What Is The Psychological Contract

The psychological contract is a set of expectations held by both employer and employee.  Employers expect employees to provide that "fair day's work," to accept the authority the organization, and report to work regularly. 

The formation of the contract

During the recruitment process, the employer and interviewee will discuss what they each can offer in the prospective relationship. If an agreement is reached, most employers will impose a standard form contract, leaving the detail of the employee's duties to be clarified "on the job". But some of the initial statements, no matter how informal and imprecise, may later be remembered as promises and give rise to expectations. Whether they are incorporated into the parallel psychological contract will depend on whether both parties believe that they should be treated as part of the relationship. The better organized employers are careful to document offers to reduce the risk of raising false expectations followed by disappointment.

In  Common Law  the law implies duties requiring the employees to be loyal and trustworthy. These are imprecise in their definition and uncertain in much of their operation. But, in psychological terms, issues as to whether promises and expectations have been kept and met, and whether the resulting arrangements are fair, are fundamental to the trust between the employee and the employer. The first year of employment is critical as actual performance by the employee can be measured against claims and promises made during the interview, and the management has begun to establish a track record in its relationship with the employee at supervisor and manager level. Feldhiem (1999) reflects these two strands by dividing the psychological contract into:

  • transactional: this is the economic or monetary base with clear expectations that the organization will fairly compensate the performance delivered and punish inadequate or inappropriate acts; and
  • relational: this is a socio-emotional base that underlies expectations of shared ideals and values, and respect and support in the interpersonal relationships.

Maintaining the psychological contract is an essential part of Positive Employee Relations.  The terms of the psychological contract require interaction and communication between employer and employee.  Over time, a climate of trust is developed if both parties are consistently fair in their actions, keep their explicit and implicit promises, and maintain honest, two-way communication.  It is especially important for management to be consistently fair.  A climate of trust is usually easier to develop and maintain in small organizations. Senior managers can get to know employees personally. While a climate of trust is not unique to non-unionized settings, but it is especially important in them.  Repeated violations of the psychological contract by management cause dissatisfaction. It is  this distrust, and a feeling of powerlessness among employees, which often lead them to seek a union to restore equity and fairness in the workplace or to simply leave for another company.

The import thing to remember is that once the trust line has been severed, it is almost impossible to repair. It would take an exceptional employee to trust an employer again.





                                                                              Trust  Line

Text Box: Management Expects
      A "fair days work"
      Regular attendance
      Acceptance of the authority of the organization