The Psychological Contract

This week I started the Managing People and Organizations course within my MBA and I am already learning a lot.

Among the things I learned this week was the notion of the psychological contract.

The psychological contract is a concept in organizational psychology that refers to the beliefs, perceptions, and expectations that employees have about their relationship with their employer. It is an implicit, unwritten agreement between the employee and the employer that outlines what each party expects to give and receive in the employment relationship.

This idea of expectations is one that we may not always prioritize as we should, especially when we consider the retention of employees. How then can leaders use their understanding of the psychological contract to improve their teams?

Leaders should ensure that they clearly communicate expectations to their employees. This includes outlining job responsibilities, performance expectations, and organizational goals. When employees have a clear understanding of what is expected of them, they are more likely to feel engaged and motivated to meet those expectations.

Leaders should ask employees to define their expectations of them / their organization by creating a safe and supportive environment where employees feel comfortable sharing their thoughts and opinions. This can be achieved through one-on-one meetings, performance discussions, surveys (open and/or anonymous), team meetings, open-door policies, and through regular opportunities for communication and feedback.

Leaders should build trust by being transparent and open with their employees. This means being honest about organizational goals and challenges, and involving employees in decision-making processes. When employees feel that their input is valued and that their leaders are honest and transparent, they are more likely to feel invested in the success of the organization.

The psychological contract is important because it can influence an employee’s job satisfaction, motivation, commitment, and engagement. When employees believe that their employer is fulfilling their side of the psychological contract, they are more likely to be satisfied with their job and to remain committed to the organization. However, when employees perceive a breach of the psychological contract, they may experience feelings of violation, disappointment, and mistrust, which can lead to decreased job satisfaction and even turnover.