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Psychological Contracts

Many workplace disputes are the result of subtle interactions between employer and employee. Steve Coomber and Des Dearlove look at some recent research that attempts to explain the principles underpinning such misunderstandings

Mr Brown toiled away steadily at his job for almost a decade. He stuck it out while others moved on, put in extra hours, and gave his all to the company. He knew if you did the time and went the extra mile you got promoted. His expectation was reinforced by his relationship with his line manager, who rewarded his performance with praise and more challenging tasks. So when Mr Brown failed to be promoted, he felt let down. He stopped putting the extra time in and soon afterwards left the company.

Why did Mr Brown feel so bad about the situation? It’s all down to the psychological contract between employee and employer say Professor Rob Briner and Dr Neil Conway from the Organisational Psychology Department, Birkbeck College, University of London. They explore the concept in their new book Understanding Psychological Contracts at Work .

Briner and Conway are part of a team of over 30 faculty and researchers, at Birkbeck’s School of Management and Organisational Psychology, focusing on cutting-edge research and leading ideas in the field of workplace psychology including the issue of the psychological contract.

What is the psychological contract?

What’s it all about?

Understanding Psychological Contracts at Work looks at the key issues relating to the concept of the psychological contract, including:
• the beliefs involved with the contracts
• the subjective nature of the psychological contract
• that psychological contracts are about exchange
• that the psychological contract is the entire set of an employee’s beliefs regarding the ongoing exchange with the employer
• that the psychological contract is shaped by the organisation.

Understanding Psychological Contracts at Work , by Neil Conway and Rob Briner, is published by Oxford University Press, £19.99, ISBN 0199280657.

The concept of the psychological contract was developed during the 1960s, particularly through the work of Edgar Schein, a professor at the MIT Sloan School of Management in the US. It became popular again in the late 1980s but remains a relatively unexplored topic – fragmented and poorly defined.

Conway and Briner’s book, the result of many years of research, attempts to bring some clarity and sense to the numerous theories and ideas relating to the concept of the psychological contract. This includes questions such as: What constitutes a psychological contract? Who are the parties to such a contract? What are the effects of breaching the contract? Unlike other organisational concepts, such as corporate culture, commitment or motivation, the psychological contract is not a term that many employees are familiar with.

The basic premise is this: in the workplace, employers and employees make a number of promises to each other. Many of these are written and explicit, such as a contract of employment with the salary and benefits due stated in writing. The explicit promise is that, if the employee performs as expected, the rewards written in the contract will be delivered. Such written promises are generally regarded as not forming part of the psychological contract.

The psychological contract is about a different kind of promise made between employees and employers. These promises may be explicit, such as oral promises – perhaps the employer promises a promotion as long as the employee works hard – but they are usually implicit.

‘These are the kinds of promises which we come to know and understand through consistent, repeated interaction with our employer over time, especially around the exchanges that take place,’ says Conway. ‘If we go to work, for example, and notice that through working hard, we get complimented by the boss, if that happens consistently over time, it will become an implicit promise of our employment relationship.’

Two important components are the relationship and the ongoing nature of the contract. ‘If you have a relationship with your employer, the basis of most relationships is some form of exchange,’ says Briner. ‘So, as an employee, you do things because you expect certain things in return. Likewise, your employer does things and expects you to do certain things in return.’ It is an ongoing, continually shifting exchange.

There are strong parallels between the concept of the psychological contract and that of legal contracts. Much of the terminology is borrowed, including the parties to the contract, and the idea of promise and breach of promise. The difference is that where legal contracts tend to be written down, the terms of a psychological contract are constructed from observations of the behaviour of employees and employer in the working relationship.

The psychological contract comes in a number of categories, explains Conway. Two of the main categories are the transactional contract and the relational contract. ‘Transactional contracts are based around the exchange of fairly explicit and objective resources; for example, it might be the number of hours you do in return for the pay you get,’ says Conway.

‘A relational contract is based around the exchange of less tangible things. So it might, for example, be an exchange of an employee’s commitment in return for loyalty from their organisation.’

Conscious or subconscious?

But while psychological contracts can have a considerable impact on our behaviour, we are often not consciously aware of their existence. Some psychological contracts do operate on a fairly conscious level. If an employee can remember, for example, when an employer made a particular verbal promise, then that is a consciously held psychological contract.

Most, however, exist at a more subtle level. Often there is no real conscious reflection by the employee about what constitutes their psychological contract. A person might go to work and do the usual things that they do, on a fairly consistent day-to-day basis, until something happens that shocks them, such as some unexpected behaviour by their line manager.

It might be in a positive way – the employee is unexpectedly rewarded – or it might be in a negative way – the line manager fails to reward them. Either way, what was effectively an unconscious psychological contract suddenly becomes very evident.

This idea of the breach of psychological contract is a key one. A breach of the contract may lead to a change in behaviour by the employee, which in turn affects the organisation. In psychological contract terms, if you think that the organisation has broken a promise to you, then, depending on the importance of the issue, you are likely to react to in a number of important ways.

‘First, you are likely to feel unhappy about the breach. There will be a number of emotional reactions such as feeling upset, disappointed, violated and so on,’ says Conway. ‘But you will also think of revising the terms of your psychological contract.

So, for example, if previously you were behaving in a certain kind of way towards your line manager and then they stopped doing something for you, you might think about revising what you believed to be the existing terms of that deal.'

The employee’s response might be an overt one. One example would be for an employee to refuse to ‘put themselves out’ for the organisation by withdrawing discretionary effort, and to stop doing any extra tasks that they once did voluntarily.

More worryingly for the organisation, the employee’s response might be a covert one. In this case the employee modifies their obligations under the psychological contract through actions such as withholding effort, just working a bit slower or putting less quality into the work, but in ways that are not easily detected by the organisation.

Why the contract matters

The theory is all very well, but why should employees and organisations care about the psychological contract, especially if it operates on a subconscious level much of the time? The reason it deserves our attention is that it affects behaviour in the workplace, often in a negative way. And there is no escaping the psychological contract.

‘In any relationship you may have, with your boss, or your wife or partner, just through engaging with that person on an everyday basis, if you are part of an exchange with those people, then you will have a psychological contract with them of one sort or another,’ says Briner.

So the psychological contract is important because it provides models about how we are expected to behave in the workplace on a day-to-day basis, but also because of the effects on employer and employee when the psychological contract breaks down. If the organisation breaks an implicit promise to an employee, it will provoke a reaction from the employee. One obvious result is a deterioration in the extent to which the employee trusts the organisation.

There have been a lot of studies in this area, notes Conway, that look at whether perceptions of broken promises, as the employee sees it, relate to the employee’s attitudes and behaviours. These studies tend to find that if the employee thinks that the organisation has reneged on its side of the deal, it lowers their job satisfaction, they become less committed to the organisation, start looking around for other jobs, and are more likely to take time off.

Everyday work is strewn with exchanges that form the subject matter of the psychological contract (see ‘What’s it all about’, below). Perhaps the most common example is the ‘performance for advancement’ bargain. The employee believes that if they perform well, they will advance at a consistent and steady rate in the organisation. If that advancement for performance deal is thwarted, the employee may think ‘the rewards for my performance are not recognised here, so what is the point of performing?’. They could consider seeking those rewards elsewhere.

Another example is an employee’s commitment to the organisation in return for job security. The employee believes that remaining loyal and committed to the organisation will be rewarded with a degree of job security. Although much has written about the erosion of this particular element of the psychological contract, there is still plenty of evidence that shows tenure hasn’t changed much in the past 10–30 years. Job security is still an important part of most employee-employer psychological contracts.

Management and manipulation

So we know that a psychological contract exists, based on the beliefs held around the exchanges between the employee and the organisation. We also know that misunderstandings relating to this contract can have a negative impact on both employee and organisation. Surely then, it makes sense for the psychological contract to be managed in a way that removes the room for misunderstanding and breach?

Not necessarily, says Conway. ‘One interesting thing about psychological contracts is that it seems as if it is in both parties’ interests to make the implicit terms more explicit, so that they have a better idea of where they stand,’ says Conway. ‘But this might be a bad idea. You can imagine that in the relationships you have, there could be many unspoken expectations. Externalising all of them can create more problems.’ One of the main problems is that that any room for flexibility and manoeuvre in the relationship is lost, because now both parties are bound by explicit terms.

A more troubling scenario for the employee is if an organisation attempts to manipulate the psychological contract in an effort to control the behaviour of employee. This is something that happens in human resource management. The organisation reframes what it wants employees to do, in a way that make it seem as if those tasks are a positive benefit for the employees.

The notion of empowerment is a classic example. The organisation tells employees that it wants to empower them, to let them become more autonomous, and that in return for this gift of empowerment, it wants them to take on more responsibility. Essentially the organisation is increasing what the employee is required to do, without offering much in return.

In a sense, the employee is being controlled through the psychological contract. They think that what they are doing is in their own interests, but only because the organisation has framed the employee’s interests as being the same as the organisation’s. ‘Many other human resource management and personnel practices can be construed in a similar way,’ says Conway. ‘Involvement programmes, or any attempt to make employees more committed to the organisation, can, in some ways, be seen as a way that organisations colonise the employee’s consciousness.’

As Briner and Conway’s book shows, psychological contracts appear to play a significant role in the relationship between the employee and the employer. As a result, it is in the interests of both employer and employee to begin to develop a better understanding of the nature of the psychological contract, in order to avoid breaches that adversely impact the individual and the organisation. For both employee and employer Understanding Psychological Contracts at Work is a good place to start.

Des Dearlove is a long-time columnist and former commissioning editor for The Times.

Steve Coomber writes for
The Times , CEO Magazine and Business Strategy Review.

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