The Psychological Contract

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What's in your psychological contract?

If you think about the relationship between you and your company, there are probably some unwritten rules and expectations.

You expect managers to treat people fairly. You expect decent work conditions – not too hot, not too cold, not too smelly, and so on. You expect to receive feedback on your work, and reasonable notice if something is wrong.

Organizations also have unwritten expectations of their staff. They expect workers to demonstrate good attitudes, follow directions, and show loyalty to the company.

If these rules and expectations are unwritten, where do we get them from? They come from what can be called the 'psychological contract' between a worker and a company. This contract includes the expectations and obligations of both sides. While some parts of the relationship are clear and agreed upon, other parts are based on an implied understanding of promises that each side has made to the other.

These implied expectations go beyond wages and benefits. Here are some examples:

• If you want a stable job, work for the government!
• I'm a senior staff member, so even if I'm laid off, I'll get a good severance package.
• I don't have to fight the crowds at the grocery store during the holidays – my company gives me a turkey every year.

What happens when government workers are laid off or have to take pay cuts? Or when the executive doesn't receive a 'golden handshake' when leaving the company? Or even when Kathy gets only a frozen turkey breast, instead of an entire turkey, this year?

Although informal and typically unspoken, when terms of the psychological contract are met, it can lead to increased worker satisfaction and productivity. When expectations are not met, this can cause negative emotions, and the person who feels the contract hasn't been met may withdraw some or all of his or her commitment to the organization.

The Psychological Contract in Context

Chris Argyris, a Harvard Business School professor emeritus in the 1960s, first wrote about the idea of a 'psychological work contract.' He observed that workers were more productive, and had fewer complaints, when their supervisor operated in a way that was consistent with this.

In the U.S. prior to the serious recession of the early 1990s, there had been a universal ideal of the worker/company relationship: "If I do good work, I'll have a stable job with training and promotion opportunities, and I can trust my company." During that recession, it became clear that understanding people's psychological contracts was key to maintaining a healthy work environment when times were tough. Where workers expected a 'job for life,' but everyone around them was being laid off, this led to distrust. And workers became angry where they expected their companies to provide development opportunities, but when funds for training were unavailable.

Since then, it's become clear that there's much more to the worker/company relationship. New generations of people have entered the workforce, and many have never experienced the old 'universal ideal' psychological contract. We know that not everyone wants the same things from work and the work environment. Sacrifices for work-life balance   are increasingly common. Many people seek change, and avoid stability. We may wonder whether there's a new universal psychological contract for organizations, but it may be more helpful to look at the individual contracts that current team members believe exist.

Where Do the Contract Terms Come From?

The terms of a psychological contract begin to form during the recruitment process. Early experiences with an organization shape people's expectations and perceptions. These experiences have a significant impact on morale, commitment, satisfaction, and productivity.

During recruitment, establish the foundation of an effective psychological contract by asking questions like these:...