Psychological contracts in practice.

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

A psychological contract is an individual’s belief in the reciprocal obligation between employees and their company. Essentially, this means what the employee believes the company owes them, and what they owe in return.

These beliefs about mutual obligations help employees informally deal with ambiguous work situations that the formal written contract doesn’t cover.

For example, Ben might expect annual raises. His previous employer offers raises and his coworkers tell him that they’ve received annual raises in the past. Ben may feel that because he is going to receive annual raises, he should work on weekends or in the evenings to increase productivity.

So, why do these beliefs matter?

Research shows that employees behave differently depending on whether the obligations they perceive and their expectations are met. When these obligations are met, employees have a “fulfilled psychological contract.” We can link these contracts to behaviors like higher job performance and lower intentions to leave the company.

If these obligations aren’t met, however, employees perceive a “violated psychological contract”. This leads to feelings of anger or betrayal, as well as absenteeism.

If Ben works later a few 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 doesn’t receive a raise, he will perceive a violation of his contract. He may respond by not only withdrawing his extra hours, but with retaliatory behaviors. Such behaviors can include consistently leaving work early or wasting the company’s resources.

The fulfillment of psychological contracts can have a real impact on how employees view their company, and can impact their behaviour on a day-to-day basis. Each violation lowers the trust an employee has for their company. If a company doesn’t correct this, employees are likely to engage in destructive behaviors. This can further damage the relationship between employees and employers.

For more information, see our free EGuide that explains psychological contracts, and how to manage them, in greater depth.