Though everyone is familiar with the concept of an employment contract, the idea of a psychological contract isn’t as well known.

This post looks into psychological contracts, how they’re formed, what happens when they’re breached, and how to maintain them. 

What is a psychological contract?

A psychological contract is the collection of beliefs, commitments, and understandings that exist between an employee and their employer. It differs from an employment contract in that’s it’s unwritten and is formed from conversations and interactions that occur between the two parties on a daily basis. More specifically, it’s how each of these interactions is perceived by an employee and employer. Because perception is an important part of the contract, what’s not said is as important as what is, so tone of voice and body language have a large part to play too. 

Another key distinction between psychological and employment contracts is that psychological contracts are unique for each employee. Employees have different responsibilities, as well as different levels of ability, so their employer will have different expectations for each person. Similarly, each employee will have different expectations of their employer depending on their aspirations and personal circumstances. 

Together, the employment contract and the psychological contract define the employer-employee relationship. It’s a robust psychological contract that allows for things like remote working, flexible working practices, and unlimited annual leave, as they require trust to work long term. 

Aspects of a psychological contract could include:

  • Job security
  • Promotion opportunities
  • Salary increase opportunities
  • professional development opportunities
  • The employer’s reputation and the prestige of working there
  • Job satisfaction 
  • Supportive management and HR
  • The perceived ‘fairness’ of pay, annual leave allowances, and other employee perks
  • An expectation to go ‘above and beyond’

The psychological contract determines the underlying relationship that each employee has with management and the company as a whole, as well as with each other. Consequently, it influences how they behave and how well they perform their job. 

An important trait of the psychological contract is that it’s not fixed: it constantly evolves over the course of the working relationship. 

Breaches of the psychological contract

The employee balances how much they put into their job with how they feel they are being treated by their employer. Ideally, the more an employee puts in, the more the company should reward them. However, for reason ranging from company politics and nepotism to discrimination and simply being overlooked, this often isn’t the case. 

If someone feels they’re not being rewarded enough for what they put in, the balance is skewed and the psychological contract is breached. This will result in them putting in less effort, losing interest in their work, developing a negative attitude, or seeking employment elsewhere. 

However, let’s not forget that it works both ways: employers have expectations too. Each employer expects a certain amount of commitment or level of performance in exchange for the remuneration, responsibility and recognition they’ve given the employee. If they don’t perceive that those expectations are being met, then they’ll be loath to give the employee any more: again, the psychological contract has been breached.

Maintaining the psychological contract

It is easier to maintain the psychological contract than to repair it following a breach, and when it comes to maintenance – communication is key. As the employer, it’s your responsibility to maintain the contract and get ahead of any potential breaches. 

For your part, managing expectations is an important component of maintaining the contract, as many breaches stem from employees not getting what they feel they’re due. On one hand, you need to be conscious of not making promises or assurances of rewards that you can’t keep. 

However, some employees have unreasonable expectations of what they can expect from the company, and it’s also your responsibility to realign said expectations so they’re more realistic. The employee may not necessarily react positively to this but you’ll have tried your best to hold up your end of the deal. 

Alternatively, you may feel that an employee has breached the psychological contract through a lack of performance, poor attitude, etc. In such cases, it’s up to you to confront the employee about how you feel they’ve breached the contract. It could be that this conversation causes them to buck their ideas up, or you may discover an underlying reason for their underperformance that they hadn’t disclosed. 

Many employees wait until the employees annual or bi-annual performance review to do this, but by then it’s often too late. Because the psychological contract changes on a day to day basis, you need to address any problems as soon as possible to have the best chance of maintaining it. 

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