Psychological Contract

What the psychological contract is

The psychological contract (العقد النفسي), in human resources management, is the sum of the unwritten mutual expectations between an employee and the employer about what each gives the other, as each of them understands them. The employee expects things of the organisation, such as stability, support, an opportunity to grow and fairness, and the organisation expects things of the employee, such as effort, flexibility and loyalty. These expectations are not written in a document and nobody signs them.

The name carries the word “contract” and does not mean a contract. It is a management description of what each side believes is due to it, and it is not an agreement between the two. An employee may believe that the organisation promised something that it did not promise, and the risk lies in that gap.

How the psychological contract differs from the written employment contract

The difference is in kind, not in degree, and overlooking it is what leads to confusion:

• Writing. An employment contract is an agreement that must be put in writing in a document the two parties agree on, and it exists even if it was not written. The psychological contract is made of expectations that were not agreed in any stated form.
• Who fixes the meaning. In the written contract there is one text that both sides read in the same words, whereas in the psychological contract each side holds a picture, and the two pictures may differ.
• The source of rights. The rights and duties of the two parties are not taken from what either of them understood, but from the employment contract and the laws and regulations in force. For that reason the psychological contract is not a clause that may be relied on.

The psychological contract is a tool for understanding how people behave, and it cannot be used to infer what an employee is owed or owes. If an organisation wants an expectation to become an obligation, it must write it into the employment contract or another written document. Whoever confuses the two reads into expectations a meaning they cannot carry, or dismisses an employee’s expectation merely because it was not written.

What the psychological contract contains

Its content varies from employee to employee, but expectations can gather around certain themes. On the employee’s side they include stability, fair dealing, recognition, an opportunity to learn, and an expectation of being told before something that affects the employee changes. On the organisation’s side they include commitment to the work, flexibility when needed, honesty, and good representation of the organisation.

In management writing, two patterns of these expectations are distinguished: a transactional pattern based on pay for specified work over a short period, and a relational pattern based on a long relationship in which the parties exchange loyalty and security. This is a general division used for description. An employee may not fall into a single pattern, and the position may change between one stage of a working life and another.

How the psychological contract forms

It is not drafted at a single moment. It builds up from several sources:

• What was said before joining. It covers the interview and the job offer, which is what the organisation puts to a candidate after selecting that candidate. What the offer does not mention, the candidate may take as understood.
• How the workplace was described. An employee value proposition is a promise of what the organisation provides in return for what it asks, and each sentence in it can become an expectation for whoever read it.
• What the employee saw achieved for others. Seeing colleagues promoted on performance creates an expectation of being promoted too. What is actually rewarded reveals what organizational culture means: the values and assumptions that govern how work is actually done, not how it is said to be done.
• What a manager said in passing. A sentence in a meeting such as “we will review your position after the project” becomes a date for the employee.

How an organisation narrows the gap before it widens

A major source of breakdown is the distance between what was said and what will happen. A way to narrow it is for the candidate to learn the actual picture before deciding. That is the basis of the realistic job preview, which presents a candidate, before acceptance of the offer, with the job’s demands and unwelcome conditions. The candidate then builds expectations on what the candidate will experience, and if the candidate withdraws, the withdrawal comes before both sides lose.

After that comes employee onboarding, the process that carries the person from accepting the offer to full productivity. At its start it is a test of what was understood: does the first week resemble what was said? In the first months an employee’s picture of the organisation may settle in a way that is hard to change afterwards.

Example: two lists of ten expectations

Consider an employee and a manager, each of whom wrote separately a hypothetical list of the ten expectations each considers most important between them, and then compared the two lists. Six expectations matched, which is 6 ÷ 10 × 100 = 60%. Four expectations remained in each list that do not appear in the other, eight in all. Four were unknown to the manager, such as the employee expecting training in the first year and consideration for a transfer after two years. Four were unknown to the employee, such as the manager expecting the employee to take on urgent tasks at the end of the week.

The percentage is not a measure that anyone is held to, and it is not meant to reach a particular figure. What helps are the eight expectations that did not match: each of them could have become a dispute months later, and they became a conversation today. An expectation that the other side does not know about can produce a feeling of breach when it is not met, while the other side sees that it breached nothing.

What a breach of the psychological contract is

An employee feels a breach when the employee sees that the organisation did not deliver what the employee thought it had undertaken: a promotion that did not come, training that was not provided, or flexibility that the employee thought acceptable and that was withdrawn. The organisation may really have failed to deliver what it suggested, or the belief may have been the employee’s alone, or the organisation may not know that the belief existed. In any case the effect on the employee is real: the employee’s effort may fall, or the employee may stop doing anything beyond what is required.

This is close to the case of quiet quitting, a withdrawal from extra effort while performance stays within what is required, which can be described as a matter of unannounced expectations and not of performance. An organisation that responds to the case as a failure of performance may mistake the cause, because the employee has not lost the ability but has reset what the employee gives.

What happens to the psychological contract with change

Change in an organisation rewrites expectations without announcing it. A restructuring, a freeze on raises, a change of manager and a change in the way of working are all things the employee takes as an adjustment to what the employee was expecting. An employee who has stayed for years carries an old picture that may not fit the new situation, whereas a recent arrival starts from the situation as it is.

For this reason the subject is part of change management, the human dimension of any transformation: how people move from one way of working to another. For each major decision the questions are asked: what were employees expecting that no longer holds, and who tells them before they find out for themselves? An organisation cannot avoid changing, but it can announce what changed and what stayed.

What the psychological contract should not be used for

One misuse is to bind someone to something with it. An employee who was absent or who objected is not told that the employee “breached the psychological contract”, because the label dresses an organisation’s opinion as an agreement the employee did not sign. Likewise an employee does not tell the organisation that it “broke the psychological contract” in order to demand what was not written. If either party has a right or a duty, its source is the employment contract and the laws and regulations in force, not this concept, and what does not appear in them is addressed by dialogue.

The value of the concept is that it explains why people become angry about something that violates nothing written, and why the effort of an employee falls when no explicit promise was broken with that employee. With this understanding, a question is asked before any decision that touches employees: what will people read into this decision, and can they be told before they interpret it for themselves?

Managing the psychological contract

It is managed not by a document but by repeated dialogue that brings expectations out of the head into speech. The clearest place is the one on one meeting, a regular meeting between the employee and the manager in which the employee holds the agenda, and in it the questions are asked: what are you expecting from me, and what am I expecting from you? A stay interview adds to the one on one meeting. It is a meeting with an employee who does not intend to resign, in which the employee is asked what keeps the employee and what might push the employee to leave, so the expectations come out before they become a reason for leaving.

Our reading is that a comparison of two lists should be held, that is, each side writes its expectations and then the two compare them, once at joining and once after major changes, because it takes little time and what it uncovers may not appear in a survey.

What makes it possible to voice expectations

An employee will not tell the manager the employee’s expectations if the employee fears that voicing them will be held against the employee. Psychological safety is the belief that one can ask a question or object to the manager’s opinion without it being held against them. It is a different concept from the psychological contract, since the latter revolves around what the two sides expect and the former around the courage to say it. But the psychological contract is not managed without psychological safety, for expectations that are not voiced stay hidden until the disappointment arrives.

So whoever manages the psychological contract begins with what precedes it: asking about expectations should be an ordinary question that no one fears to answer, and what the employee says should be handled as information and not as a complaint. What comes after that is that the organisation says what it can deliver and what it cannot, and writes into the employment contract or another written document whatever must become a commitment.

This is an explanation of the concept, not legal advice.