Psychological Contracts

Psychological contracts are defined as implicit contracts, unwritten, which are composed of expectations between the employees and the employer. The employee expects compensation and benefits, resources, work-life balance, and interpersonal relationships in exchange for qualitative and good performance results, loyalty and commitment towards the organization, and talent. The psychological contracts are transactional, which refers to the terms of the agreement, and relational, which refers to the emotional and interpersonal relationship.

Today, after passing a stressful work and living environment with Covid 19, employees reasonably expect more flexibility and long-term security from their employees. The unstable economic market worried most employees about their jobs, affecting their life enjoyment, raising their anxiety, and questioning their loyalty towards their employees. This attitude shift changed as many are looking for stability and flexible work arrangements. The employers, in return, expect good performance, the ability to work remotely, with the implications that the space and work-prone conditions can be created at home, and the flexibility to adapt to on-site/office work. The employers suffered during the pandemic by struggling to maintain the high morale of the employees, maintain their resources to diminish layovers, the pressure to maintain a good level of service and keep their clients. So, both sides took a hit.

In a recent study published by Cambridge University Press, entitled “How COVID-19 is shifting psychological contracts within organizations,” the authors explore the changes in expectations of psychological contracts. They point out that psychological contracts are influenced by the employee’s personality, beliefs, values, background, and organizational culture. If there is a breach of the psychological contract, there is a noticeable reduction in job satisfaction, commitment, reduced organizational citizenship behavior, and increased turnover intentions. The employee is hurt at the emotional level, experiencing distrust and anger towards the manager or the organization.

Based on this study, in this age, the employees seek “ideology currency,” which refers to organizational responses that are aligned with their values and beliefs and inclusiveness. One concern that arises with psychological contracts is the hazy contract description. Who exactly is the employee in a relationship with? Their immediate supervisor, the senior leader, or the organization? To my understanding, this relationship is by the organization as a whole, but it is being carried out by the direct manager/supervisor.

To manage psychological contracts more efficiently, organizations should improve communications, enhance leader-member trust relationships, give realistic promises and clear guidelines, provide mentoring and coaching, and sustain flexible work schedules. Overall in our organization, the employees reached out more to clarify things and created a more direct flow of communication, which led to the managers proactively giving more details instructions or clarifications. I also noticed an increased sense of mentorship and guidance in the last year, not just in task-oriented meetings. Lastly, some employees continued to work remotely, especially those with no-so-heavy customer interaction, such as bookkeepers.

The study “How COVID-19 is shifting psychological contracts within organizations” clarified the changes in psychological contracts after the pandemic, but also reinforced some of my speculations regarding these changes. I agree that employees are now looking more for an “ideology currency” because that is a valued cause in the employee-organization relationship, and that can determine the course of the relationship.

Reference:

Lopez, Patricia Denise, and Katarzyna Fuiks. “How COVID-19 is shifting psychological contracts within organizations.” Cambridge University Press, 2021, 45–49.