Psychological contract: Understanding, Measuring and Balancing

In general, it can be said that the working relationship between employer and employee is defined by an employment contract and a psychological contract. 

The employment contract usually includes things that regulate the legal status, rights and obligations of both employer and employee. Such as remuneration, probationary period, term and other provisions. An employment contract has legal value and can be enforced. A psychological contract does not!

Psychological contract, what is it?

The psychological contract is about the unspoken or implicit expectations, obligations, ambitions and beliefs between an employee and employer. In other words, it is about perception. The psychological contract is often as influential as the provisions in the formal, written employment contract. The psychological contract is a complex and often underexposed component of working relationships and encompasses the implicit (unspoken) beliefs, ambitions, obligations and expectations that exist between employer and employee, independent of the written employment contract.

Where an employment contract is clear and unambiguous, a psychological contract is sometimes diffuse and based on personal interpretations and expectations. Compliance with the psychological contract contributes to employee satisfaction and productivity, while non-compliance can have negative effects. Important components in a psychological contract include job security, promotion opportunities, development opportunities and expectations regarding treatment and integrity. 

Especially in an onboarding programme, the psychological contract will have to be addressed.

Psychological contract, what is it for?

A psychological contract helps build a strong bond between the employer and the employee. If the psychological contract is respected, employees will be more satisfied and more engaged. This positive dynamic is productivity-enhancing and reduces the risk of employees leaving the company.

However, if one of the parties feels abandoned or constantly feels that she is being taken advantage of, the working relationship may deteriorate, which in turn negatively affects productivity.  

Psychological contract, what does it consist of?

The psychological contract is a tacit, informal agreement between the employee and the employer. It deals with what both parties expect from each other, separate from the formal written contract of employment. Think of (non-exhaustive list):  Job security, promotion opportunities, personal development, respect for employer’s reputation, integrity, acting fairly, fair pay, compliance with agreements, commitment and ownership.

Psychological contract, the importance of getting the balance right.

Employees who feel that the psychological contract is fair and balanced, and where intrinsic motivation is recognized and encouraged, perform better at work. They show more commitment and dedication and are driven by deeper personal satisfaction. 

A balanced psychological contract reduces uncertainty, makes the employer-employee relationship more understandable and clarifies implicit expectations. And provides insight, as an evaluation tool, into the reasons why employees leave during a probationary period, staff turnover increases or employees become less functional.

In contrast, a psychological contract is not a written agreement and therefore cannot be legally enforced. Its existence and adherence depend on the goodwill of both parties. There are many different employees in the employer’s company, each with their own expectations and interpretations. Compatibility is often complex. 

A psychological contract is never static and changes over time. Therefore, periodic attention is needed through organization-wide surveys and individual consultations between employer and employee. Measuring the psychological contract can provide insight into the level of commitment, satisfaction and motivation of employees. Misunderstandings can be brought to light more quickly. Either way, be transparent and unambiguous and create an engaged environment in which feedback can be given.

And should there unexpectedly be a broken psychological contract, deal with it prudently and seriously. Try to understand what expectations there were and investigate why they were not met. Then find a solution acceptable to both, involve employee, ask for feedback and keep monitoring the recovery process.

It sounds simple, but there is nothing as complex as implicit expectations of employees and employers. In the increasingly tight labour market, retention is important. Retain good employees. And in this, implicit expectations might just play a more important role than the formal employment contract.

Article written by Alfred Eilering, CFR Global Executive Search the Netherlands
Photo source: Pexels

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