What is the psychological contract?
Although first used in the early 1960s, the term became popular in the early 1990s. It has been defined as:
‘The perceptions of the two parties, employee and employer, of what their mutual obligations are towards each other'
(Guest, DE. and Conway, N. (2002),
Pressure at work and the psychological contract. London: CIPD) It is often expressed as the unwritten understandings between the two parties. Such understandings are usually informal and imprecise and may be inferred from:
- History
- Statements made by either side, e.g. during the recruitment process or in a performance appraisal.
Like all contracts, the psychological contract contains both promises and expectations. The important thing is that these are believed to be part of the relationship. Is it the same as the legal contract of employment?
No. The latter will, in many cases, offer only a limited and uncertain representation of the reality of the employment relationship. The employee may have contributed little to its terms beyond accepting them. The nature and content of the legal contract may only emerge clearly if and when, it comes to be tested in a court. The psychological contract on the other hand looks at the reality of the situation as perceived by the parties. It may be more influential than the formal contract in affecting how employees behave from day to day. It is the psychological contract that, effectively, tells employees what they are required to do, to meet their side of the bargain and what they can expect from their job. Although it may not be legally enforceable, a court may be influenced by it in reaching a judgement. It is often summarised as the expectation that both sides will act fairly, in a trustworthy fashion and deliver on its promises.
What happens if the contract is broken?
Where an employee believes that management has broken promises or failed to deliver on commitments, this has a negative effect on job satisfaction, commitment and on the psychological contract as a whole. This is particularly the case where managers themselves are responsible for breaches, for instance, where employees do not receive promised training, or performance reviews are badly handled. Managers cannot always ensure that commitments are fulfilled - for example, where employment prospects deteriorate or organisations are affected by mergers or restructuring - but they may still take some blame, in the eyes of employees.
Does the contract change over time?
Yes. For example, it will be influenced by:
1. The nature of jobs: More employees are on temporary contracts, more jobs are being outsourced, tight job descriptions are out and functional flexibility is in. In many countries there is an end to the concept of the traditional job for life.
2. Organisations have downsized and delayered: Individual employees have to do more with less. It is no longer possible to guarantee lifelong employment to anyone who will simply stay out of trouble.
3. Markets, technology and products are constantly changing: Customers are becoming more demanding, quality and service standards are constantly going up.
4. Technology and finance are less important as sources of competitive advantage: 'Human capital' is becoming more critical to business performance in the knowledge- based economy.
5. Traditional organisational structures are becoming more fluid: Teams are often the basic building block; new methods of managing are required.
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