News and Articles
The psychological employment contract, what is it how can it be managed?
25th June 2007
A psychological contract is defined as the `mutual beliefs, perceptions and informal obligations between an employer and employee' It can be distinguished from the legal employment contract in that it is the perception of both parties, the employee and employer, of what their mutual obligations are towards each others. It can be more influential than the formal written contract in affecting how employees behave from day to day, their motivations and their commitment to the organisation.The psychological contract tells employees what they are required to do in order to meet their side of the bargain and what they can expect from their job. It offers a valid and helpful framework of thinking about the employment relationship, especially against a background of a changing labour market and low unemployment where employers are being encouraged to do what they can to retain employees.
As it is considered a state of mind rather than a legal contract, the obligations of the psychological contract are often informal and can be derived from actions from the employer in the past (corporate brand and reputation) and statements and promises made by the employer for example during the recruitment process or in performance appraisals.
What happens if the psychological contract is broken?
Because the psychological contract is based on expectations it can easily be broken. For example when employees believe that management has broken promises, failed
to deliver on commitments (e.g. promised training, or pay review) or treated the employee with a lack of respect (e.g a badly managed performance review) then it rapidly causes disillusionment, dissatisfaction and ultimately exit. Any breaches of the psychological contract by the employer can have a negative effect on the employee's job satisfaction and commitment to the organisation which will have an impact on business performance.
It won't always be possible to avoid breaching the psychological contract, however employees will be more understanding when the employer communicates what has gone wrong and how they intend to deal with it. At this point a new psychological contract is negotiated.
Why should the psychological contract be taken seriously?
In this day and age there are many changes that affect the workplace, no longer is a job considered to be for life and in this competitive market employees are in a position to choose who they want to work for. Typical changes faced by organisations are the nature of jobs (flexible workers, contractors, temps) restructures, redundancies, technology and market changes. As a result of theses changes and especially in our current low employment times, employees are increasingly recognised as the key business drivers. The ability of the business to add value rests on its front line employees or human capital. A successful organisation is one that works hard to get the most out of its people. It order to be successful employers have to understand what their employees expect from their work.
Typical conditions of Psychological contracts
Employees from Employers:
· Trust and respect
· Reward and recognition
· Opportunities for training and advancement
· Feedback on performance
· An attractive benefits package
· A pleasant and safe working environment
· To develop new skills and be flexible
Employers from Employees:
· Hard work
· Loyalty and commitment to company
· Good attendance and punctuality
· Professional conduct to clients and co workers
· To uphold the companies reputation.
Prepared by Catherine Garney