As we continue to move out of the pandemic towards a sense of normality (whether that is the old or the new normal) organisations need to focus on individual employees, getting to know them in order to create the best experience for them and get engagement in return.
Part of this relates to culture as organisations strive to ensure that people feel psychologically safe at work.
This week we are going to be looking at the psychological contracts that are made between employees and their employer:
- What are psychological contracts?
- What can you do to get them right?
- The future..?
What are psychological contracts?
According to CIPD the term “psychological contracts” relate to persons “expectations, behaviours, ambitions, and obligations as perceived by the employer and the worker”
It is a concept that can be traced back to the 1960’s and was further developed by Denise Rousseau who is a professor of organisational behaviour and public policy at Carnegie Mellor University.
It provides a rationale for organisations to look at the human side of the employment relationship (beyond terms and conditions of employment).
Whereas the legal contract of employment, refers to an agreement which is normally written and signed that relates to the mutual, formal obligations between employee and employer. The psychological contract looks more at the relationship, the commitment & what each can expect in return. Unlike the legal contract, the psychological contract is not enforceable (although courts may consider the common law duty to show mutual trust & confidence).
What counts as a psychological contract?
Whilst there is not a definitive list of what expectations & obligations form part of the psychological contract, as it is something that is more personal between an individual and their employer, the CIPD comment that broadly the following things are a part of it:
- Job security
- Career prospects
- Training and development
- Perceived fairness of pay & benefits
- Manager support
- Employers’ contribution in relation to the impact on communities and society
Whilst employee’s psychological contracts are often with a line manager; they are also impacted by leadership and HR decisions. People’s experience at work is shaped by all these, but as the direct line manager is responsible for making day to day decisions, it is of no surprise that for most the psychological contract is the relationship between an individual and their line manager.
Why is it significant?
In terms of creating the right experience for people and getting engagement in return, the psychological contract is significant. If people feel that they are making value added contributions to the organisation and feel that they are getting things in return (i.e., job security, appreciation, growth, autonomy), then this will mean a good experience. This will activate people’s learning centres and release dopamine to getting innovation and greater engagement. In the end, the organisation will get better outcomes in term of productivity and provide a better customer experience.
The psychological contract is built on a sense of fairness and trust, in that the employer is making good on the “deal” between them. When the employer breaches this, it can lead to negativity which can impact on job satisfaction, commitment to the organisation (when people want to leave), dips in performance, productivity, innovation, and engagement.
What can you do to get it right (or fix it when it goes wrong)?
Not all breaches are avoidable i.e., when external factors such as changes in labour market, or the recent furlough schemes as a result of the global pandemic.
When breaches have taken place; people will try to restore the balance. They will look to find alternative ways to ensure their expectations are met.
Some people may react in an initiative-taking way; demonstrating behaviours where they are using the situation as an opportunity to gain experience from and grow. Others may revert to a basic, transactional behaviour whilst the relationship is repaired. People will deal with things depending on how they manage change and their level of emotional resilience.
The CIPD share some key tips on rebuilding the psychological contract when it is breached:
- Relationships will break down no matter the efforts put in, but managers are the key to the building and maintaining of them
- If the breach is unavoidable then invest time in re-negotiating the deal with individuals in order to rebuild the trust and confidence
- Spend time building resilience skills to help people cope better when the psychological contract is breached.
The future…
The last couple of years have shown that organisations can and must adapt and change. The psychological contract itself has changed over time. In the past it was based more on the promise of job security with “jobs for life.” We now know from Lynda Gratton and Andrew Scott’s book “The 100-year life” (2016) that this concept is in the past, and people may no longer take a traditional approach to work. So, it is no surprise that the psychological contract now is much more focussed on growth for long term employability across different areas and a more personalised experienced.
According to CIPD the changes affecting the expectations of workers include:
- Uncertain economic conditions (resulting from the pandemic and for people in UK and Europe Brexit)
- Tech changes with the automation of production processes and reshaping skill demands
- Rise in the “gig economy” creating a competitive, global marketplace
- People wanting to work flexibly
- Downsizing
- Human capitol being increasingly recognised as a source of competitive advantage
- Traditional structures for some becoming more fluid
- Corporate scandals, enabled by the media, which can undermine employees trust in their employer.
Paying attention to the key drivers of engagement and building a better experience, will help you to be able to attract and retain the right talent for your organisation.
The psychological contract is a key element of engagement, being able to manage expectations from onboarding through to people leaving the organisation will help create experience and drive engagement.
Regardless of what things are around the corner (see our future of work blog for what HR professionals will be talking about in 2025 & 2030), to successfully manage expectations, HR professionals like you need to be designing and implementing people and development practices.
CIPD provide some specific areas to focus on:
Employer brand
Be clear on what is expected on both sides. This links with values and purpose, and is part of the employee value proposition
Communications
Ensure that there is effective two-way communication in place and that employee voice and involvement is embedded at all levels
Learning and development
Ensure that keeping people employable is high on your agenda. People want to be offered opportunities to gain experience, and utilise their skills to develop careers
Management style
Line managers that are equipped to have conversations with their people, will help manage employee expectations. Ensure that managers have the time and scope to be able to invest in this properly, otherwise the relationship with employees will suffer overtime and make people want to leave.
Manage expectations from day one
Set out what people can expect from the job and in return. The employee value proposition is key and creating trust between employer and employee.
Measure attributes
Regularly measuring people’s experience at work can be used to identify actions and provide opportunity for employee voice and employee involvement. The benefits of this we have shown earlier, in that a positive psychological contract supports a high level of engagement as an output of a great experience at work.
If you want to talk to us more about psychological contract, employee value proposition or understanding what a great employee experience can look like then please do contact us and say hello.
