Psychological contracts in practice.

First, let’s establish what a psychological contract is.

Psychological contracts are an individual’s belief in the reciprocal obligation between employees and the organization – essentially what the employee believes the organization owes them and what they owe the organization in return.

These beliefs about mutual obligations help employees informally deal with ambiguous work situations not covered by the formal written contract.

For example: Ben might expect annual raises. His previous employer offered raises and his coworkers have told him that they have received annual raises in the past. In return, Ben may feel that because he is going to receive annual raises, he should do work on the weekends or in the evenings in order to increase his productivity.

So why do these beliefs matter?

Research has shown that employees behave differently depending on whether or not their perceived obligations and expectations have been met. When these obligations are met, employees have a “fulfilled psychological contract”. Fulfilled contracts are linked to behaviors like increased job performance and lower intentions to leave the organization.

If these obligations are not met, however, employees perceive a “violated psychological contract”. Violated contracts are linked to feelings of anger or betrayal, and absenteeism.

To continue our example, if Ben chooses to work later a couple of evenings a week, and receives his annual raise, this exchange fulfills his psychological contract. He is likely to work harder and be more willing to engage in helpful behaviors. On the other hand, if Ben puts in extra hours and does not receive a raise, he will perceive a violation in his contract, and may respond with not only withdrawing his extra hours but with retaliatory behaviors like consistently leaving work early or wasting the organization’s resources.

The fulfillment of psychological contracts can have a real impact on how employees view the organization, and can impact how they behave on a day-to-day basis. Each violation lowers the trust an employee has for their organization. Left unchecked, employees are likely to engage in destructive behaviors, further damaging the relationship between employees and employers.

For more information, we have developed a free EGuide to explain psychological contracts in greater depth, and how they may be managed within your organization. Click here to download.