Psychological Contracts

by Bob MacKenzie

Fixing a broken contract

Users, management and other stakeholders will demand honest, consistent and up-to-date information whether the news is good, bad or unremarkable.

Molloy & Whittington, Said Business School

Thankfully, there are specific strategies you can use to repair psychological contracts that you perceive to be in danger of being violated or that are already broken or in a negative state. The first thing you must do is to endeavour to make the current state and terms of psychological contracts more visible.

In times of change, it’s virtually impossible to avoid perceived breaches of psychological contracts. But the good news is that you can do a great deal to minimise the damaging effects of change, through a process of careful renegotiation. You can do this by carrying out the audit of psychological contract states (see checklist) and then by selecting from the following set of eight possible actions.

Eight ways to repair damaged psychological contracts

You can contribute to the repair of damaged psychological contracts by adopting as many as possible and necessary of the following set of practices:

  1. Providing fair and transparent explanations and communications of sudden changes in policy or practice
  2. Helping your staff to understand more fully the nature of the business
  3. Where possible, involving employees in controlling or managing any changes
  4. Arranging outplacements to help people find new jobs or gain new skills.
  5. Avoiding sudden, major surprises, if at all possible
  6. Explaining clearly why expectations may have been, or may have to be, disappointed
  7. Providing regular feedback in all directions of the compass
  8. Seeking support and guidance for yourself from others inside and outside your organisation, including from members of your HR or Personnel Department.

A manager’s role in personal contract damage limitation can be summarised in the following figure, taken from Denise Rousseau’s four-stage strategy for renegotiating psychological contracts (see Want to know more?).


How Riverside Local Authority regained the trust of its staff

The case of Riverside Local Authority shows how damaged psychological contracts can be successfully restored to a healthy state.

Riverside Local Authority (RLA) is a small rural council that operates from three main sites, each some distance from the other. The Senior Management Team (SMT) had all been in post for 10 years or more and staff turnover was minimal. There were few other major employers in the region; for years the organisational culture was relatively gentle and easy-going, and the Riverside catchment area was widely regarded as an extremely desirable place to live.

More recently, economic and political pressures had led to much more intensive auditing and scrutiny of how local authorities were spending their diminishing resources. In this climate, just six weeks before Christmas, and with the Chief Executive about to retire, SMT took a decision at its weekly meeting to abolish the customary practice of allowing staff to go home at lunchtime on Christmas Eve without docking their pay. This was despite the closure of council offices to the public from 12 noon on that day. In the past, the Chief Executive had simply walked around the offices and said to staff ‘Why don’t you shut up shop and go home?’

Notice of this break in tradition was sent out in the November pay packets.

Naturally, staff had long been expecting that this informal tradition would continue, and many had planned some time ago to spend the afternoon of Christmas Eve either doing their last-minute Christmas shopping or travelling to stay with friends or relatives. Such late notice of this change created a great deal of inconvenience and unhappiness among staff. Many argued behind closed doors and in the pub that they wouldn’t have minded so much if the decision had been taken and publicised in January instead of late November. This would have given them plenty of time to get used to the change and make their Christmas arrangements accordingly.

To make matters worse, although all SMT members had been present at the meeting where this decision had been taken, it was not implemented consistently in all directorates across RLA. For example, staff at the Reception Desk and in the Claims and Benefits Office were told by their directors that they could go home at lunchtime after all, because their services were not essential on Christmas Eve.

Although there was little chance of a major revolt, the temporary drop in staff morale was noticeable and a lot of time that might have been better spent in attending to official business was spent in heated corridor conversations and gossip. In the New Year, at the prompting of the new Chief Executive, and having noted this bad atmosphere, SMT agreed to review the situation. Following consultations with the local TU branch, they announced that, in future, they would rule on Christmas arrangements in March every year. They also informed all staff that they would endeavour to apply this ruling as fairly, consistently and transparently as possible. This way, everyone would know what would be happening at Christmas in plenty of time to make reliable arrangements.

The following year, all staff who had not been granted formal annual leave happily remained behind in the afternoon of Christmas Eve and carried out routine maintenance work, followed by the usual round of office parties.