How the psychological contract helps HR pros connect with their people

HR pro discussing psychological contract with employee

Although it's not very often these days, when I’m out shopping, or at a restaurant (always outside of course), or even getting the oil changed in my car, I will frequently ask employees I encounter how they’re faring at work during COVID-19, and how they feel their employer has treated them. I do this in a very conversational way because I genuinely want to know, and they usually seem genuinely happy that I ask. The answers I receive vary from sentiments of hardship to uplifting stories of employers having gone above and beyond to ensure their people and their families are taken care of. Sometimes the quality of service and the customer experience I have at the establishment directly correlates to the positive or negative answers I receive from the people working there.

Being a self-proclaimed and quite proud “HR nerd,” I often find myself reflecting on these responses and thinking about how much the work environment has shifted, transformed, and evolved since mid-March of 2020. It’s not that the world of work hasn’t always gone through flux over the years; it's just that during this time the shift has been particularly dramatic and palpable.

Said more simply, it's been difficult, and that's putting it lightly.

You might relate this your own employment experience. Has your employer asked you to shift or change your hours, work location, or the way you work during COVID-19? I'd venture to say that all of us have been touched by these changing times in some meaningful and disruptive way.

Employers have asked a lot of their people during these months. On the flip side, employees have expected much from their employers in return. That said, with the New Year approaching, I’d like to introduce you to a concept that you’ll read about and hear about frequently from me and the HCM Advisory team in 2021 regarding how to strike a healthy balance with all these expectations – the psychological contract.



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A contract written in invisible ink

I first learned about the psychological contract when I began teaching graduate school human resources classes in 2009.  Truth be told, I likely learned about this concept during my time in graduate school as a student, but it wasn’t until I began working in HR and focused on teaching it to others that it started to make sense in a practical way and become memorable to me.

If you’ve not heard of this term before, or just need a refresher, the psychological contract describes the exchange relationship between the organizations and their people. It’s the give and take that happens during day-to-day work, from both perspectives.

At its simplest, one form of the psychological contract can be described as an employer hiring an employee, and that employee then performing work for the employer. In other words, the employer will give an employee a job, and in exchange that employee will arrive on time and complete their work to an acceptable level. The employer will then provide a paycheck for the work performed. In this example, should both expectations be met, the psychological contract is fulfilled.

If only it were that simple!

Originally conceptualized by organizational psychologist Chris Argyris in 1960, the psychological contract can’t be seen, isn’t written, and can't be signed. It's a list of unwritten expectations that are always there and constantly changing. And there are many layers of these expectations.

Have I lost you yet? If this is all a bit confusing, I understand!

The psychological contract is complicated and ever evolving based on many, many factors. It is easy to think of an exchange relationship in the world of work as being one that mostly involves the transfer of money. And yes, the economic exchange between the employer and employee is a big part of the psychological contract. But it’s not the only part, as there are strong transactional and relational components to the exchange relationship at work as well.

It wasn’t until I took a step back and worked to truly understand the concept of the psychological contract and how it affected the employment relationship that I was able to rationalize and understand some of the behavior employees I encountered on a day-to-day basis were exhibiting. Here are some examples of what I learned.

Aha moments with the psychological contract

When I was a VP of HR, employee relations concerns frequently came across my desk. I regularly wondered why employees would act or react a certain way. I worked in a place where shift work was the norm for most people, and it was often difficult to hire people to do the kind of work we were asking them to do. This was in the human services field — taking care of adults with various disabilities. It was hands-on, emotional, and oftentimes frustrating work. Simply put, it took a very special and dedicated person to do the job. An easy way for me to rationalize bad employee behavior or attitudes was to chalk it up to stress or burnout.

Still, I wondered why some employees were consistently late to work, despite being spoken to about the issue repeatedly. Why did some employees no longer work to their full potential? Why were some employees better organizational citizens than others? So often human resources and business professionals are bogged down with day-to-day problems, and it's easy to forget to look at the bigger picture of why some employee issues may be arising.

No single approach can answer all these questions, as so much of the reasoning behind individual organizational behavior is situational. But for me, it was exposure to the concept of the psychological contract that opened my eyes to the fact I needed, perhaps, to shift my focus away from the employee and their behavior and towards the company and the way we were treating our employees.

What employment experience were we providing matching up with the experience our people were expecting when they were hired? Was our technology on point? What changed at our workplace, and what was the collective response to the change? Were we holding up our end of the “deal” in our people's eyes based on what they had come to expect at work?

The answers varied, but the insights you glean from the answers you get oftentimes work as part of a process of elimination to explain unfavorable behavior trends or recurring issues.

Why is the psychological contract particularly important now?

I don’t think it can be understated that the concept of the psychological contract is very much in play during the great reset at work that we have all experienced and are still experiencing. Employees have high expectations for their employers, and the reverse is true as well. Taking a step back to deliberately ensure that expectations are being met on both sides can only serve to make workplaces more productive and prosperous.

The question, though, is how do we do this? How do we ensure that expectations are continuously met, and that the psychological contract and the relationship between employer and employee remains strong? And how do we make the improvements we need to put in place to get there when we've got so many other things to juggle in our day-to-day?

One idea is to take advantage of how far artificial intelligence in HR technology has come. It no longer takes a bunch of work to set up these kinds of solutions. Instead, it's a lot like having the kind of top-grade business consultant you need but can't necessarily afford sitting there in your system and guiding you toward the right answers. Everything from looking at what makes employees more likely to be a flight risk to establishing benchmarks to automatically assessing how people feel about the changes you're making can be managed by AI and take a lot of the weight off your shoulders. And these technologies can point you to the right people data to verify the results they're providing, so you don't have to just take it on faith.

That's just one quick example of how to monitor the health of the psychological contract at your organization. You might have your own ideas and your own success stories as well, which I’d love to hear.

Conclusion: Make the intangible part of your 2021 planning

My hope is that the concept of the psychological contract will become memorable to you and help you in your everyday business dealings and operations — especially when it comes to managing people. We'll be discussing this more in the months ahead as we focus the start of our new year on employee well-being. Stay tuned! In the meantime, if you need help managing any of the tangible or intangible impacts of COVID-19 on your organization, I invite you to visit our Managing Through Times of Uncertainty resource page.