The Psychological Contract: Why Should Managers Be Very Concerned About It
By Dr. Hussein Ismail – Feb 1, 2011
Psychological contract? We have all heard of a work contract, but what is a psychological contract? And why is it important to learn more about it? Many of you may not be familiar with the term. It is similar to a written contract/agreement between an employer and employee, but it is unwritten, set in the minds of the employee and the employer. It describes the employer/employee relationship in terms of promises made to each other, and the expectations that each party expects from the other.
For example, as an employee, I expect to be offered a safe working environment, and as an employer I expect the employee to finish his/her job on time without delays. These are a set of unwritten expectations that the two parties hold of each other and actually become similar to the obligations in a written work contract guiding the relationship between them. Thus, failing to meet these expectations represents a breach of the contract (psychological). Furthermore, these expectations become very pronounced in the minds of the employee, especially, and to his wellbeing when they are promised by the employer. As an employee, I was promised at the job interview: annual vacation tickets, a transfer to another department more relevant to my skills and overtime compensation. These promises lead to strong expectations, especially if they are important to the employee concerned. What happens if these expectations are not met? That’s what we are mostly concerned about here.
When expectations are not met, this leads to a “breach” of contract. As an employee, I would feel that my employer has breached my contract given that the employer did not fulfill the promises made. What happens if my psychological contract is breached? If the contract is breached this can lead to lower employee commitment, loyalty, and satisfaction – and is some cases, studies have shown that it can result in sabotage. The employee may be so dissatisfied with the breach of his/her contract that he/she may start destroying company property, or doing some other damages.
Employers should take this subject seriously, as a healthy psychological contract can lead to positive outcomes that will benefit the organization. For example, an employee may become a good organizational citizen – which means that he/she may go the extra mile to protect and improve their organization. Motivation and satisfaction become higher as well. On the other hand, a breach may lead to damaging consequences as noted above, which employers should prevent. Below are some tips and recommendations to help organizations build a positive psychological contract:
1) Never give promises at the job interview that you cannot keep:
Many employers tend to overstate their job benefits as a way to attract job candidates. This tactic is not recommended, as it will translate to promises in the minds of employees who will be greatly disappointed when the promises are not filled, leading to breach in the psychological contract along the way.
2) Provide all critical information formally and officially through a standard medium:
Important information and company news, such as the promotion of a Senior Manager, should be communicated to employees via a standard medium which should act as the reference point for all employees. Often, news and information become misinterpreted as they are transmitted from one employee to another. For example, Peter may unintentionally mislead his colleagues into thinking that John was promoted solely because he has been in the organization for so long, while in fact ,John was promoted due to his performance. Accordingly, Peter may erroneously perceive that the promise made to him by his employer, which stipulated that employees are promoted based on their performance, was broken. For this reason, a standard reference point, such as monthly corporate newsletters where all employees can receive information and avoid misinterpretation, is recommended in addition to clear standards and policies.
3) Meet minimum expectations:
Regardless of promises explicitly made to employees, they still expect that some standard expectations have to be met, regardless of whether the employer has promised them or not. This includes fair pay, respectful treatment, career planning and opportunities for growth. Failure to provide minimum expectations will eventually lead to breach of contract in the long run, and can result in high employee turnover, as they will leave to find an organization that can meet their expectations.
The psychological contract is a critical tool in the modern business world. Thousands of today’s workers have experienced a breach of their psychological contract as a result of the massive lay-offs in recent years, which eventually failed in meeting their original expectations of fairness and job security. In many cases, especially when the employer has not provided any help to the laid-off employees in finding another job, this has led to a more difficult and less loyal workforce. This workforce, then, requires even more attention and effort in managing the employer/employee relationship.
By Dr. Hussein Ismail – Feb 1, 2011
Psychological contract? We have all heard of a work contract, but what is a psychological contract? And why is it important to learn more about it? Many of you may not be familiar with the term. It is similar to a written contract/agreement between an employer and employee, but it is unwritten, set in the minds of the employee and the employer. It describes the employer/employee relationship in terms of promises made to each other, and the expectations that each party expects from the other.
For example, as an employee, I expect to be offered a safe working environment, and as an employer I expect the employee to finish his/her job on time without delays. These are a set of unwritten expectations that the two parties hold of each other and actually become similar to the obligations in a written work contract guiding the relationship between them. Thus, failing to meet these expectations represents a breach of the contract (psychological). Furthermore, these expectations become very pronounced in the minds of the employee, especially, and to his wellbeing when they are promised by the employer. As an employee, I was promised at the job interview: annual vacation tickets, a transfer to another department more relevant to my skills and overtime compensation. These promises lead to strong expectations, especially if they are important to the employee concerned. What happens if these expectations are not met? That’s what we are mostly concerned about here.
When expectations are not met, this leads to a “breach” of contract. As an employee, I would feel that my employer has breached my contract given that the employer did not fulfill the promises made. What happens if my psychological contract is breached? If the contract is breached this can lead to lower employee commitment, loyalty, and satisfaction – and is some cases, studies have shown that it can result in sabotage. The employee may be so dissatisfied with the breach of his/her contract that he/she may start destroying company property, or doing some other damages.
Employers should take this subject seriously, as a healthy psychological contract can lead to positive outcomes that will benefit the organization. For example, an employee may become a good organizational citizen – which means that he/she may go the extra mile to protect and improve their organization. Motivation and satisfaction become higher as well. On the other hand, a breach may lead to damaging consequences as noted above, which employers should prevent. Below are some tips and recommendations to help organizations build a positive psychological contract:
1) Never give promises at the job interview that you cannot keep:
Many employers tend to overstate their job benefits as a way to attract job candidates. This tactic is not recommended, as it will translate to promises in the minds of employees who will be greatly disappointed when the promises are not filled, leading to breach in the psychological contract along the way.
2) Provide all critical information formally and officially through a standard medium:
Important information and company news, such as the promotion of a Senior Manager, should be communicated to employees via a standard medium which should act as the reference point for all employees. Often, news and information become misinterpreted as they are transmitted from one employee to another. For example, Peter may unintentionally mislead his colleagues into thinking that John was promoted solely because he has been in the organization for so long, while in fact ,John was promoted due to his performance. Accordingly, Peter may erroneously perceive that the promise made to him by his employer, which stipulated that employees are promoted based on their performance, was broken. For this reason, a standard reference point, such as monthly corporate newsletters where all employees can receive information and avoid misinterpretation, is recommended in addition to clear standards and policies.
3) Meet minimum expectations:
Regardless of promises explicitly made to employees, they still expect that some standard expectations have to be met, regardless of whether the employer has promised them or not. This includes fair pay, respectful treatment, career planning and opportunities for growth. Failure to provide minimum expectations will eventually lead to breach of contract in the long run, and can result in high employee turnover, as they will leave to find an organization that can meet their expectations.
The psychological contract is a critical tool in the modern business world. Thousands of today’s workers have experienced a breach of their psychological contract as a result of the massive lay-offs in recent years, which eventually failed in meeting their original expectations of fairness and job security. In many cases, especially when the employer has not provided any help to the laid-off employees in finding another job, this has led to a more difficult and less loyal workforce. This workforce, then, requires even more attention and effort in managing the employer/employee relationship.