Columnist

The psychological contract that nobody signs

Most business leaders understand the value of a well-drafted employment contract.

Document. Define. Clarify. Something to refer to. 

But there is another contract running within every organisation that receives far less attention, yet which carries great influence: the psychological contract.

Unlike an employment contract, it isn't written, signed or stored. 

Everyone has one, though. And it’s subjective. 

The psychological contract is an employee’s view of the deal. 

How will the business treat me when times are hard? What is my reward if I work hard? Can I trust the leaders?

Looking at the employment relationship as rooted only in the employment contract is a mistake. 

Contracts define holiday entitlement and processes for requesting leave. 

The psychological contract expresses whether rest is encouraged and whether employees are still expected to check and answer emails. Contracts define a notice period too.

The psychological contract shapes an employee’s perception of their value to stay. 

Not only that, it also defines how they are treated as they leave and the basis on which they become an ambassador for you – or they don’t. 

A good quality psychological contract can influence behaviour and drive positive outcomes for all. 

But a breach or violation of that contract can threaten retention, commitment, contentment and performance. 

Some can be repaired, and some are so fundamental that things break down to a point of no return and ways are parted. 

Some can’t be repaired, but the employment contract continues and the individual stays, and this can be more costly than a resignation.  

Businesses are operating in a volatile, uncertain, complex and ambiguous world, so we need to have some empathy for that. 

This inevitably opens the door for factors like an economic downturn to affect the exchange between employer and employee. 

But principles of fairness are usually good to hold dear when that happens. 

The concept of work is shifting and evolving. 

Loyalty and security were once traditionally fundamental to the trade, but that is no longer the case. It’s hard to promise that on either side. 

This intangible back and forth, steeped in emotion, affected by wider systems, is dynamic and adapting. 

It is increasingly about individualism and development, not to mention transparency and fairness. 

So, what?

Leaders should give some thought to managing the psychological contract alongside the employment contract. 

They should ask: What is the deal between us and our people? Is that the reality on both sides? Where are the gaps? Have we been through a shift that has fundamentally changed things? And has that shift been for better or worse?

Think about it: if you had to sign a psychological contract in ink, what would you pay more attention to? 

Lauren Bathan is associate director - HR Partnership at Newcastle, Teesside and Leeds-based recruitment and outsourced HR services provider Jackson Hogg

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