Everyone signs a physical contract when starting a new job, but there’s another undefined list of terms they’re also signing onto. It’s called a psychological contract, and in the workplace it’s essentially an unspoken agreement between employees and employers addressing what they owe each other.
At the most basic level, employers are promising workers they’ll get paid, benefits and some kind of support to help them do their jobs, while employees are promising their employers they’ll give their time and labor and follow their workplace’s norms. But of course it often goes deeper, and only works when both sides are aware of – and in agreement on – these unspoken rules, and when both sides think it’s a fair and equal deal.
“It’s believing that my employer has my best interests in mind and I have their best interest in mind, and each of us are going to act accordingly,” said Christy Pruitt-Haynes, distinguished faculty for leadership and performance at NeuroLeadership Institute.
It comes as the concept of loyalty in the workplace is shifting, with more job-hopping and uncertainty around organizational changes like returning to offices and layoffs. “Gone are the days where there’s expectation on either side that somebody is going to start at a company and be there for 30 years,” Pruitt-Haynes said. “Instead of having that expectation of long-term loyalty, there tends to be an expectation of long-term growth and long-term fair treatment,” she said.
But it’s also as employees today are less likely to feel connected to their company’s mission and purpose than they were a few years ago, or to feel someone at work cares about them as a person, according to a recent report from Gallup, based on survey responses from over 20,000 working adults in the U.S.
“On one hand, organizations can be exploitative and violate the psychological contract. On the other hand, employees, particularly in different generations, might have different ideas about entitlement,” said Ben Dattner, an organization psychologist and executive coach.
How are they established and strengthened?
Psychological contracts are often established on day one, when employees are going through onboarding and learning about what their organization is going to offer them and what’s expected of them. Having that transition go as smoothly as possible helps build a stronger psychological contract, at least initially. Psychological contracts work best in organizations with strong cultures focused on collaboration, as opposed to competition, where “you don’t assume anybody is looking out for you, you assume then that it’s up to me to take care of myself,” Pruitt-Haynes said.
Such contracts are strengthened mainly through consistency on both sides. “The biggest thing is consistency, what you say and what you do absolutely need to match,” she said. “When what’s said and what’s done don’t match, that’s one of the quickest and easiest ways to breach those.”
How can they be breached?
Like any other contract, psychological contracts can certainly be breached. A key part of the contract is around fairness, and when employees feel they are treated differently than their coworkers, contracts can be broken.
“If there’s unequal treatment, so maybe certain employees do seem to get all of the things that have been directly or indirectly promised, while other employees don’t, that then again causes that employee to question if they are going to receive that same experience, which can also break that implied contract,” Pruitt-Haynes said.
“It’s not the negative treatment that causes employees to complain, it’s the inconsistent treatment,” she said.
They can also be broken when employees are told they’re doing a good job and they’re on a path to promotion, yet when promotion time comes around they aren’t given a new title or pay raise, Dattner said.
Another instance is during times of transition at a company, which could include mergers or acquisitions. “You’re like wait a minute, this other company hired me but now we’re going to have to play by this other organization’s rules,” said Robin Erickson, vp of human capital at the Conference Board.
Layoffs are another big opportunity for psychological contracts to get breached across an entire organization’s workforce, particularly when they are done poorly, Erickson said. In those instances, staff often feel their employer hadn’t been transparent about organizational challenges that would prompt such a move. They might log into their work laptops to find they no longer have access, or have their badge denied while trying to swipe into the office. Afterwards, remaining staff might be anxious about another round of layoffs and feel there’s no certainty or consistency, ultimately breaking their psychological contracts with the organization as well.
“How do you rebuild that psychological contract, once it’s been broken? And I think that many organizations aren’t aware when it’s been broken, and they certainly don’t have any idea how to rebuild it,” Erickson said.