Psychological Contracts

by Bob MacKenzie

Common questions

  1. What is a psychological contract?
  2. What are the different kinds of contract at work?
  3. What are the benefits of managing psychological contracts?
  4. What is the relationship between psychological contracts and change?
  5. When can psychological contracts become unhealthy or damaged?
  6. How can you maintain healthy psychological contracts?
  7. How can you fix a broken psychological contract?
  8. Are there any psychological contracts that require special attention?

 

1. What is a psychological contract?

Psychological contracts are a set of ‘promises’ or ‘expectations’ that are exchanged between the parties in an employment relationship. Unlike formal contracts of employment, they are often tacit or implicit. They have a significant impact on the performance, morale and recruitment and retention of key staff. Because of this, you have to make a determined effort to find out what they are.

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2. What are the different kinds of contract at work?

At work, there are two kinds of contract – formal, transactional contracts, which are the standard written contracts of employment, and informal, relational contracts. These two kinds of contract overlap with, and ideally complement, each other. Psychological contracts are essentially relational.

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3. What are the benefits of managing psychological contracts?

Despite resource implications, there’s a significant positive Return on Investment (ROI) from paying close attention to the psychological contracts of your principal stakeholders. Not only does this enhance the performance and retention of key staff and colleagues, but it also helps them to feel valued and acknowledged. There is a clear link between healthy psychological contracts and high performance.

Attention to psychological contracts helps people to work smarter, especially when organisations are reducing inputs and increasing their demands for outputs.

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4. What is the relationship between psychological contracts and change?

Psychological contracts become especially significant when there is change, either happening or proposed. If things are going smoothly, there is usually less need to pay them close attention, because psychological contracts are much less likely to become ‘activated’.

Often, you don’t know which changes will trigger negative reactions, so you must be prepared to deal with people’s feelings and reactions after change has happened.

However, where you can, it is better to pre-empt negative reactions to change by obtaining buy-in prior to it having taken place.

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5. When can psychological contracts become unhealthy or damaged?

From time to time, we can expect people at work to feel that their psychological contracts are becoming negated or violated. Typically, this happens when sudden or radical changes in policy or practice are introduced by ‘management’. So it’s vital to anticipate or spot violations of psychological contracts if change is in the air.

The greater the degree of organisational change, or the faster or more frequent its pace, the more likely it is that people will feel that their psychological contracts are being violated.

You can take the temperature of existing psychological contracts in your organisation by completing a checklist about another person or group. After completing it initially by yourself, you might then discuss the results with them.

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6. How can you maintain healthy psychological contracts?

A healthy or positive psychological contract is a continuous image of the employment relationship that involves the ongoing management and adjustment of beliefs and commitments on both sides.

Managers have a crucial role in obtaining employee buy-in to change. They do this by monitoring, negotiating and adjusting their own and their team members’ psychological contracts in order to maintain or restore them to a healthy state.

Line, team or project managers are probably best placed to find out what their team members expect from their work. They then do their best to satisfy these expectations, or explain clearly why they can’t. This creates a greater willingness to accept change, and to add value to the business.

It’s vital to anticipate or spot the violations of psychological contracts that often happen as a result of sudden or unwelcome change.

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7. How can you fix a broken psychological contract?

Thankfully, there are specific strategies you can use to repair psychological contracts which you perceive to be in danger of being violated, or which are already broken or in a negative state. The first thing you must do is to endeavour to make the current state and terms of psychological contracts more visible.

In times of change, it’s virtually impossible to avoid perceived breaches of psychological contracts. But the good news is that you can do a great deal to minimise the damaging effects of change through a process of careful renegotiation. You can do this by carrying out the audit of psychological contract states and then by selecting from a set of eight possible actions.

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8. Are there any psychological contracts that require special attention?

Of course, you will need to be aware of the state of every one of your team members’ psychological contracts. But at certain times this may not be possible, and you will need to concentrate on the psychological contracts of particular individuals or groups. In particular, you will need to monitor carefully the psychological contracts of those members of your team who are performing higher-paid, business-critical or specialised professional roles.

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