The Psychological Contract
Meeting Your Team's Unspoken Expectations
If you think about the relationship between you and your company, there are probably some unwritten rules and expectations.
You expect managers to treat people fairly. You expect decent work conditions – not too hot, not too cold, not too smelly, and so on. You expect to receive feedback on your work, and reasonable notice if something is wrong.
Organizations also have unwritten expectations of their staff. They expect workers to demonstrate good attitudes, follow directions, and show loyalty to the company.
If these rules and expectations are unwritten, where do we get them from? They come from what can be called the 'psychological contract' between a worker and a company. This contract includes the expectations and obligations of both sides. While some parts of the relationship are clear and agreed upon, other parts are based on an implied understanding of promises that each side has made to the other.
These implied expectations go beyond wages and benefits. Here are some examples:
- If you want a stable job, work for the government!
- I'm a senior staff member, so even if I'm laid off, I'll get a good severance package.
- I don't have to fight the crowds at the grocery store during the holidays – my company gives me a turkey every year.
What happens when government workers are laid off or have to take pay cuts? Or when the executive doesn't receive a 'golden handshake' when leaving the company? Or even when Kathy gets only a frozen turkey breast, instead of an entire turkey, this year?
Although informal and typically unspoken, when terms of the psychological contract are met, it can lead to increased worker satisfaction and productivity. When expectations are not met, this can cause negative emotions, and the person who feels the contract hasn't been met may withdraw some or all of his or her commitment to the organization.
We may think of this as a contract between a worker and an organization, but the psychological contract is essentially formed by the worker. It's the individual's perceptions that usually shape the "contract terms". The promises can be implied or very clear, and they're typically based on repeated patterns of observable behavior by supervisors, executives, and even other team members.
All of this may seem unwelcome to employers, however the reality is that this is the way that many people think. Reflect from your own perspective – it's quite likely that you have unspoken (and, perhaps, subconscious) expectations of the way that your employer should behave towards you.
The Psychological Contract in Context
Chris Argyris, a Harvard Business School professor emeritus in the 1960s, first wrote about the idea of a 'psychological work contract.' He observed that workers were more productive, and had fewer complaints, when their supervisor operated in a way that was consistent with this.
In the US prior to the serious recession of the early 1990s, there had been a universal ideal of the worker/company relationship: “If I do good work, I'll have a stable job with training and promotion opportunities, and I can trust my company.” During that recession, it became clear that understanding people's psychological contracts was key to maintaining a healthy work environment when times were tough. Where workers expected a 'job for life,' but everyone around them was being laid off, this led to distrust. And workers became angry where they expected their companies to provide development opportunities, but when funds for training were unavailable.
Since then, it's become clear that there's much more to the worker/company relationship. New generations of people have entered the workforce, and many have never experienced the old 'universal ideal' psychological contract. We know that not everyone wants the same things from work and the work environment. Sacrifices for work/life balance are increasingly common. Many people seek change, and avoid stability. We may wonder whether there's a new universal psychological contract for organizations, but it may be more helpful to look at the individual contracts that current team members believe exist.
Where Do the Contract Terms Come From?
The terms of a psychological contract begin to form during the recruitment process. Early experiences with an organization shape people's expectations and perceptions. These experiences have a significant impact on morale, commitment, satisfaction, and productivity.
During recruitment, establish the foundation of an effective psychological contract by asking questions like these:
- What do you expect from me as your manager/supervisor/leader?
- What role do you see for yourself relative to the rest of your team?
- How does our organization's culture fit with your values?
- What makes you want to 'give your all,' and work really hard for your team and your organization?
- Which aspects of work give you the most satisfaction?
These types of questions aren't limited to job candidates or new team members. Consider taking the time to review the terms of the psychological contract with current staff. This will help keep you in touch with how they feel about the worker/company relationship in general, and help you either manage in a way that is consistent with it, or will help you rationally and clearly correct unreasonable expectations.
The clearer and fairer you make the terms of the psychological contract, the better you'll manage your work relationships with team members, and the more satisfied they'll probably be. Trying to guess what your people expect from you is ineffective and unnecessary, when you can simply ask.
Creating a Strong Contract With Your Team
As we said, it's important to understand what each individual team member considers the psychological contract to be. But there are still some things that organizations can do to create positive work environments, despite the ever-changing, globalized workplace. You can do the following:
- Focus on 'employability' – You can't always promise job security, but you can help your staff develop transferable skills. Practices like job rotation and cross-training provide learning and development opportunities at a reasonably low cost.
- Offer variety as an alternative to promotion – Many organizations want leaner and flatter structures. Unfortunately, this leads to fewer promotion opportunities. Consider offering opportunities to move between locations and functions, where appropriate and possible. And use projects to provide leadership and management opportunities to people who show interest.
- Commit to work/life balance – Explore options like flexible work schedules and work-from-home arrangements. Not everyone wants a 35/40-hour work week, Monday to Friday, 9am to 5pm.
- Provide realistic job expectations – Monitor and manage workloads, and have frequent discussions about your expectations and staff expectations.
- Make sure your team understands your expectations – Although the psychological contract is typically made in the workers' minds, problems arise when your expectations differ from theirs.
- Give lots of feedback – Make feedback a regular activity that's both formal and informal.
- Be sensitive to individual differences – Different workers have different expectations, needs, and values. They also perceive events differently. Be aware of these differences, so you can manage general expectations much more effectively.
How to Spot a Broken Contract
When workers feel as though the organization or its representatives (managers and supervisors) have broken promises or treated them unfairly, they may start to break some of the contract terms they know the company expects from them. Some common consequences are these:
- Higher absenteeism.
- Lower-quality work.
- Lower productivity.
- Disruptive behavior.
- Outrage, resentment, and anger.
- Loss of trust and good faith.
- Decreased job satisfaction.
- Decreased commitment to the organization.
Workers may start to talk about their dissatisfaction, and try to convince their colleagues that the company treats its people unfairly. At the extreme, we sometimes see deliberate destruction, and even sabotage. Theft and sharing of corporate intelligence are also known risks.
Ultimately, if workers believe the terms of the psychological contract are damaged beyond repair, they may choose to leave the company. This can cause a significant loss of knowledge, skill, and experience.
When you start to see signs of a broken psychological contract, have an honest discussion with people within your team. Openly identify the implied expectations, and find a way to meet those terms, or negotiate new terms. In fact, the more you formalize these unspoken terms in some way, the easier it will be for you to manage the relationship in the future.
Despite doing everything to meet your contractual obligations, things often happen that are beyond your control, and the worker/company relationship may suffer. Changes in the environment, organizational restructuring, and unrealistic expectations can all lead to a damaged relationship. Take responsibility for your role, and stay aware of your team’s expectations.
Psychological contracts are what workers believe to be the terms of their agreement with the organization. These are in addition to formal, written contract terms – like wages and benefits – and they often shape workplace behavior and reactions. Psychological contracts begin to form as early as the recruitment process, and they continue to develop and change as the work relationship continues.
It's important to be aware of psychological contracts, and manage them at both the individual and organizational levels. Breaking the contract can cause decreased job satisfaction, reduced trust, and low staff retention. However, the more you meet worker expectations, the greater your chances of developing a satisfied, committed, and productive workforce.