The core of the idea is simple. Employees have implicit expectations about the nature of the employment deal, choosing to work in particular ways on the assumption that they will receive specific kinds of rewards for doing so. They may, for example, work extra hard and expect in return to be given more interesting work tasks.
If our expectations are met, we tend to see the deal as fair, and want to continue working for our employer. But what if we do our bit but the organisation fails to keep its side of the bargain? This violation of the psychological contract may make us question whether it’s worth putting in the effort in future and even whether we’re in the right job.
The idea of the psychological contract helps to explain many of the reactions of employees to organisational change and to changes to the written and explicit employment contract. It is now firmly embedded in training and educational materials for general managers and HR professionals alike. It is also used to help manage individual employees and shape broader HR strategies.
Such developments are fairly recent. Yet researchers have used the concept of the psychological contract for almost half a century. The term was coined in 1960 by Chris Argyris, who observed there was an unspoken agreement between foreman and employees, which resulted in staff maintaining high performance, provided they received fair wages and had some control over the way they worked.
Individual employees appear to form such implicit expectations as a result of their day-to-day experiences. For example, an implicit promise may be made when an organisation gives an employee extra recognition for making an extra effort. On future occasions the employee will come to expect similar rewards for a similar effort.
While the concept of the psychological contract can be traced back to the 1960s or even earlier, little was written about it until 1989 when Denise Rousseau published an article that rekindled interest in the idea. This was followed by her 1995 book, Psychological Contracts in Organisations: Understanding Written and Unwritten Agreements, which emphasised the role of both implicit and explicit promises, and positioned the psychological contract as subjective, individual and in the eye of the beholder. Rousseau’s examination of contract violations appeared to explain employee reactions to organisational changes such as downsizing and delayering during the 1980s and 1990s. But, perhaps more importantly, her work transformed the psychological contract from a vague but interesting idea into something more concrete, measurable and manageable.
Since the late 1980s, many studies have looked at the contents of the psychological contract, with researchers identifying a range of employee promises and organisational rewards, some of which are listed in the table (below).
Some researchers have also argued that there are different types of psychological contract. Relational contracts, for example, are broad, open-ended exchanges of relatively intangible things such as employee loyalty in return for longer-term job security. Transactional contracts, on the other hand, involve the exchange of much more explicit and tangible factors such as an amount of pay in return for a specified level of staff performance.
The second strand of research involves understanding the causes and consequences of psychological contract violation. For example, organisational change or poor HR practices have been found to result in lower job satisfaction and commitment, or even resignations.
Such findings lead to the idea that the psychological contract could be used as a management tool. It was thought that by somehow making the implicit expectations of the employment relationship explicit, staff could be more effectively managed. The CIPD’s 2001 survey Employer Perceptions of the Psychological Contract found that 90 per cent of the 1,300 senior HR managers questioned agreed that it was a useful concept, while 36 per cent reported that their organisations used it to manage the employment relationship.
Given this enthusiasm, there is little evidence about how and indeed if organisations use the psychological contract. Anecdotally, it seems that attempts to make the contract more explicit cause more problems than they solve, while constant organisational change constrains employers’ ability to make and deliver on explicit promises. So while staff are told ever more clearly what is expected of them, employers are unable to say what they will give in return. This can make staff feel the exchange is less than equitable.
It may be that the psychological contract functions largely because it is implicit. That raises the tricky question of how something that is implicit can be managed.
While many major questions about the psychological contract remain unanswered, the basic idea is not in doubt: that what we give at work and expect to get back in return is partly based on implicit expectations which, whether met or unmet, can strongly influence our behaviour.
Contract talk
The contents of the psychological contract – examples of the implicit or explicit mutual promises made by employees and organisations.
Employees promise to:
- work hard
- uphold company reputation~
- maintain high levels of attendance and punctuality
- show loyalty to the organisation
- work extra hours when required
- develop new skills and update old ones
- be flexible – for example, by taking on a colleague’s work
- be courteous to clients and colleagues
- be honest
- come up with new ideas
Organisations promise:
- pay commensurate with performance
- opportunities for training and development
- opportunities for promotion
- recognition for innovation or new ideas
- feedback on performance
- interesting tasks
- an attractive benefits package
- respectful treatment
- reasonable job security
- a pleasant and safe working environment