Psychological Contracts

by Bob MacKenzie

In a nutshell

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. These parties include employers, managers, individual employees and their work colleagues. Unlike formal contracts of employment, they are often tacit or implicit. They tend to be invisible, assumed, unspoken, informal or at best only partially vocalised. Because of this, you have to make a determined effort to find out what they are.

  • Psychological contacts are essentially relational.
  • Traditional psychological contracts are usually presumed to be relatively fixed, and continue to reflect an assumption of ‘permanent’ employment, and a long-term career within a single employing organisation.
  • New psychological contracts assume a greater sense of ‘partnership’ between employer and employee, usually on the expectation of a less permanent period of salaried ‘employment’.


2. Attitudes towards ‘careers’

A distinction can be made between different types of psychological contracts in the context of ‘traditional’ (bureaucratic) and ‘newer’ (ad hoc) approaches to careers.

  • Traditional careers and their attendant bureaucratic psychological contracts have three discernable phases: early work life (experimenting with jobs), development (the quality of the work and its rewards count) and maturity (job security is paramount).
  • Nowadays, people are more likely to move from one employer to another.
  • Modern career pathways are also affected by higher divorce rates, lower boredom thresholds and changes in technology or the economy.


3. Benefits of healthy psychological contracts

There’s a significant positive Return on Investment (ROI) from paying close attention to the psychological contracts of your principal stakeholders:

  • It enhances performance and retention of key staff and colleagues, helping them to feel valued and acknowledged
  • Working to restore or maintain healthy psychological contracts helps to maintain or increase performance, to attract and retain talent, and to minimise resistance to, or sabotage of, necessary changes
  • Failure to acknowledge a psychological contract can lead to losing key staff and, with them, business contacts.


4. Psychological contracts and change

Psychological contracts become especially significant when there is change, either happening or proposed. If things are going smoothly, 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.
  • Remedial measures deal effectively with psychological contracts that people already feel have been violated or ‘activated’ by change.
  • Where you can, it is better to pre-empt negative reactions by obtaining buy-in prior to the change taking place.


5. Maintaining healthy psychological contracts

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 them or restore them to a healthy state.

  • It’s vital to anticipate or spot the violations of psychological contracts that often happen as a result of sudden or unwelcome change.
  • Managers should do their best to convert as many as possible of the invisible, unspoken terms of every psychological contract into explicit understandings between them and their team.
  • You should aim to customise or tailor employment policies and communication strategies for each key individual, paying particular attention to those members of your team who are most valued or who have greatest potential to help you achieve your business goals.


6. Fixing a broken contract

You can do a great deal to minimise the damaging effects of change through a process of careful renegotiation:

  • Provide fair and transparent explanations and communications of sudden changes in policy or practice
  • Help staff to understand the nature of the business more fully
  • Where possible, involve employees in managing any changes
  • Arrange outplacements to help people find new jobs or gain new skills
  • Avoid sudden, major surprises, if at all possible
  • Explain clearly why expectations may have to be disappointed
  • Provide regular feedback in all directions of the compass
  • Seek support and guidance for yourself from others inside and outside your organisation.


7. Prioritising contracts for special attention

At certain times you will need to concentrate on the psychological contracts of particular individuals or groups.

  • 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; if not, you may end up losing their essential services just when you need them most.
  • Pay particular attention to the state of the psychological contracts of your younger staff, who are likely to be particularly concerned with dual career families, juggling their work/life balance, responding to demands for greater social responsibility from customers and society, and a desire to be seen to be ethical while remaining competitive and marketable in a global economy.


8. Your own psychological contract

It’s vital not to lose sight of the state of your own psychological contract in your preoccupation with monitoring those of other people. If you complete a simple checklist, you can make this more visible to yourself and also to other key stakeholders, if you choose to share the results with them.


9. Seven health warnings

It helps to bear in mind the following seven health warnings:

  • Maintaining healthy psychological contracts requires persistence and an alert attitude
  • Maintaining healthy psychological contracts takes time, effort and resources
  • Some aspects of the psychological contract will almost always remain invisible, or change
  • Wherever possible, any variations in the psychological contract should be negotiated carefully
  • The gap between formal employment contracts and informal psychological contracts should be as small as possible
  • Carry out regular but unobtrusive health checks on psychological contracts
  • You can’t always satisfy people’s expectations from their jobs.