A psychological contact in many instances can be just as important, if not more important, as your traditional employment contract. It is more often than not that a psychological contract is formed without the use of any written or verbal communication. For this reason, it is even more important to be aware of how they are created and the impact they can have on the employment relationship.

What are they and why are they so important?

The psychological contract is a set of perceptions, expectations or promises made between two parties in an employment relationship. This is differentiated from a traditional employment contract whereby they are usually implicit and, in most cases, a written document. These perceptions can be made by prospective employees and current employees and have a significant impact on employee motivation, engagement and future performance.

In a competitive landscape, psychological contracts when used effectively can attract and retain highly skilled and in-demand personnel. A strong psychological contract that is aligned to individual values and beliefs can create a workforce that is:

  • Highly motivated and high performing
  • Engaged
  • Aligned to company goals
  • Committed to business success and longevity

How can you develop the psychological contract to influence business success?

To truly reap the benefits of the psychological contract, organisations should be leveraging their managers to openly discuss the psychological contract and unwritten expectations with their employees.

1. Communication

As it is purely created in the mind of the employee, the psychological contract is a constantly moving and changing goal post. For this reason, communication between direct managers and employees is key. These conversations need to be an open forum for two-way communication to show a balance between what the employee desires and what an employer can facilitate. These conversations should happen regularly to take into consideration changes to the business and the individual and to ensure there is still an alignment.

2. Employee Diversity & Individualism

When developing the psychological contract, you should be taking into consideration the employee’s individual beliefs and values and creating a way to satisfy these needs through the employment relationship. A contract that takes this into consideration will show genuine care for an employee and increase their loyalty and motivation. If genuinely understanding your employees’ needs is not a priority of your conversations, you will find a mismatch in the expectations resulting in a breach.

Breaching the psychological contract

Now that your managers have established a healthy and aligned psychological contract, the most detrimental next step would be to breach it. A breach or misalignment of the psychological contract has been seen to result in:

  • A deliberate reduction in performance and work effort
  • Lower organisational commitment
  • A loss of valuable staff
  • A decrease in employee satisfaction and happiness

If organisations are upskilling their managers to have effective conversations with their staff, they will be able to more pro-actively influence and modify expectations reducing the risk of a psychological contract breach. Our HR Consultants can assist with coaching and training your line managers to have more effective 1:1 conversations so that you can get the most out of you managers and workforce.