Introduction
A relationship between an employer and their employees is a complex phenomenon. Formally, it is determined by a legal contract that is usually signed when a worker starts their job. The legal contract, however, only covers a small fraction of that relationship. An important part of it is defined by an informal agreement, or, rather, a type of a mutual understanding of the terms. This understanding has received the name of a psychological contract. In this paper, we will define the term “psychological contract,” discuss its role and contents, and then we will speak about some risks related to violations of these contracts, as well as about the ways in which these contracts can be used to improve a company’s performance.
What Is a Psychological Contract?
A psychological contract is a term used to denote the emotional relationship between an employer and their worker. It might be defined as “individual beliefs, shaped by the organization, regarding terms of an exchange agreement between individuals and their organization” (Rousseau, 1995, p. 9). Clearly, it is not a written contract, but an informal agreement, a set of opinions and attitudes, mutual beliefs, and informal relationships between an employer and a worker.
A psychological contract to a large degree defines what an employee expects to gain from their job; of course, this influences the behavior of an employee, their loyalty and commitment to their work. It is also important to point out that a psychological contract is often perceived as a “two-way exchange between the individual employee and the organization”; it is affected both by the actions of the employer and their worker (Searle & Skinner, 2011, p. 89).
The informal psychological contract is usually not focused on; it is hardly ever defined explicitly, more often being presupposed from the implicit agreements and the behavior of parties. If a definition of informal, non-written terms does take place, it is still hardly possible to talk through all the expectations and unwritten agreements which will be in effect in the process of working.
In most cases, the psychological contract works, as Rousseau (1995) puts it, via mutual agreement and predictability: “I know what you want from me and you know what I want from you” (p. 9-10). Importantly, and individual committing to a psychological contract accepts certain promises on their own will and according to their own comprehension of them; the comprehension might differ between parties. Therefore, in many cases there might exist a perception of agreement and mutuality, instead of the fact of agreement (Rousseau, 1995, p. 10).
There are a number of important differences between the psychological contract and the legal contract which need to be taken into account. For instance, as it was mentioned, while a legal contract between an employer and an employee is written and explicit, a psychological contract is not even oral but usually is unpronounced and implicit. There is no legal status of a psychological contract. On the other hand, whilst the legal contract often states what the employer should provide for their workers (e.g., salaries and benefits), it is the psychological contract that usually defines what type of work the representatives of the company’s human resources will do. It also has a large influence on people’s attitudes and behavior, for it assists the parties in comprehending what the other party needs, and allows them to satisfy these requirements (Wilkinson-Ryan, 2012).
The Role and Contents of a Psychological Contract
Psychological contracts are of crucial importance for both organizations and their human resources. They define the very core of the relationship between the two. If a psychological contract includes terms beneficial for the worker, ones that meet their expectations, the worker will usually provide their loyalty, commitment and hard work to the company. If, however, the relationships between the company and the worker go askew, the terms of the contract are breached, and the employee has much less incentive to work hard and to stay loyal to the organization they work for.
There is also another threat if a company treats some their employees badly and/or unfairly; it may lead to the decreased performance of the other employees, for they might often feel insecure, angry or indignant. A breach of a psychological contract may lead to the decrease in morale and the motivation of the personnel, which often has a significant effect on their performance. This is why it is important for businesses to pay much attention to psychological contracts and maintain good and respectful relationships with their workers. For workers, on the other hand, maintaining the “terms” of a psychological contract is also crucial, or else they risk getting various penalties or even facing dismissal.
Psychological contracts usually include a number of items related to the expectations of both an employer and their employee. The representatives of the human resources are usually expected to work hard, be loyal to their company, strive to improve the enterprise’s reputation, have respectful relationships with their colleagues and endeavor to be of assistance and serve the firm’s clients, and be flexible enough to support the company when there is a need for it. The employers, on the other hand, are expected to provide the workers with stable employment, regular, adequate salary or wages, treat them with respect, and recognize their achievements. There are often expectations of various benefits such as a paid vacation, medical insurance at the company’s cost, opportunities to be promoted, interesting tasks, and the possibility of personal growth.
How Can Psychological Contracts Go Wrong?
There are a number of situations when psychological contracts might go askew. These situations are related to the contents of the psychological contract; if one or a number of terms are not met, a problem occurs. Types of violations of a psychological contract include a breach of trust, salary delays, an absence of promotion opportunities, disrespect towards the workers, or other factors.
The psychological contract breach can lead to a number of adverse consequences for the company. Employees who had their psychological contract breached suffer from negative emotions, frustration; the relationship between them and the company is harmed. These workers much worse perform their roles within the company, more often violate the rules of the firm, and are much more likely to quit the job than those whose contracts were not abused (Suazo & Stone‐Romero, 2011). For instance, employees can leave their job early, take longer breaks, engage in numerous conversations with their colleagues, etc., once their psychological contract was neglected.
Importantly, human resources can break the terms of the contract, but most severe problems related to the psychological contract breach seem to come from the management of an organization. In some cases, actions of the management can even cause backfire from some third parties (such as employees’ relations), which might significantly affect the working process in a company. For instance, Wellin (2007) provides an example of Gate Gourmet, an in-flight meals company which worked at London Heathrow Airport (p. 6-7). In summer 2005, Gate Gourmet carried out numerous layoffs; some employees received information about their being fired through phone text messages.
However, Gate Gourmet did not take into account that many of their workers had friends or relatives in British Airways. The mass compulsory redundancies caused a great strike organized by the workers of British Airways; it resulted in the paralysis of the airport and major losses for both Gate Gourmet and British Airways (Wellin, 2007, p. 6-7).
Clearly, a breach does not affect all employees in the same way. Their responses are affected by a number of factors and usually depend on the context. It is stated that, in case of a breach, individuals “may consider the extent to which their values fit those of the organization, the extent to which they have social resources available to make constructive change in the organization, and the risks and possible sacrifices involved in making constructive change or leaving the organization” (Kiazad, 2010, p. 184)
How Can HR Managers Use Psychological Contracts?
Whereas psychological contracts should not be neglected and their terms ought to be met because of the consequences that the negligence might entail, it is also vital for companies to understand how a psychological contract can be useful if the performance of the human resources is to be improved. According to Wellin (2007), a psychological contract can be of assistance when it is needed to comprehend and/or forecast people’s attitudes and behaviors, motivate them to work, and align workers to clients and the strategic aims of the business (p. 6). It might also be crucial in prevention of various negative situations that might be caused by disappointed or outraged workers.
The provided example of the Gate Gourmet company shows a situation when the notion of a psychological contract and the understanding of the employees’ expectations and their connections might and should have been used to forecast people’s behavior. Had Gate Gourmet taken into account the fact that there existed numerous connections between the employees of the two companies, they could have anticipated the protest of the workers, and perhaps would not have made such a mistake that led to the losses which were greater than the losses that were the reason for the layoffs (Wellin, 2007, p. 6-7).
Another situation when the psychological contract can be utilized to influence workers is related to engagement. Engaged people are much more committed to their job and much more successfully perform it. Therefore, it is important to take into account their expectations while carrying out the leader’s work in the company.
The comprehension of what people expect might be utilized in order to engage workers in their job, for instance, by giving them tasks that would better match their interests, providing them with support they need to do their current jobs, or supplying them with opportunities for personal growth.
The leaders should be able to consider the mutual interests of the company and its employees, create proper psychological deals with the workers, and not disappoint them in their expectations. In fact, the notion of the psychological contract allows for a very personal look at a worker and the relationship between the worker and the company, acknowledging the needs of both sides and negotiating them (Raja, Johns, & Ntalianis, 2004). It permits to reduce neither the leadership not the workers to some abstract categories, but to discuss personal agreements with people and come to mutually beneficent decisions.
It also allows for aligning the workers with the goals of the enterprise, for such discussing lets the leader to more effectively formulate the company’s strategy in accordance with its goals, and then communicate this strategy to different units, teams, or other divisions inside the firm in the way that would be appropriate for particular people working in these divisions (Wellin, 2007, p. 148-150).
Importantly, both individual leaders and the organization as a whole can use psychological contracts to improve the performance of the business. Clearly, individual leaders can engage in personal discussions with employees and find out their expectations from the company, related to both individual benefits and support in accomplishing tasks. These leaders can also communicate the expectations of a company and point out the areas where an employee needs to improve. On the other hand, the whole company can participate in improving the performance, for instance, by finding out the tendencies in expectations of their employees and adjusting the firm’s organizational culture accordingly (Wellin, 2007, p. 140-143).
Conclusion
To sum up, it should be stressed that a psychological contract, an informal agreement, defines a crucial part of the relationship between an employer and their workers. A psychological contract includes expectations of both sides from each other. Should a psychological contract be breached, it may lead to severe consequences for the party that breached it. On the other hand, it is possible for leaders to use psychological contracts between the firm and its human resources in order to significantly better the company’s performance.
References
Kiazad, K. (2010). Responses to psychological contract breach: Moderating effects of organisational-embeddedness. Melbourne, Australia: Custom Book Centre, University of Melbourne.
Raja, U., Johns, G., & Ntalianis, F. (2004). The impact of personality on psychological contracts. Academy Of Management Journal, 47(3), 350-367. doi:10.2307/20159586
Rousseau, D. M. (1995). Psychological contracts in organizations: Understanding written and unwritten agreements. Thousand Oaks, CA: SAGE Publications.
Searle, R., & Skinner, D. (Eds.). (2011). Trust and human resource management. Northampton, MA: Edward Elgar Publishing, Inc.
Suazo, M., & Stone‐Romero, E. F. (2011). Implications of psychological contract breach: A perceived organizational support perspective. Journal of Managerial Psychology, 26(5), 366-382.
Wellin, M. (2007).Managing the psychological contract: Using the personal deal to increase business performance. Burlington, VT: Gower Publishing.
Wilkinson-Ryan, T. (2012). Legal promise and psychological contract. Wake Forest Law Review, 47(4), 843-873.