A psychological contract is an informal agreement between an employer and a worker. It is an unwritten set of beliefs and expectations held by an individual and the employer about what they do for each other, according to “A Handbook of Human Resources Management Practice.” The psychological contract is present in all forms of employment including full-time, part-time, temporary and contract work. It provides a framework for understanding and managing employee behavior.
Nature of the Contract
While an employment contract is a formal signed document that lays out the specifics of the work situation, the psychological contract is built on understanding and trust, which varies from employee to employee. The psychological contract is based on social exchange theory, which states that human relationships are based on a personal cost/benefit evaluation and the examination of alternatives. The costs in a psychological contract consist of time and effort while benefits include financial gains, social status and emotional benefits, such as job satisfaction or a sense of purpose. The outcome of the cost/benefit analysis is compared to possible alternatives, such as availability of other jobs and barriers to leaving the current job.
Importance of the Contract
An employee’s perception of the employer’s compliance with the psychological contract affects their work and intention to remain with the organization. Employees who believe that they are treated fairly and their work is valued are more likely to be more productive and continue their employment than workers who believe the employer violated the contract in some way, such as a manager not keeping a promise to the employee.
The psychological contract serves both the employee and the employer. It gives the worker a sense of security and control in the working relationship. If the employer violates the contract, the worker can leave. The contract gives the employer a way to manage workers without having to resort to constant monitoring. Employers honor the contract by building workers’ trust through fair, impartial policies and procedures (procedural justice); appropriate distribution of resources (distributive justice) including fair pay and benefits; and treating workers with courtesy and respect (interactional justice).
Human Resources Role
The psychological contract begins forming during the recruitment and hiring process and continues developing and changing through new employee assimilation and work experience. Human resources (HR) play an important part in building and supporting the contract through the policies and procedures it implements, the manner in which it communicates with employees, and the employee management and development training it gives managers.
There is no one-size-fits-all approach to managing the contract because the relationship between the employee and her direct manager is the driving force behind it. HR can coach managers on effective ways to interact with employees and respond to certain situations. This includes making sure managers clearly and explicitly set performance standards and expectations; that they treat their employees fairly and equally; and that they get to know their employees as individuals with unique backgrounds, skills and interests. In addition, organizational change leads to changes in employee’s perceptions of the psychological contract. HR must consider the impact of these changes on the contract, and prepare managers to deal with them.