#5 The Psychological Contract

Today we cover the psychological contract: how it’s formed and how can we decrease the negative consequences when it is broken.

When we first join an organisation, we develop expectations of what our relationship is going to be like with our colleagues, the organisation as a whole and our manager or team leader. This is referred to as the psychological contract. It’s all the terms and conditions that we think we are agreeing to that are not explicitly laid out in our written contract, if we have one. The psychological contract is our interpretation of what we agree to give and what we hope to receive – which is why it’s so much fun to talk about, but so complex to deal with at work.

The psychological contract can easily be broken if we don’t address some of those assumptions early on. Expectations can start to form during recruitment, when candidates start to imagine what it would be like to work for the organisation. What makes this even more challenging, is that these expectations can also be shaped by our previous experiences at work, even by the experience of our parents at work.

A breach in the psychological contract can lead to people no longer wanting to go the extra mile (“Why should I? I’m not getting what I thought I was promised.”) and at it’s worse, it can lead to destructive behaviour at work.

Remember that this is all about perceptions of what we’re promised when we start a job, not about what has actually been said. The reason why I wanted to talk about this is that in an era where there is ongoing change around work systems and organisational structures, our expectations are constantly being adjusted. If we’re not careful, if we don’t maintain ongoing dialogue with our people and involve them in decisions that affect them; if we don’t constantly check in to make sure that their way of working makes sense, we’ll lose people’s desire to do a good job.

So, being aware of the existence of the psychological contract also helps us to understand what the effects of change may be, and why people who have always proved to be engaged at work, might see their performance go down in response to change. (That is beyond the expected dip in performance that usually accompanies change.)

Examples of Breach in the Psychological Contract

Imagine for example, that your organisation is going through a big structural change. We can see this at the moment in organisations moving to a more self-organised way of working, away from the traditional command and control, in order to be more nimble and adaptable.

At some point your organisation might decide to move all the way to a self-managed structure, where everyone has the responsibility to look after the business and after the working processes. People are now being asked to be more involved in decision-making and to be more accountable than they were under the more hierarchical structure, where most accountability lied at the management level.

To the people instigating this change, this seems like a perfect opportunity for employees to be happier. To take more control of their destiny. To have more autonomy and stop just doing what they’re told by their managers.

However, if you joined the company at the team member level, with no management responsibilities, expecting a traditional working model, where managers looked after the process and the business, your expectations will be shattered. Even though your physical contract didn’t say anywhere, “We will not change our organisational model during your time with us,” you might have assumed this to be the case. To find yourself having to look at company accounts to make decisions in your team, as part of moving to a self-management model, will not have been part of your expectations. In all your previous jobs, you’ve done your job and left management to the managers, you’ve never expected to have to take on any of those bits of work.

I’ll give you another example, that of having the opportunity to work from home. Maybe you join a company that says they offer flexible working. During your interview and your induction, you find out all the ways in which you can request to work different hours or where you can request to work from different locations, but your job will be mainly office-based. But one day the company realizes they’re spending way too much money on real estate and decide that from now on, some teams will be required to work from home. The office begins to be quieter; you find yourself working from your kitchen table when you always saw yourself as someone who “goes to work in the mornings”. Once more, no-one explicitly said to you, “This will be a job where you come into the office every day and mingle with other people.” However, that was your assumption and your psychological contract has been broken.

Another shorter example. Your company advertises itself as having an “open culture”, as being “innovative”, as actively recruiting millenials. Sandy, a young, dynamic, bright graduate joins your company after a thorough recruitment process. And on the first day, during her coffee break, she sits at her computer, opens Facebook and… finds that the site is blocked. You get the picture.

Managing the Psychological Contract

Now, the best way of managing the psychological contract is to ensure ongoing open communication, so that people can gradually change their expectations rather than, at some point, experiencing a big breach. Find ways for people to voice their expectations, whether they’re in the form of transactions or relations.

It might also help to understand that psychological contracts tend to be relational and/or transactional. People with different personalities will tend to go towards one or the other. So some people might be looking to receive economic contributions from the organisation, or tangible rewards in return for working beyond their remit and doing long hours, for example.

On the other hand, other people, usually those with highly conscientious personalities or high self-esteem, will form a psychological contract around a social focus, in a more dynamic way and a broader, less tangible focus.

Unfortunately, well, I say unfortunately but it probably is just part of human nature and how we enter into relationships, it seems like employees very often experience contract breach. Pay increases, promotions, the type of work we end up doing, the training or feedback we receive, these are all areas where our expectations might not be met, even if we feel we have delivered our end of the unspoken deal.

Plus, a common cause of breach is a poor quality relationship with the supervisor or manager – which is why this people stuff is so important to you. And all this matters because a breach in the psychological contract can result in behaviour which can be bad for the organisation: in-role performance can decrease, our organisational citizenship behaviour can decrease (that is those times when we go out of our way to help others or the organisation) and there might even be retaliation, some kind of destructive behaviour, however subtle.

Plus (yes, there’s more), a breach of the psychological contract can lead to higher intentions of leaving the job, lower trust levels, lower job satisfaction and lower overall commitment to the organisation.

Mitigating Consequences of the Breach

There are some good news however. Even when the psychological contract is broken (and this is all a perception, remember) there are conditions which lead to less negative consequences, conditions that lead to less negative emotions as a result of the breach. These are: support from the leader, either perceived or real, if there is mutual dependence (so we both know we need each other to do our jobs), and if there is trust, liking and respect.

So although all this might be quite broad and feel abstract, it does highlight the need for ongoing communication and the need to understand what people expect to get in return from what they think they are expected to give. The more we can help them shape the psychological contract as we go along, and the more this perception mirrors reality, the less problems we’ll have in the future. And the more of these conversations we have, the sooner we can notice that the psychological contract has been broken, so we can be on the look out for changes in behaviour in our team.

Now, as this phenomenom is right at the core of being human, regardless of how or where you’re working with others, I hope you can see that it will affect both collocated and remote teams. And as this non-location specific way of working is my speciality, let me highlight something to look out for if you’re making the transition from office-based to virtual team, or some kind of remote setup.

Working in a non-location specific way often comes with an assumption that you will have more autonomy over your work. I know someone who started working for a completely virtual company. He was totally obsessive about working for that company. He loved it. He worked mainly from late morning to late night. Then one day, the team was told they had to start logging on at 9am. Well, that was the beginning of the end. Why? There was no need. They weren’t client facing. They weren’t going into a building that could only be opened till 6pm. You get the picture. As we move to more mobile ways of working, there can well be an expectation that they’re going to be more autonomous. If you have good reasons for this not to be the case, spell them out. Manage expectations.

I’ve almost finished my coffee, so it may be time for me to leave you with a little challenge today – what is your own psychological contract with your organisation? Or with the leaders of the organisation? Have you perceived any breaches lately and if so, are they real, or perceived? And how have those affected your own behaviour? And let’s take the challenge further, do you know what your people expect from you in return for their own hard work?

Recommended Reading

How about the classic by Marcus Buckingham and Curt Coffman, “First, break all the rules.” Based on a large study of managers in organisations carried out by Gallup, the book looks at recruiting and developing talent – and it does so in a slightly provocative way – slightly, because the book is still concerned with a traditional way of managing, but it’s full of stories and case studies and it’s structured in short sharp chapters. It’s the perfect coffee read.

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