Editorial
We’re all familiar with the formal contract we receive after accepting a role at a company. It outlines the explicit terms of employment, and in some cases, you can even negotiate these terms. But what about the psychological contract? This unwritten set of expectations encompasses the intangible aspects of the employee-employer relationship, including mutual expectations, perceived obligations and promises. While it is often not on paper, this implicit agreement plays a critical role in shaping job satisfaction and productivity within organizations. With Gallup recently reporting that self-reported turnover risk is at its highest level since 2015, maybe it’s time to redefine the psychological contract.
What Is the Psychological Contract?
The psychological contract is built on perceptions and beliefs about what each party expects to give and receive. For employees, this might include expectations of a fair wage, career advancement opportunities, recognition, work-life integration and support. Employers may expect commitment, productivity and a positive attitude. When these expectations align, it can create a harmonious working relationship filled with success for both sides. Conversely, when expectations and reality don’t align, it can lead to dissatisfaction and decreased productivity.
The Impact of the Psychological Contract
Engagement
Employee engagement is heavily influenced by the fulfillment of the psychological contract. When employees feel that their employer has met or exceeded their expectations, they are more likely to experience higher job satisfaction. This energy and commitment stems from a sense of being valued, respected and treated fairly. For example, if an employee expects opportunities for professional growth and the employer provides regular training and development programs that aligns to their needs, the employee is likely to feel content and motivated.
On the other hand, breaches in the psychological contract can lead to feelings of betrayal and dissatisfaction. For example, if an employee expects transparency but is met with a lack of communications, or anticipates recognition for hard work but receives none, the psychological contract is breached. This can result in negative emotions, decreased morale, reduced job satisfaction, reduced trust and, ultimately, decreased engagement.
Productivity
The psychological contract also significantly affects productivity. Employees who feel their expectations are being met are generally more engaged and motivated. This engagement translates into higher levels of productivity as satisfied employees are more likely to invest effort in their tasks, go above and beyond, collaborate effectively with colleagues, and contribute to a positive work environment.
On the other hand, when the psychological contract is perceived to be violated, employee behaviors can reflect this dissatisfaction. These unmet expectations can lead to employees doing the minimum required, increased absenteeism or actively seeking employment elsewhere, resulting in higher turnover rates. What else can you expect? If an employee sees little or no commitment from their employer to their growth and success, why would they give a high level of commitment back?
What It Takes to Maintain the Psychological Contract
Clear, Regular Communications
To maintain a healthy psychological contract, clear and open communication is essential. Employers should strive to understand the needs and expectations of their employees and communicate their own expectations transparently.
Regular and transparent communication about company policies and changes helps build trust. When employees feel informed and included, they perceive the organization as trustworthy and reliable. No one wants to find out from the news or other people about what is happening in their company before their manager or leadership informs them.
Regular feedback sessions, performance conversations and open-door policies can also help in aligning expectations and addressing potential issues before they escalate. Nothing in a yearly performance review should be a surprise to an employee.
Commitment to Whole-Person Well-Being
Demonstrating commitment to employee well-being can strengthen the psychological contract. This commitment can manifest in various forms, including physical, mental and emotional support. This could include health services, wellbeing programs, education, tools, flexible benefits, as well as policies that support healthy lives.
Providing employee assistance programs (EAPs) that offer support for personal issues, financial advice and legal assistance can help employees manage their lives better, reducing stress and absenteeism as employees have access to resources to turn to in times of need.
Encouraging healthy work-life integration, or harmony as I like to call it, through flexible working hours, remote work options and adequate vacation time shows that the company values employees' personal lives, and can significantly reduce the risk of burnout.
Acknowledging Human Value
Providing fair compensation, fostering a supportive work culture, and recognizing and rewarding contributions can go a long way in ensuring that employees feel valued and respected.
Regularly acknowledging and rewarding employees' hard work and achievements boosts morale and encourages continued high performance. Recognition can take various forms, from formal awards to informal acknowledgments.
Promoting diversity, equity and inclusion initiatives creates a welcoming environment where all employees feel respected and safe. A positive and inclusive workplace culture strengthens the psychological contract by making employees feel secure, accepted and a sense of belonging.
Investing in employee growth through training programs, workshops and opportunities for career advancement shows a commitment to their professional and personal development. When employees see a path for growth, and they see that the company cares about them as a person and not just for their role, they are more motivated and productive. A company that invests in its employees' futures fosters long-term commitment and encourages reciprocal dedication from the employees.
Conference
Sep
16
HR Tech Conference Las Vegas 2025
Register
Conference
Oct
27
Gartner HR Symposium/Xpo Orlando 2025
Register
Values
The last few years have left many people taking a closer look at their values. Employees no longer want to spend their days doing things that don’t align to their values. Organizational values have to be more than words on a slide or website. When an organization's values resonate with those of its employees, it creates a harmonious work environment. This alignment helps build trust and a sense of belonging, as employees feel their personal values are respected and upheld by the organization.
The Role of Leadership
Leadership plays a pivotal role in shaping and maintaining the psychological contract. Leaders who are empathetic, transparent, approachable and supportive can foster a strong sense of trust and loyalty among employees. By modeling the desired behaviors and reinforcing positive expectations, leaders can create an environment where the psychological contract thrives. Employees are more likely to stay with a company where they feel supported by their leaders, reducing turnover rates.
In Summary…
The psychological contract is a crucial component of the employee-employer relationship. It impacts engagement, wellbeing and productivity. By understanding and managing mutual expectations, organizations can foster a positive work environment where employees feel valued and motivated, ultimately driving organizational success. Maintaining a healthy psychological contract requires ongoing effort, but the sustainable benefits make it a worthwhile investment for any organization. Start by simply asking yourself the following questions:
- Is our psychological contract fit for our purpose?
- How does the company and leadership maintain the psychological contract?
- Which skills or behaviors are needed to uphold the psychological contract?
Learn how you can join our contributor community.
