The term 'psychological contract' refers to subjective expectations, beliefs and obligations, as perceived by the employer and the worker. The concept emerged in the early s and is core to understanding the employment relationship. Although the notion of psychological contract describes the expectations of both employers and individual workers, the concept has been mainly studied from the perspective of the employee.
The psychological contract is different from a legal contract of employment which will, in many cases, offer only a limited and uncertain representation of the reality of the employment relationship. The legal contract refers to a written agreement about the mutual obligations of the employer and the worker. The psychological contract, on the other hand, describes how the parties themselves understand their relationship, their own perceptions of what they commit to the relationship and what they can expect to receive in return.
They may be inferred from actions even towards other employees , or from what has happened in the past. For example, an employee observing a manager in a different department granting a flexible working request may expect similar treatment from their own manager. Broadly, the psychological contract may cover the following aspects of the employment relationship:. Employees in large organisations do not identify any single person as the 'employer'.
Line managers are important in making day-to-day decisions but employees are also affected by decisions taken by senior management and HR. Employees may have little idea who, if anyone, is personally responsible for decisions affecting their welfare or the future of the business. It is fair to say that for many employees the psychological contract is largely the deal they have with their direct line manager.
The quality of the psychological contract heavily influences how employees behave from day to day. Workers who perceive it as balanced in terms of the contributions they make to the organisation, and what they receive back from the employer, perform better, demonstrate more extra-role behaviours, and indicate a higher level of commitment to the organisation. See more of our resources on managing the employment relationship.
This is why violation or breach of psychological contract by the employer can have sudden and powerful consequences for people and organisations, negatively affecting job satisfaction, commitment, performance, and increasing turnover intentions. Read more in our report The changing contours of fairness. Others may react by displaying proactive behaviours, treating the situation as an opportunity to learn, to offset loss of position and uncertainty. To deal with contract repair successfully and avoid people leaving the organisation, individuals need to have the psychological and social resources, building resilience skills in advance.
Read case studies from Zurich Life and Isos Housing about managing change in the employee proposition.
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The psychological contract is a dynamic concept that can be applied to understand varying employer-worker relationships. Yet, patterns and trends can be observed over time: while for many years the traditional psychological contract focused on the promise of job security, the new deal focuses much more on learning and development to ensure individuals remain employable over the course of their careers. However, employers should not underestimate the impact of individual differences: while some people are not interested in the concept of a job for life, and may want to move between jobs and change careers, other employees still value job security highly.
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In this changing context, employers have to pay attention to the key drivers of the employment deal, in order to be able to attract and retain key talent. To aid this, the psychological contract offers a framework for monitoring employee attitudes and priorities on the dimensions influencing performance. Our previous research shows that despite the modern employment deal being based on the promise of employability, employers are highly selective about offering development and career opportunities across their workforces.
Our report Attitudes to employability and talent shows that in three out of ten organisations, opportunities to enhance careers were only available to some workers based on the value they could offer the employer. Those in roles requiring high levels of skills, holders of degree-level qualifications, as well as individuals whose skills were hard to replace, were more likely to receive training and development opportunities and have a degree of autonomy in how they perform their jobs.
While such an instrumental approach to distributing opportunities is understandable, it does leave open the question of its long-term sustainability:. With loyalty of employees undermined, organisations may find they are struggling to retain staff over time. Secondly, employers have to consider the type of deal they are offering to the groups of workers, who are not considered to represent key talent.
Disgruntled employees present risk of increased operational costs associated with high turnover, as well as risk of reputational damage. The psychological contract is central to people performance and engagement at work. Successful management of employee expectations requires people professionals to have an input to the broad organisational strategy, as well as to design and implement the people management and development practices that support it.
In practice, the employer brand can be seen as an attempt by the employer to define the psychological contract with employees so as to help recruit and retain talent. Read more in our employer brand factsheet. Communications : an effective two-way dialogue between employer and employees is a necessary means of giving expression to employee 'voice'. Our factsheets on employee voice and employee communication give more on these related topics.
Learning and career development : employability is a key employment offer to many workers, and so people expect their organisation to offer opportunities for skills and career development.
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Yet, a third of employees in the UK were disappointed with their career progression in Management style : in many organisations managers can no longer control the business 'top down' - they have to adopt a more 'bottom up' style. Managing expectations : employers need to make clear to new recruits what they can expect from the job. Managing expectations, particularly when bad news is anticipated, will increase the chances of establishing a realistic psychological contract.
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Measuring employee attitudes : employers should monitor employee attitudes on a regular basis as a means of identifying where action may be needed in order to improve performance. A positive psychological contract typically supports a high level of employee engagement. Oxford: Oxford University Press. Oxford: OUP. Newbury Park, CA: Sage. Asia Pacific Business Review , 23 4 , pp.
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