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  • Writer's pictureCosma Coelho

Why Psychological Contracts Matter


Comprehending the Psychological Contract

In every workplace there are unwritten contracts between managers, employees, organisation, stakeholders etc. which emphasise informal commitments, expectations, and understandings (Enright, 2018) – the psychological contract.

Fundamentally, the psychological contract highlights how essential the "human" aspect of the work connection is (CIPD, 2024). Furthermore, the contract is built on the daily deeds, declarations, and assurances made by one party in a relationship, and how they are interpreted by the other, form the foundation of the psychological contract (Enright, 2018). As observed by research, psychological contracts note what each party commits as well as what they receive in return through the relationship.


Aspects Covered by Psychological Contracts

Source: CIPD (2024), Enright (2018), Brougham-Chandler (2023)

A psychological contract encompasses the informal beliefs, ambitions, commitments, and expectations that employees and employer perceive. In essence, it is about how both parties understand their relationship outside of the formal employment contract and what they expect from each other. 

Accordingly, training and development opportunities, for example, are part of the psychological contract. They represent the employer's trust in the employee, as well as the appreciation of the employee. It is essential to support employees in their development. At the same time, however, it is also the employee's responsibility to utilise these opportunities, to constantly develop themselves and to bring innovation into the workforce with them. 

A supportive manager is an important component in psychological contracts, as they provide employees with psychological security, which promotes performance and also reduces the risk of mistakes.

Other aspects, such as the perceived fairness of pay and benefits, are fairly self-explanatory, but nevertheless immeasurable. Fairness of pay and benefits is a foundation of mutual respect and appreciation. If employees perceive unfair or disproportionate pay, this provides a risk of breaking the psychological contract. 

Another of the many sub-points of the psychological contract between employees and employers is the contribution on communities and society by the employer. Employees want to be able to identify with the company they work for and share similar values. This is one of the ways to successfully retain employees in the long term and convey a feeling of enjoyment at work. 

Employers also like to see the values of the organisation reflected in the behaviour of their employees in everyday working life. If, for example, a value of the company is cordiality, employees also expect for this to be displayed in practice. Accordingly, there are expectations on both sides.

Finally, is the all too familiar, job security. It may sound banal, but at the end of the day we all strive for security and seek it in our jobs. Employees want to know that they are seen and valued as a permanent fixture, without the fear of being made redundant, and easily replaced the next time the strategy is adjusted.


Implications of Breaching Psychological Contracts

Source: CIPD (2024), Enright (2018), Brougham-Chandler (2023)

  • Decreased Trust

  • Reduced Motivation and Engagement

  • Increased Turnover

  • Negative Reputation as Untrustworthy Employer

  • Legal Consequences (In case of Benefits, Pay etc.)


Why Psychological Contracts Matter

Source: CIPD (2024), Enright (2018), Brougham-Chandler (2023)

Compliance with the psychological contract works on two different levels: 

  • the organisational level

  • the individual level

Let's start with the organisational level - here, the long-term loyalty that results from adhering to the psychological contract means that turnover rates are lower and hiring costs are reduced. Employees feel more secure, more valued and share the values of their employer. By that, job security increases. The feeling of mutual exchange at eye level of each individual results in an overall improved performance of the company. And finally, because there is fairness about pay and benefits when the psychological contract is honoured, colleague cooperation is also promoted. You might think it sounds almost too good to be true! It's amazing what mutual sincere communication can achieve. 

Regarding the positive effects of the psychological contract on the individual level, several different points play a role. As already mentioned, loyalty and commitment to the company increase, simply because employees feel seen and heard in their personal experiences.

Greater productivity as well as improved performance can be expected as a result of having a supportive manager who has provided their employees with psychological safety, and has also  given them freedom, and trusted in them enough to invest in their development. All factors which positively trigger an increase in job satisfaction and motivation.

Relationships are relationships - whether work-related or in personal life. We all want to surround ourselves with people who share similar values to us, respect us and additionally maintain boundaries. Even though work and private life are often separated, try to consider these aspects in your professional life. Only through mutual respect and fair treatment, which fall under psychological contracts, will we gain happy, satisfied, and productive employees in the long term.


Practical Approaches of Psychological Contracts

Source: CIPD (2024), Enright (2018), Brougham-Chandler (2023)

  • Employee-Centric Cultures

  • Prioritising employee well-being

  • Career development

  • Work-life balance

  • Investing in flexible work initiatives

  • Benefits packages

  • Development opportunities 

  • Transparency and Communication

  • Fostering transparent communication

  • Seeking feedback from employees

  • Enhancing focus on trust and openness culture

  • Recognition and Rewards

  • Recognising achievements as well as celebrating them

  • Management Style

  • Understanding expectations

  • Ensuring the fairness of procedures


Personal Reflection

When stress at the workplace increases, complying with unwritten psychological contracts becomes essential. Not only because of the various reasons listed above, such as increased motivation, improved performance, or lower turnover rates, but also because of the key elements of an employee feeling seen and heard.

You may ask why it is key to acknowledge what the counterpart feels and experiences? To put it simply, it is due to the basic principle of respect, as well as the basis of psychological safety. Respect and enabling someone to feel psychologically safe are components of psychological contracts. Through showing interest, respecting the other as well as protecting their set boundaries the psychological contract is positively balanced. Psychological safety overall allows individuals to address mistakes, learn from them and improve performance. Additionally, it impacts the willingness of the individual to suggest their creative ideas or approaches. (If you would like to find out more about psychological safety and its impact on work performance, please check out our April 2024 Blog!) Furthermore, respect and kindness (which are parts of a balanced psychological contract), especially during times of crisis, foster more powerful bonds, happier and more productive employees, as well as stronger commitments to the company, which is the ultimate goal.

Consequently, through reflection, balanced psychological contracts are a key feature for smooth working operations and a motivated workforce.


Would you like to support your workforce through balanced psychological contracts?

Resilient Workforce specialises in improving employee resilience and uses an evidence-based approach to improve your employees' wellbeing.

We can help you in a number of ways depending on your organisational needs, size, budget, and timeline.



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