Prevention is better than cure. A guide to healthier psychological contracts. Ninety percent of UK HR managers say the psychological contract is a useful concept. [1] but only thirty six percent say they use it to manage people. [2] The heart of employee engagement. At its simplest. The psychological contract encompasses the actions employees believe are expected of them and what response they expect in return from the employer. [3] In other words, it’s the deal between employee and employer, based on a sense of fairness and trust. A healthy psychological contract leads to greater employee commitment and satisfaction. [4] It’s all in the mind. The psychological contract is, [5] unwritten, implied and informal, not legally enforceable, a major influence on employee behaviors, feelings and attitudes, subject to continual renegotiation and change. Different types of psychological contract. Transactional. short-term relationship, with employee expectations centered on tangible benefits, such as pay and conditions. [6] Relational. long-term relationship, with more of an emotional involvement between employee and employer, e.g. job security in return for employee loyalty. [7] What does a healthy psychological contract look like. Take this simplified example for accountancy firm Ernst and Young. [8] Ernst and Young expects employees to, deliver success for clients. bring energy, enthusiasm and excellence to the job. build relationships, teamwork and the courage to lead. Employees can expect to, be recognized and rewarded for their individual contribution. have an enjoyable place to work. be given continuous learning opportunities and support. [9] Diagnosing problems. A break in the psychological contract occurs when an employee believes their organization has failed to fulfill its promises to them. [10] sixty nine percent of people reported a breach in their psychological contract in the previous ten days according to one study. [11] Some of the most common causes of broken contracts include, [12] pay. e.g. an expected salary increase is not given. promotion. An anticipated promotion doesn’t materialize. Type of work. nature of the job role is misrepresented. training. Employee isn’t given the development they expected. feedback. Lack of adequate performance appraisals. Common signs and symptoms. If an employee feels the psychological contract has broken, they may, lose trust in their line manager or the wider organization. Experience less job satisfaction. Become less productive. Withdraw discretionary effort. Be less willing to share their knowledge and ideas. Leave, if they see the breach as a serious one. Top tips for healthier psychological contracts. Prevention is better than cure. Protect the psychological contracts you have between you and your employees by, Communicating clearly and regularly. Set out clear expectations with every member of your team. Communication during times of change is particularly important. Listening to your employees. Spend time getting to know them to understand what matters to them most. Actively seek their input, opinion and ideas at work. Identify any gaps. Find out where beliefs and expectations differ between you and your employees, and be prepared to renegotiate terms if appropriate. Be clear about individual performance standards. Hold regular one-to-one meetings and performance reviews, and give employees regular feedback and praise. Show people fairness and respect. Treat team members equitably, welcome and value difference. And always try to lead by example. 

References
[1] Neil Conway, ‘What Is the Psychological Contract and Does it Matter.’ Available at: http://vana.pare.ee/files/2007042001115757.pdf (accessed 18 February 2015).
[2] Ibid.
[3] Denise Rousseau, Psychological Contracts in Organizations (1995) cited in Michael Wellin, Managing the Psychological Contract: Using the Personal Deal to Increase Business Performance (Gower, 2007).
[4]  David Guest, cited in CIPD, ‘Managing Change: The Role of the Psychological Contract’. Available at: http://www.cipd.co.uk/nr/rdonlyres/06b92739-19f8-4bb4-ae47-796ea5f5cb15/0/manachang1105.pdf (accessed 03 March 2015).   
[5]  Neil Conway, ‘What Is the Psychological Contract and Does it Matter.’ Available at: http://vana.pare.ee/files/2007042001115757.pdf (accessed 18 February 2015).
[6] Ibid. 
[7] Denise Rousseau, cited in Michael Wellin. ‘Managing the Psychological Contract’ at www.businesstransform.co.uk.(accessed 18 February 2015).
[8] Adapted from Michael Wellin, Managing the Psychological Contract: Using the Personal Deal to Increase Business Performance (Gower, 2007).
[9] NB - this is a much simplified version of a psychological contract. A contract can comprise many different items between the employee/employer or line manager, and can vary widely from employee to employee. 
[10] Neil Conway, ‘What Is the Psychological Contract and Does it Matter.’ Available at: http://vana.pare.ee/files/2007042001115757.pdf (accessed 18 February 2015).
[11] Conway and Briner (2002), cited in Michael Wellin, Managing the Psychological Contract (2008). Available at: http://www.cipd.co.uk/NR/rdonlyres/64609E39-A9E0-4CED-B130-902087380B8E/0/ManagingthePsychologicalContractMarch2008.pdf (accessed 18 February 2015).
[12] Neil Conway, ‘What Is the Psychological Contract and Does it Matter.’ Available at: http://vana.pare.ee/files/2007042001115757.pdf (accessed 18 February 2015).

© 2022 Mind Tools by Emerald Works Ltd