Like any other agreement, a psychological contract in organisations formalises a relationship, in this case, the purely human aspects of the employment relationship between a person and the company for which they start working.
Originally coined by Denise Rousseau, a psychological contract is “an unwritten set of expectations between the employee and the employer. It includes informal arrangements, mutual beliefs, common ground and perceptions between the two parties.”
Therefore, a psychological contract in organisations clarifies the terms and conditions under which each member of this relationship will operate and the different transactions that must occur between them. It also outlines what they will provide each other, what benefits they will obtain from each other (or, at least, what they expect to receive), and in what context. The article not only explains the characteristics of a psychological contract in organisations, but also outlines the importance of implementing it.
As an HR manager, how do you keep the psychological contracts in your organisation updated to meet the needs of both employees and the company?
A psychological contract in organisations is a commitment
By its very nature, a psychological contract implies a commitment on behalf of both parties to the relationship, a commitment to perform based on trust that the other will be loyal to the agreements reached. Normally contracts of another nature can be either verbal or written, although the psychological contract in organisations is usually a purely verbal agreement.
Rather than strictly work-related terms, it refers to how the employee and the company interpret the “journey” they are about to embark on together in terms of a mutually satisfying experience. This means that the psychological aspects of the relationship can contribute to sustainable productivity, i.e., to the company’s success and to providing the employee with a positive experience.
Characteristics of the psychological contract
No psychological contract in organisations can be strictly perfect. However, it must meet a series of characteristics to be satisfactory and fulfill its function (to regulate some critical aspects of the labor relationship between an employee and their company). Let’s take a look at what they are.
1. Must be open
A psychological contract cannot be all-encompassing. Working life is too complex for a contract to anticipate everything that can happen, every nuance of the employee’s experience, and structure it in terms of exchange and engagement.
Provided they are not excessive – in which case the psychological contract is ineffective – these unavoidable gaps bring openness and flexibility to the psychological contract and allow the members of the employment relationship to enrich or complete it as unforeseen situations arise, allowing adaptability.
2. Must be balanced
For relationships to work, they must be balanced and fair, i.e., allow benefits smoothly for both parties instead of being based on abusive conditions that only benefit one of the parties involved.
3. Must be meaningful
The less important aspects of the employment relationship do not need explicit agreements to clarify and structure them. Those that are relevant do need that extra agreement. So, the psychological contract must refer to the essential issues of the employee’s journey within the company.
Why is it important to have a psychological contract in organisations?
1. Formalises the employment relationship
This does not mean that the psychological contract turns the relationship between the employee and the company into a kind of “hyper-legal agreement” without paperwork. On the contrary, it concretely states some important expectations, needs, and desires of both the employee and the company rather than leaving them in the ambiguous world of things unsaid or half-said.
2. Provides clarity to the relationship
By making some terms of the relationship between employee and company explicit and concrete, the psychological contract in organisations allows both parties to look at their relationship more easily. Consequently, they can understand more clearly what some of their duties are and what they must abide by concerning each other. It fosters the experience of security within the relationship.
3. Offers guidance for the employee and the company
The psychological contract gives predictability to the relationship. The terms and conditions in the psychological contract provide both members of the employment relationship with guidelines they can follow to ensure a mutually satisfying experience. They know what they should contribute and what they should receive for the duration of the employee’s life cycle within the company.
The role of HR leaders in psychological contracts
HR managers are crucial in shaping and maintaining a psychological contract in organisations. Their responsibilities include:
| Aspect | Role of HR managers |
|---|---|
| Communication | Ensuring transparent and consistent communication about job roles, expectations, and changes. |
| Alignment | Aligning employee expectations with organisational goals to foster mutual trust. |
| Support | Providing resources, training, and development opportunities to meet employee needs. |
| Feedback | Implementing feedback mechanisms to address concerns and adjust expectations accordingly. |
| Culture | Promoting a positive organisational culture that values and respects the psychological contract. |
By effectively managing these aspects, HR managers can enhance employee satisfaction, commitment, and overall organisational performance.
“It is important for communication to be fluid and appropriate, avoiding holding extra meetings that can generate stress due to lack of time; but without losing information along the way, which can generate confusion, misunderstandings, and a feeling of detachment from the company.”
– Interview with Beatriz Julián Almarcegui, VP of People at ifeel
The Leadership Lens 🔎
Leadership significantly influences the development and maintenance of a psychological contract in organisations. Effective leaders foster a culture of trust and transparency, ensuring open communication to align employee expectations with organizational goals. By modeling integrity and offering support, leaders empower employees, thereby reinforcing mutual respect and loyalty.
Mental well-being for large organisations
At ifeel, we are committed to improving employee and company well-being. That is why we strive to help them generate stimulating and healthy work environments for their employees, emphasising the importance of a psychological contract in organisations. By fostering these psychological contracts, we ensure that both employees and employers have clear, mutual expectations, leading to a more cohesive and productive workplace.
To assist in this process, our team of psychologists specialising in mental well-being has developed a mental well-being program for companies aimed at helping companies enhance employee engagement and boost productivity.
This collaboration allows HR managers to receive personalised, data-based advice on the most effective measures for detecting employee mental health issues and assessing the workplace climate. It’s the best way to understand their needs.
Moreover, ifeel’s corporate mental well-being solution offers employees a structured mental health care service tailored to their needs at any given time.
We hope you found this article on the importance of a psychological contract in organisations interesting. If you want more information about our mental well-being solution for companies, simply request it, and we will contact your team soon.
