Sunday, 31 August 2014

The Dying Art Of Managing The Psychological Contracts Of Employees

Thirteen years ago at the London School of Economics & Political Science,  there was an interesting theme in organisational behavioural science which I found intriguing during my postgraduate studies. Still, I considered it an outdated,  good-to-know construct that would not be useful in the 'modern' workplace.  

Of course at that time  I had yet to be thrown into the murky waters of the employment sea. Therefore, I could neither appreciate  the angst professionals felt about their career development, nor understand the worry about the sifting priorities of their employers.  

However, over a decade later, with some experience in my portfolio and musings about the state of  corporateville, I realise that the theme is still as relevant today as it was when I was a student. This is due to the reality of constant organisational change and its implications for the corporate culture and the perceived worth of  employees.  

What you will find interesting is  this: how this theme is handled in your companies might signal whether or not your employers deserve your expertise, time and more importantly, your continued  commitment and tenure.


The theme?  

The Psychological Contract.  

The origins of the psychological contract, it has been stated, could be traced back to the 1960s. However, Rousseau's (1989) definition of it  being "an individual's beliefs regarding the terms and conditions of a reciprocal exchange agreement between the focal person and another party" is arguably one of the clearest definition to use.  

A main complexity of the psychological contract lies in the fact that it is perceptual, unwritten and might not be shared by the other party, (the organisation), in the exchange relationship.  

Explaining further, researchers in the field of organisational behaviour stated that a psychological contract emerges when an individual, (employee), believes that his contributions obliges the organisation to reciprocate in a similar manner. The analysis of  this theme is thorough and as you delve into different dimensions of the construct, it becomes complex.  

However, three points echoed in some studies need to be highlighted:

1) Research made by Robinson in 1996, (although weak in some areas), revealed that unmet obligations had more dire consequences than unmet expectations.  

2) Morrison & Robinson (1997) explained that a psychological contract breach was a perception that a company has failed to fulfill one or more obligations comprising the psychological contract.  

3) Unmet promises may or may not result in perceived breach. Similarly, perceived breach may or may not result in violation and would depend on certain factors which Morrison & Robinson (1997) listed, including outcome assessment and attribution.  

While it may not be necessary at this point to discuss the factors leading to violations, what the researchers noted was that a psychological contract violation captures the emotional angle of anger, resentment, bitterness, outrage etc., all resulting from a perception of betrayal or of being mistreated.  

Violations in the psychological contract could have serious repercussions for the organisation.

Why Management Should Take The Psychological Contract Seriously


The psychological contract is useful in understanding the changing employment relationship especially as it affects the attitudes and behaviours of employees. This is because the employee is likely to be influenced by how he perceives the organisation supports him and whether or not he feels that his contributions to his employer are valued, and if so, whether such appreciation is  manifested in ways he deserves. 

The most difficult angle of the psychological contract I believe, is the fact that it is subjective, being formed in the mind of a specific employee. This, to be fair,  makes it difficult for the organisation to tackle, given that Employee A might have a different psychological contract from Employee B. 

If you also consider the fact that a psychological contract is not written in ink, there is a risk for Management to  ignore its usefulness in the employment relationship. After all, if Management did not explicitly promise/pledge/state that they would provide A,B,C then surely they shouldn't be vilified for not  fulfilling  X,Y,Z.  

But this is where Management gets it wrong because unfulfilled expectations, or worse, obligations, make employees unhappy, dissatisfied with their jobs and disillusioned with their employers. These feelings can cost the organisation dearly in terms of high turnover, lost productivity, a dented corporate image and a whole host of organisational woes. 

It is common knowledge that happy, engaged, ('tuned on'), workers do great things for companies. On the flip side,  unhappy, disengaged employees cost companies millions; a situation which may even have far-reaching effects on the personal lives of professionals.

Moreover, there is empirical evidence that violations of  psychological contracts impact the organisation significantly. Results supplied by some researchers below would interest Management in general and HR executives in particular:

1) Violations, (note that these are more serious than unmet expectations or unfulfilled obligations), were found to decrease the following: employees' trust in their employers, satisfaction with their jobs and organisations, as well as their intentions to remain. (Robinson & Rousseau 1994; Robinson & Morrison, 1995).  

2) In extreme cases of violation, employees may seek revenge or retaliation, engaging in sabotage, theft, (the single most expensive form of non-violent crime against the organisation), or may display aggressive behaviour. (Fisher & Brown, 1982; Greenberg, 1990; Robinson & Bennett, In Press; Tripp & Bies, In Press). 

3) Violations may also lead to expensive lawsuits which if publicised, may damage an organisation's external reputation (McLean Parks & Schmedemann, 1994).

4) Following psychological contract violations, employees are more likely to become less loyal to the organisation, may exit, voice disappointment to management, neglect work, and present the company as unfavourable to others. (Turnley & Feldman, 1999). 

5) Pugh et al. (2000) found the long-term consequence -  when an employee perceives contract breach with the employer, it affects the employee's trust and makes him adopt a cynical view of the (new) employment relationship, which is mediated by worry. 

Given the significant effects of  psychological contract breach/violation on employees' attitudes and behaviours, which impact job performance and productivity, it becomes imperative for Management  to take this theme seriously.  

Putting  The  Psychological  Contract Into Perspective

Let us explore a practical scenario.  

A new employee, Mr. X, has just been hired and is immediately enrolled into a week-long induction programme, which consists of tours around the branch, 'bonding' lunch/dinner sessions with new colleagues and bosses, setting up of his work space  etc. He is shown around the company and is  being told---via word of mouth from one of his new bosses during a company-sponsored 'happy hour' after work; by watching company videos; by reading employees' testimonials; or by listening to stories of older employees---that the company embraces diversity.

He gets the distinct impression that the rights of minority groups are respected including:  the right to a fair hearing; the right to sound procedures determining his pay, compensation package, promotions etc.; and the right to be treated with professional courtesy during his tenure at the organisation.

Slowly his perceptions of what the employers owe him, in return for professionally performing duties listed in his job description, are formed, one of which is zero tolerance for discrimination. Even if  'discrimination'  is not clearly defined in the employee handbook, Mr. X is convinced that should a grievance occur, he will be able to argue his case. He would be confident of a standard investigation and of a fair outcome.

Now fast-forward a year or two and Mr. X finds himself in a dilemma. He has been subjected to racial slurs from his immediate boss on several occasions, which have escalated to verbal attacks/ridicule and intimidation, cleverly linked to 'criticisms' of his job performance. He reports the situation to his boss' superior, but is abruptly told to focus on his job and to do as he is told.

He is surprised, not only by the outcome, but  also by the lack of concern/objectivity displayed by a supposedly trusted executive. He may experience at this point, a psychological contract breach as he is neither being given a fair hearing, nor being treated with respect - two elements inherent in his psychological contract which have not been fulfilled.

Mr. X takes it further and lodges a complaint with HR. The complaint is 'filed' and an informal meeting is arranged whereby he, his boss, his boss' superior and the HR manager are present.

Mr. X does have his say, as do the other parties present. The meeting concludes with Mr. X being told that he had misunderstood the "direction" given by his boss. He is also informed that perhaps due to cultural differences and nuances in language styles, he might have  "imagined" the abuse and had taken the wrong way, the "robust, passionate advice" of  his boss, borne out of the latter's concern for the consistently unsatisfactory performance of Mr.  X.  It is further explained that his lacklustre performance has been particularly a concern for Management in view of the possibility of a new role in  the nearest future, if only he could use his time more effectively, and avoid wasting his energies on perceived injustices.

Mr. X leaves the meeting with the notion that his boss' shortcomings have been watered down and that the issue would not be pursued further. He is also aware of  the unspoken threat that his 'incompetence' has been noted and may cost him a favourable performance review and by extension, a promotion, especially if he files another complaint.

The behaviour of his boss continues and Mr. X is subjected to more intimidation and veiled threats.

As time elapses, Mr. X experiences helplessness, anger and betrayal in varying degrees of severity, leading to increased stress and health problems. He believes that the 'zero tolerance for discrimination' element of his psychological contract has been violated.  Indeed, he is convinced that the organisation has reneged on its obligation to address issues of discrimination/abuse in a fair, transparent way. He may be motivated to take action since he believes his employers do not value him, his well-being or his contributions.

Remember that his perception of the situation is deeply subjective and might not be shared by Management, or 'make sense' to those in authority if they were privy to his cognitive views.

Mr. X may engage in some of the negative behaviours listed by researchers relating to psychological contract violations. He may  quit or sue the company for emotional damages and poor health caused by the toxic workplace.

As a calculated move, he stays for a certain period but makes it his mission to discredit his employer's reputation wherever possible. He may also retaliate in 'clever' ways by engaging in sabotage, by missing work deliberately and by being unreliable.


Whether he stays or leaves, his attitude and actions would have a negative impact on the organisation.  

Now imagine several employees feeling betrayed by the company for violations in elements of their psychological contracts. (Mr. X may have also shared his experiences with trusted co-workers who may have suffered similar woes). 

Imagine the damage that situation could cause the organisation.

Performance levels would dwindle and if the company's main operations are steeped in sales or services, the drop in numbers and/or flight of customers would translate to significant losses for the establishment. 


The scenario above is sadly not far-fetched as many professionals who are wronged by their bosses and/or who do not receive the support or fairness they require from the organisations, are far from being the cheerleaders their employers would want.

In fact,  former aggrieved employees, could take their 'reign of terror' online and reveal all in social media, as reported in this article. In this digital age, social media is a powerful tool for making or breaking corporate reputations, with very real consequences.  In the report provided by the Telegraph, 30% of businesses in the UK also stated that their online reputation had been affected by the online activity of existing employees. 

Note to Management - be careful how you treat your  employees...  


Tips for Effectively Managing Psychological Contracts 


As stated earlier, managing  the psychological contract of one employee is no easy feat; managing the collective psychological contract of your entire staff seems almost impossible.   


But it is achievable and I will explain how.  

As Rousseau (1997) found, the  psychological contract is formed during the hiring and socialisation period, (induction), of a new entrant.  

This period, after the standard employment contract has been signed, is when the new employee gets a glimpse of the corporate culture and a sense of what to expect from his employers in the reciprocal exchange, if he does X,Y,Z.  

So it would make sense to clearly communicate the company's values, expectations and procedures using different methods during the induction/socialisation period. These  values should match  elements shaped in the psychological contracts of the employees.

A good way this could be achieved is by a constant two-way communication stream between the new staff and the appointed executives. New employees should not be left to 'figure it out' after only a brief introduction.

Clear and consistent communication also eliminates conjectures and helps the organisation to manage the collective expectations of its employees in a supportive way. Fulfilled expectations and obligations make up positive indicators of psychological contracts, resulting in happy, engaged employees who deliver favourable results for the company. 

Below are specific actions Management could adopt: 

1) Train the staff who would be handling the induction programmes to clearly communicate what the company values/procedures are, and how complaints related to interpersonal issues and career development are handled. New staff should know how complaints could be escalated to top management, without fear or intimidation. Key HR officials to handle specific issues should be named and contact details provided. Provide them with the employee handbook but highlight important sections.

2) Educate supervisors/managers on the need to be an 'open book' in matters of transparency and accountability; they should be seen as approachable to new staff. An immediate boss is instrumental in shaping the perceptions of a new employee.

3) Explain via the intranet and on other internal communication platforms that the new members would be assigned mentors in their first year. These experienced employees would ease the assimilation of new staff into the company, and will help to address the latter's initial concerns. More serious issues would be forwarded to designated HR officials.

Employees who feel 'listened to' are likely to become empowered and would direct their enthusiasm to their duties.

A win-win situation for both Management and employees.



It is true that companies differ in sizes, values and cultures, so  some might doubt that the above-mentioned recommendations would be applicable to their companies.  

Nonetheless,  as researchers have stated that psychological contracts are formed during the socialisation/hiring process, Management could use the induction period as an opportunity to manage the expectations of new employees with strategic communications in a collaborative relationship. This move will help employers prevent psychological contract breaches and violations which are detrimental to their organisations.  

A good foundation of trust at the beginning would be useful in periods of inevitable change where employees' expectations cannot be fulfilled for practical reasons, or due to unforeseen circumstances. 

Unmet expectations are not likely to result in breaches or violations in the psychological contracts if, among other things, communication is used to clarify the following: how changes would affect employees; how timely and transparent the information is; how procedures are used; and how decisions are reached. These things are sometimes more important to employees than unfavourable outcomes. 
So Management, you should accord this theme the importance it deserves in the employment relationship. Strive to resurrect the dying art of managing your employees' psychological contracts for a more productive workplace.  

Now please share your views.  


What do you think about the psychological contract? What are your suggestions for managing the expectations of employees?  

Kindly post your comments below.


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  1. J P Dhaundiyal, Communication Specialist, NOIDA, INDIA.1 September 2014 at 12:11

    Managing various divergent issues at work place by first understanding and then carefully articulating them in such a way that one sails through without making a fuss of anything is the success of a professional which enables him to achieve the larger goals of the organisation. Yes it is an important contractual obligation to perform.

    1. Indeed. Thanks for reading the article.

      I do think that the onus is on Management however to clearly articulate what their obligations are to new entrants and how procedures and process leading to decisions are taken. Clear and consistent communication would prevent wrong interpretations of policies. Informed employees can work more effectively.

  2. Nir K. (Corporate Communications And Reputation Group on LinkedIn)1 September 2014 at 18:14

    Thank you for posting, Lucille. The task before management is two fold: managing expectations and then living up to them. Reputation, as you note is an enterprise wide phenomenon of expectation management and fulfillment -- with a diversity of stakeholders including employees, suppliers, creditors, investors, regulators, NGOs and of course, customers. Each of these implicit contracts has financial consequences with the net effect being a 30% swing in enterprise value.  

  3. Thank you for your informed comment. It is always interesting to hear from C-Suite executives.

    As you have aptly noted, the challenge for Management is knowing how to manage expectations and actually going on to do so.

    As suggested in the article, this could be achieved by using targeted or strategic communications. Consistently clear communication helps to alleviate the feelings of betrayal when expectations are not fulfilled, but only those expectations which are truly beyond the control of Management.  

  4. Mandy Tesch (Via Corporate Communications And Reputation Group on LinkedIn)2 September 2014 at 09:38

    I like this one, thanks for posting it!
    This is everything I've experienced in the workplace, I hope more people read it and realize how listening to, trusting and respecting employees as you delegate to them, increases productivity. Management does not need to critique employees for petty reasons to justify the position.

    1. Thanks for reading the article. It's amazing what some employees go through...

  5. Very interesting ideas. I've never even heard of a psychological contract. I'll have to look into getting trained on some of the things you mentioned. I much prefer contracts in black and white because it's much easier to map out exactly what we should be doing. Thanks for sharing your ideas with us!

    1. Glad you found the article interesting. Thanks for reading it.

      Today we don't often hear about psychological contracts. What tends to float about are articles about 'employee engagement' and 'emotional intelligence'.

      However, being aware of the theme of psychological contract helps Management to navigate the ever-evolving issues impacting productivity of their staff.

      Good luck with your training!

  6. For a professional, it is quite essential to learn organizational behavior. It helps to understand the behavior change of employees, helpful in understanding their situations, demands, and requirements. Therefore, they used to tie with a contract in between the organization and employees. Here this article also provides some essential instructions about organizational behavior; thanks for such a wonderful article.

  7. Hi Jeff,

    Thanks for reading what was actually an article of 1,200+ words.

    I agree with you. Understanding organisational behaviour is crucial to the employment relationship. Therefore the psychological contract is a theme both employees and management should take seriously to be able successful navigate the delicate workplace dynamics.

  8. The way we define and manage the Psychological Contract, and how we understand and apply its underpinning principles in our relationships - inside and outside of work - essentially defines our humanity.
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  10. Thanks for reading and for your kind comment.

    There are many other articles tackling themes of management, communication and workplace dynamics. You could use the 'search this blog' box on the right sidebar of the homepage to find topics. Just type in your search description and click on 'search'.



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