The "psychological contract" is an essential, albeit often overlooked, element in the relationship between employer and employee. It consists of a collection of unspoken expectations and obligations that shape the workplace without ever being formally documented. Especially in today's BANI World, psychological contracts can be crucial in fostering employee commitment and engagement.
Throughout this article, we will define the concept of the "psychological contract", highlight its challenges, shed light on the consequences that a breach of this contract can bring, and describe possible implications for action.
What is the Psychological Contract?
The concept of the psychological contract, first introduced in the 1960s, captures the implicit agreements between employees and companies or leaders. However, it was not until Denise Rousseau (1989) that the concept of the psychological contract gained attention. She emphasized that the Psychological Contract reflects the perception of mutual expectations, obligations, and, most importantly, promises. According to Rousseau (1989), it is profoundly shaped by the employee's subjective interpretation. Therefore, a successful psychological contract is based on a shared understanding, emotional attachment, and trust.
The psychological contract encompasses topics such as trust, loyalty, appreciation, and development opportunities. It primarily focuses on the work relationship, whereas the employment contract is a legal document that outlines the formal conditions of employment.
The Challenges of the Psychological Contract
The psychological contract can bring about challenges as it is inherently dynamic and subjective. It is based on individual perceptions and expectations of employees and can change over time.
- Subjective perception: Everyone sees the world through their own lens, and the same applies to the psychological contract. What may seem like a clear commitment to an employee may appear as a loose agreement to the manager.
- Communication issues: The psychological contract is not documented in writing, which can lead to misunderstandings and misinterpretations.
- Changes over time: Employees and organizations change. These changes can result in the original expectations and agreements no longer being fulfilled.
- Unspoken expectations: Sometimes, employees have expectations that they do not voice. When these expectations are not met, it can lead to frustration and conflicts.
- One-sided expectations: If only one side of the psychological contract has expectations, while the other side lacks clear goals or expectations, it can lead to imbalances and dissatisfaction.
The Consequences of a Broken Psychological Contract
A broken psychological contract can have serious implications for the working relationship of the parties involved. These include (cf. Zhao et al., 2007):
- Low trust and distrust: When the psychological contract is broken, it can lead to a significant loss of trust. Employees may lose trust in their managers and the organization. Distrust can manifest in skepticism towards new agreements, reduced collaboration, or even conflicts.
- Decreased motivation and engagement: A broken psychological contract can result in employees losing their motivation and engagement. When their expectations are not met and they do not feel supported or treated fairly, it can lead to lower quality of work and reduced productivity.
- Increased stress levels and dissatisfaction: A broken psychological contract can lead to increased stress levels among affected employees. The feeling that promises were not kept or their needs were not considered can result in frustration and dissatisfaction. This can have a negative impact on mental health and lead to increased absenteeism and higher turnover.
- Poor work climate and team dynamics: When the psychological contract is broken, it can result in a poor work climate and disrupted team dynamics. Distrust, conflicts, and dissatisfaction can burden the work environment and impede collaboration. This can lead to a negative atmosphere and significantly affect team performance and cooperation.
It is important to note that a broken psychological contract not only affects employees but also the organization itself. It can result in loss of talent, damage to reputation, and long-term negative effects on organizational culture. Therefore, it is crucial to recognize the psychological contract as an important aspect of the employment relationship and actively manage expectations and, if necessary, adjust agreements.
The Importance of Open Dialogue
To successfully establish the psychological contract, it is important for both employers and employees to maintain continuous communication regarding their respective expectations, in order to make implicit assumptions transparent. Here are a few dos and don'ts to consider:
- Clear Communication: Ensure that both the company/leadership and employees clearly communicate their expectations and needs to avoid misunderstandings.
- Open and Honest Conversations: Encourage open and honest communication, where both parties can freely express their opinions, concerns, and ideas.
- Incorporate Flexibility: Consider the need for adjustments and changes throughout the working relationship, and allow flexibility in agreements to avoid contract breaches.
- Mutual Respect and Trust: Strive for mutual respect and trust in the working relationship. Respect each other's boundaries, values, and needs.
- Promises that Cannot be Kept: Avoid making promises that are unrealistic or cannot be fulfilled. Stick to agreements and commitments.
- Lack of Transparency: Be transparent about company policies, decision-making processes, and changes. Lack of transparency can lead to mistrust.
- Unfair Treatment: Avoid any form of discrimination or unfair treatment. Ensure that all employees are treated equally and have equal opportunities.
- Lack of Support and Recognition: Do not neglect supporting and recognizing employees. Show appreciation for their work and provide them with development opportunities.
The "Psychological Contract" is an implicit, often overlooked phenomenon in shaping the employment relationship, but can have noticeable and significant negative effects on employee performance and consequently the company when it is not fulfilled. On the other hand, by openly discussing and explicitly addressing expectations and assumptions on a regular basis, the full potential of strong psychological contracts can be realized, fostering an engaging and health-promoting work relationship.
Rousseau, D.M. (1989). Psychological and implied contracts in organizations. Employee Responsibility and Rights Journal, 2, 121–139.
Zhao, H., Wayne, S.J., Glibkowski, B.C. & Bravo, J. (2007). The impact of psychological contract breach on work-related outcomes: A meta-analysis. Personnel Psychology, 60(3), 647–680.