Psychological Contracts

by Bob MacKenzie


What is a psychological contract?

A psychological contract is the ‘deal’ concerning mutual expectations and their fulfilment that is struck – and then re-negotiated when necessary – between individual employees, their employer (especially their main, identifiable manager) and their immediate work colleagues.

Psychological contracts consist of ‘the mutual expectations’ people [such as employers and employees] have of one another in a relationship, and how these expectations change and impact on our behaviour over time.

Michael Wellin

Another way of thinking about a psychological contract is that

... it ‘encompasses the individual actions employees believe are expected of them and what response they expect in return from their employer.

Rousseau & Geller

People in organisations are surrounded by a host of psychological contracts which could well be in conflict with each other. A major problem is that these psychological contracts are mostly invisible, and it takes some awareness and skill to deal with this powerful hidden phenomenon.

Although individual psychological contracts differ, they generally incorporate four main areas:

  • Career preferences
  • Performance levels and standards
  • Development and progression opportunities
  • The extent to which ideals, values, respect and support are perceived to be mutual.

When psychological contracts are out of alignment

As you can see, mismatched psychological contracts can be breeding grounds for conflict, misunderstanding and confusion. By developing a greater awareness and understanding of how they work, you will become better able to manage change and achieve higher business performance through well-motivated and mutually-aware team members and colleagues.

Negotiating and maintaining healthy psychological contracts takes place within the framework of an holistic and astute approach to management and leadership. You should monitor, refresh and renegotiate the psychological contracts of all your principal stakeholders (including your own!) as often as necessary in order to maintain or restore equilibrium (see the topic on Negotiation). Fostering positive relationships and interactions between employer and employee is vital to business success. This requires a significant investment of time and resources. But the consequences of not making this investment are far more costly in terms of impaired performance, low morale and potential loss of key staff and business.