Four effective strategies to keep psychological contracts in the workplace healthy

A lot has been said about the relationship that organisations have with their employees, even more so now in light of “The Great Resignation’.  People are leaving organisations in greater numbers than ever before, and yet, there are organisations who don’t seem to be feeling the impact. Instead, they are experiencing The Great Attraction, where people are committed to staying and motivation and engagement are on the rise.

What’s the difference between those organisations experiencing The Great Resignation, and those with The Great Attraction?

Relationships.

The difference is the relationship that the organisation has with employees and whether they feel connection, belonging and support.

So how does the psychological contract figure into all of this?  Or, does it?

When we talk about employment contract, we usually mean the tangibles that an employee gets in return for providing their skills and abilities – pay, benefits, superannuation, hours of work, flexibility.  The things that are easily identified, quantifiable and explicitly communicated.  But what about connection, belonging, development, growth, trust, loyalty, and all the other things are implied employees will receive but are not as easily quantified?  And probably not as readily communicated.

The psychological contract is the unwritten set of expectations between an organisation and employee and is the foundation of an emotional bond between the two. What type of emotional bond really relies on the organisation and employee? All the things that are considered ‘implicit’ make up the psychological contract and while debates occur as to whether it is in fact a ‘contract’, it relies on an implied promise of reciprocity. As an employee I give something, and in return I expect something. It works both ways.

The problem is, as psychological contracts are implied, without any overt communication both the organisation and employee assume that they are talking about the same thing. And we all know where assumptions lead us.

When employees are confident that the organisation (through leaders) are going to hold up their end of the bargain, employees are motivated to fulfil their employment obligations and are likely to go above and beyond what’s required. Employees are constantly scanning their environment for information as to whether the psychological contract is going to be fulfilled, or not, as the case may be.  Leaders play a key role in how employees make sense and interpret all of the information they receive and whether they believe the organisation is going to do what they think it should.

So, what happens if there is a breach or violation?

A breach is the brain recognising that a promise has been broken, and a violation is the emotional response to the breach.

When employees feel that the psychological contract has been breached or violated, a range of things can happen. When experiences don’t align with expectancies, there is likely to be disappointment, sadness and even frustration. When a violation occurs, the resulting behaviour is likely to be more intense and related to more general beliefs about respect.

Anger, quitting, reducing performance, limiting discretionary effort, increasing absenteeism, emotionally withdrawing amongst others might occur.  In extreme cases sabotage might even result.  Minor breaches might occur quite frequently, but tend to be mitigated by a strong relationship between leaders and their employees. A significant breach however, has the potential to destroy the relationship completely. It’s hard to come back from that.

So, what can you do to keep healthy psychological contracts in place and minimise the chance of any significant breaches?

1. Acknowledgement

Acknowledge that they exist, are established on an individual basis dependant on circumstances, and a variety of contracts can exist at any one time. Throughout the employment lifecycle, it would be expected that the contract would be renegotiated as needs change and evolve, and some flexibility would be required. Organisations need to explicit as to what is and isn’t in the contract to ensure that a shared understanding exists. 

2. Leadership

Ensure leaders are aware of the critical role they play in managing the psychological contract on the organisation’s behalf: consistent communication, transparent decision making and outcomes, fair and equitable remuneration reviews, coaching and feedback, regular check ins, creating an environment in which employees can thrive.

3. Process & Policy

Ensure that frameworks are fair and equitable and meet all employee needs, transparency in decision making around performance reviews, training and remuneration, clear communication and consistent application organisation-wide.

4. Organisational Culture

Create an inclusive culture where employees have a sense of purpose and are aligned to organisational values.  Support is offered, involving employees in change activities, creativity and innovation is encouraged and mistakes are tolerated.  A constructive culture enables employees to be confident in raising issues with their leaders minimising contract breaches.

What does it all mean?

Humans are social beings and have an inherent need for connection belong.  All the things that make up the psychological contract make employees thrive, grow and be the best that they can be not only for themselves, but for their organisation.

While the tangible things matter, they’re just not as important as feeling like you belong.