consequences. Let’s take a look at what a psychological contract breach could look like:
How does psychological contract affect an employees job satisfaction?The results of the study showed that psychological contract breach negatively influences job satisfaction of employees despite the unfavorable economic conditions in which they work. Content may be subject to copyright. negatively consequences could arise.
What is the psychological contract and how does it work?The term 'psychological contract' refers to individuals' expectations, beliefs, ambitions and obligations, as perceived by the employer and the worker. The concept emerged in the early 1960s and is core to understanding the employment relationship.
What is a psychological contract and why is it important?Unlike a formal, codified employee contract, a psychological contract is an unwritten set of expectations between the employee and the employer. It includes informal arrangements, mutual beliefs, common ground and perceptions between the two parties.
What is the psychological contract that exists in the workplace?The psychological contract refers to the unwritten, intangible agreement between an employee and their employer that describes the informal commitments, expectations and understandings that make up their relationship.
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