Question

What is the “psychological contract”? How does a business model such as this impact the “psychological contract” between organizations and their workers? (300 words）

Answer 1

The term 'psychological contract' refers to individuals’ expectations, beliefs, ambitions and obligations, as perceived by the employer and the worker.

Broadly, the psychological contract may cover the following aspects of the employment relationship:

• Job security.
• Career prospects.
• Training and development.
• Perceived fairness of pay and benefits.
• Manager support.
• Employer’s reputation and impact on the society.

In this changing context, employers should pay attention to the key drivers of the employment deal, to be able to attract and retain key talent. To aid this, the psychological contract offers a way of monitoring employee attitudes and priorities on the dimensions influencing performance.

The psychological contract develops and evolves constantly based on communication, or lack thereof, between the employee and the employer. Promises over promotion or salary increases, for example, may form part of the psychological contract.

Managing expectations is a key behaviour for employers so that they don’t accidentally give employees the wrong perception of action which then doesn’t materialise. Employees should also manage expectations so that, for example, difficult situations or adverse personal circumstances that affect productivity aren’t seen by management as deviant.

The quality of the psychological contract heavily influences how employees behave from day to day. When workers perceive that the contributions they make to the organisation and what they receive back from the employer are balanced, there can be positive outcomes. For example, workers who perform better, demonstrate more extra-role behaviours, and indicate a higher level of commitment to the organisation.