Managing the Psychological Contract at Work

At Beyond Theory our belief is that work is a force for good. We believe that work provides people with an income, a feeling of social inclusion and a sense of purpose. We also believe that people have two types of contract with their employer – the written, legal contract that specifies terms and conditions etc. and an unwritten contract which is all about how an employee feels about their employer. We refer to the unwritten contract as the psychological contract. 

What can go wrong if the psychological contract is not properly managed? 

As with all contracts, these need to be properly managed so both parties are satisfied and happy. When things don’t work out between employer and employee, it is the psychological contract that goes through the shredder well before the written one does. This is evidenced by drops in performance and wellbeing not to mention increasing the risk of poor conduct or even misconduct.

Managing the written, legal contract is straightforward to understand. This is about performance, meeting standards of service etc. (i.e. capability) and time keeping, behaviours etc. (i.e. conduct). However, how people are managed is very much the psychological contract. Mis-managing the psychological contract damages feelings of trust, motivation and employee engagement. Managing the psychological contract effectively increases feelings of loyalty, discretionary effort and a sense of well-being. It’s well known that higher employee engagement increases productivity and levels of customer service. In summary, look after your people and they’ll take care of your business.

So what is needed to manage the psychological contract at work?

Managing the psychological contract is easier said than done. As pressures to get more from less increase, customers demand quicker, faster products and services and globalisation means greater competition, the temptation for businesses just to focus on the bottom line remains real. Also, in an environment of low unemployment levels people can, within reason, be more selective about their work. The expectations of employees have increased too. It’s no surprise that If you are an employer you may be feeling squeezed.

So, if managing the psychological contract is so important then how do we do this? We recommend developing your own employee engagement strategy to create the right environment for people, at all levels, to feel motivated to be at their best. Having a vision where people feel motivated to come to work each day, enjoy their work which is meaningful and purposeful and returning home feeling satisfied about their accomplishments. 

Creating an employee engagement strategy

Creating an employee engagement strategy takes time as well as planning. Getting started can be tricky. However, we recommend that you consider four key areas to focus upon and let your plan develop. We refer to these four areas as the four enablers of employee engagement as defined by Engage for Success:

• Creating your organisation’s strategic narrative
• Having engaging managers
• Giving employees a voice
• Living the organisation’s values

Here’s more detail on each of the enablers:

Creating your organisation’s strategic narrative

For people to feel emotionally engaged with your company they need to feel they understand your business – i.e. its history, where it is now and, most importantly, where it is heading. Adult to adult conversations develop common understanding – essential in any contract. Make sure your people are regularly briefed on what’s happening and what the future plans are. Use stories to tell of successes and paint a realistic picture of the future, asking them to buy in.

Having engaging managers

Your managers are the day to day touch points for your employees. How they behave is critical to managing the psychological contract. Skill up your managers to both lead and manage their people. Encourage your managers to give direction and provide support that their team members will be craving. Train them to be coaches so they can help people improve rather than simply reach for the disciplinary procedures. Enable your managers to lead people through change, so they influence in the most effective way. Let your managers become situational leaders, dealing with people and issues in the most appropriate way instead of using the broad brush, one style fits all approach.

Giving employees a voice

This goes way beyond any surveys that you may be using. Employee voice is very much about creating an environment where people can feel free to speak up, raise issues and offer solutions. Very often employees will be facing issues and/or having solutions that mangers haven’t even consider. Get your managers to involve their teams in problem solving and sharing best practice. If you use employee surveys then don’t just gather the feedback. Instead create groups to work on improvements and publish a ‘you said, we did’ campaign. Psychological contracts are built on trust where actions speak louder than words.

Living the organisational values

This requires integrity. Living the values is required at all levels. Role modelling the behaviours that are aligned to your organisational values is critical. Failure to do so will confine the psychological contract to the bin. It’s not enough to state your values – they have to be lived. But make sure people properly understand them and how they translate into day to day behaviours. Reward those employees who live and promote the organisational values. Deal with those who do not in a way that is congruent with your values. Fairness, or rather lack of fairness, is a deal breaker when it comes to building, developing and maintaining the psychological contract.

Your employee engagement strategy will always be ongoing. It will need to be a rolling programme of events, communication and training. Just like any other aspect of your business it will be a journey rather than a destination. The same applies to how your employees will be feeling too. It will be unrealistic to expect that every employee will be highly engaged every day. However, paying attention to and proactively managing the psychological contract will increase levels of employee engagement. Ignoring the psychological contract will erode trust and levels of employee engagement, productivity and customer service will fall. 

Want more information on employee engagement?

Go our Creating an Employee Engagement Strategy page or Request Information below. 

Paul Beesley
Director & Senior Consultant, Beyond Theory