What is a psychological contract?

Your employees want to feel like you understand and value them

First published on Wednesday, Jun 24, 2020

Last updated on Friday, Oct 23, 2020

What is a psychological contract?

A psychological contract is probably the most abstract thing you'll read about all day. It covers the expectations, beliefs, commitments, and understandings between you and your employee.

American scholar Denise Rousseau developed the idea of a psychological contract in the 1960s.

But you can't see this contract. You can't touch it. You don't need to write it down anywhere. There aren't printed copies of it, unlike the employee's contract of employment.

Which also means that neither party has signed it. And so, the psychological contract is open to yours and your employee's interpretations.

Together, the psychological contract and the employment contract outline the relationship between you and your staff.

The psychological contract and employee engagement

Each of your staff wants to feel like you're treating them in a fair way.

During their time working for you, you'll make informal arrangements with them. You'll share common ground, and discuss mutual beliefs. If you encourage openness, your employee should feel like they can talk to you about:

Of course, many factors could affect a chat about any of these topics. For example, your employee's length of service, their recent achievements, your budget.

Since both parties can have different views on a topic, the outcome you implement isn't always the outcome that the employee wanted beforehand.

Psychological contract breach and violation

How might you or your staff violate the unwritten terms of the contract? You might fail to maintain regular communication. You might do a U-turn on something that you agreed with your employee during a meeting.

You might even dump a large pile of work on someone's desk, giving them an impossible deadline, no prior notice, and no incentive to prioritise this task. We'd all feel shortchanged in this situation, wouldn't we?

Or, in matters of conduct, you might be inconsistent with your management. For example, if you normally look the other way when someone is a couple of minutes late, but one day decide to berate one of your staff when they clock in at 9.02am, the employee will feel like you've breached your psychological contract with them. You've gone against an unwritten rule.

What happens after the breach?

If one of your staff thinks you've breached your psychological contract with them, they're at risk of suffering from low employee engagement.

 Their morale will drop because they've lost confidence in the person—and the organisation—that rewards them.

Their work rate suffers. Meaning their output suffers.

Their negativity can lead to conflict with their colleagues, as well as unauthorised absence and even misconduct.

And, if your employee believes that whatever you did or failed to do is beyond repair, they might resign.

 Manage expectations

When having a discussion with, or writing a letter to, one of your staff, do everything you can to manage how they view what you say. You don't want to mislead one of your staff into thinking you've promised them something that you haven't.

It's also important for you, as a boss, to manage your own expectations. Just like you, your staff are likely to be dealing with complicated situations inside and outside of work. An open door policy can encourage staff to come to you whenever they have a concern or query.

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