What is a Psychological Contract?
Psychological contracts aren’t typically a subject of everyday work conversations, yet every employee and employer subconsciously enters these unspoken and unwritten agreements as part of the employment relationship. Sound new? It’s not. In fact, Professor Denise M. Rousseau wrote about psychological contracts in 1989. So, what are psychological contracts? Keep reading. Do you need a lawyer to review yours? Probably not.
According to Rousseau, “Psychological contracts are individual beliefs in a reciprocal obligation between the individual and the organization.” Essentially, what employees think they owe their employers and what employees think their employers owe them is referred to as a psychological contract. Psychological contracts, unlike written or implicit contracts, can be trickier because they are subject to broad interpretation. They are neither voiced nor written until employees perceive them as having been breached. In a basic sense, the psychological contract represents the obligations, rights, rewards, etc., that an employee believes they are 'owed' by their employer, in return for the employee's work and loyalty.
As an employer you may be wondering why you should care about psychological contracts. After all, you hire people to do a job and you pay them to do so. That should be enough, right? Wrong! There is much more to the employer-employee relationship than job duties and monetary compensation. For example, providing an environment that is psychologically safe and inclusive are also typical, yet unspoken, terms of psychological contracts. It’s critical to the success of your workplace culture for you to acknowledge and understand that these unwritten contracts exist and do your best to honor them.
Entering Psychological Contracts at Work
While it is true that employers enter a psychological contract with every employee, the contract does not have the same terms for every employee. Each employee has their own motivations and expectations, and it is the responsibility of the employer (i.e. executive leadership, management and/or direct supervisor) to determine what they are. This responsibility does not absolve the employee of communicating their expectations to the employer as well. It’s important to remember that at any point during the employment relationship, the terms of the contract may change.
The Importance of Compassion in Psychological Contracts
Compassion is a critical component of upholding employer-employee psychological contracts. While similar in meaning to empathy (trying to understand how someone feels), having compassion indicates the desire to take action. As an employer, it is necessary to not only acknowledge the needs and expectations of your employees but to also commit to taking action to address them. Whether the concern is pay inequity, disparate treatment, harassment, unsafe conditions or any number of other employment-related issues, listening and acknowledging are important, but they are not enough. To be successful in meeting the terms and conditions of the psychological contracts with your employees, taking action is the most important step.
Many employers are working on their post-COVID-19 work plans and determining whether they will be returning to the office, remaining fully remote or developing a hybrid workplace. This is a prime opportunity for employers to connect with their employees, either for the first time or again, to find out their needs and expectations for this new and different phase. It is also a prime time to address any concerns that had not been addressed prior to the pandemic relating to culture (diversity, equity, inclusion, belonging, accessibility) and business practices (hiring, compensation, promotions, discrimination, etc.).
A workforce can only be as great as the environment in which it exists. Upholding psychological contracts, and revising as necessary, is a significant step towards creating a great workforce-worthy environment.
To get the full picture of psychological contracts and how trust, communication, transparency and safety impact these unwritten agreements, read my latest whitepaper The Role of Psychological Contracts in the Employer-Employee Relationship.