NURTURING TRUST: THE ESSENCE OF THE PSYCHOLOGICAL CONTRACT

 

Employment relations is a critical factor in the HRM process of an organization. “Employment relations (also known as employee relations) – managing the employment relationship and the psychological contract and relating to employees either collectively through trade unions (industrial relations) or individually” (Armstrong, 2023). Therefore, it can say that psychological contract plays a vital role in shaping the employment relationship.

The psychological contract refers to the set of unwritten, implicit expectations, beliefs, and commitments that exist between individuals and their organizations in the context of employment. Unlike a formal, legally binding contract, the psychological contract is based on trust, shared values, and perceived obligations rather than explicit terms and conditions. It influences how individuals interpret their roles, responsibilities, and the overall work environment, shaping their attitudes, behaviors, and levels of engagement within the organization.

Defining psychological contract

A psychological contract is a set of unwritten expectations that exist between individual employees and their employers. It underpins the employment relationship. (Armstrong, 2023)

The perceptions of both parties to the employment relationship, organization and individual, of the reciprocal promises and obligations implied in that relationship. (Guest, 2007)

Origin of the concept of psychological contract

The roots of psychological contact can be seen in the organizational and management theories. The evolution of this concept or framework can be presented as follows using the relevant management theories.

Key Elements/factors of psychological contract

Implicit expectations- These are the unspoken assumptions and expectations that individuals hold about their roles, responsibilities, and the overall work environment. This may include beliefs about job security, career development, work-life balance, and the relationship with the employer.

Mutual beliefs- This includes beliefs about the values, culture, and mission of the organization. Which are shared between employer and the employee. Employees often have expectations regarding how they will be treated, respected, and valued within the organizational context.

Perceived promises- Employees form perceptions about promises made by the organization, whether explicit or implied. These promises may relate to career advancement, training opportunities, or a supportive work environment. Employers, in turn, may have expectations regarding the commitment, effort, and performance of their employees.

Perceived obligations-Both parties in the employment relationship feel a sense of obligation to fulfill certain expectations. Employees may feel obligated to contribute their skills and efforts, while employers may feel obligated to provide a fair and supportive work environment. 

Types of psychological contracts-

As per the research done by scholars 04 main types of psychological contracts can be identifies as follows;

1.    Transactional contracts- more short-term focus, economic and more transactional. Employees in transactional contracts typically expect monetary rewards, job security, and specific job-related benefits in exchange for their skills and efforts. Employers in return expect the employees to work according to their duties.

2.    Relational contracts- characterized by more long term and socio-economic focused which goes beyond economical transactions. In these types of contracts, employees expect career development, learning and growth opportunities and job satisfaction.

3.    Balanced contract- This type combines elements of both transactional and relational contracts, seeking a balance between economic rewards and socio-emotional aspects. Employees expect a fair combination of financial rewards, job security, and opportunities for personal and professional development.

4.    Full-fill contract- This type is characterized by high levels of trust and commitment from both employers and employees. Employees expect extensive opportunities for career development, a positive work environment, and a strong sense of belonging.

Importance of psychological contracts In an organization-

It establishes the expectations, rights, and obligations of both employee and employer. This will create a more productive and positive work environment.

Plays an important role in creating trust between employees and organizations. The organizations who are actively engaged in psychological contracting believed to have more understanding on employees needs and aspirations.

Effective psychological contact may help to improve the level of employee engagement as they are willing to contribute more to organization when their expectations are acknowledged and respected.

It works as a framework for aligning employee and organizational objectives. By proactively managing the psychological contract, HR can reduce the likelihood of misunderstandings, conflicts, and employee dissatisfaction.

Helps for more effective decision making and problem solving as employees are ready to collaborate with the Management. When employees feel that they are actively involved in decision making, they are more likely to contribute their knowledge.

Also, the psychological contract may support the HR to gain success In its role as a strategic partner in the organization. HR needs to align their initiatives with broader organizational goals.

Challenges/Issues in psychological contracts

1.  Discrepancies between what employees expect and what employers provide may lead to dissatisfaction and loss of trust.

2.    The psychological contracts are often implicit and unwritten. This may lead to lack of clarity and misunderstanding between two parties.

3.    Poor communication gaps can also create many misunderstandings and also employees may feel disconnected and uninformed.

4.     Economic challenges, such as recessions or financial crises, may affect an organization's ability to fulfill its commitments.

5.    In a globalized workforce, cultural differences can impact psychological contracts as norms and expectations may vary across different regions.

6.    The rise of remote work and related work concepts bring many issues such as blurred boundaries between work and personal life, reduced visibility and feelings.

7.    Employees increasingly value social and environmental responsibility. Organizations that do not align with these values may face challenges in maintaining a positive psychological contract.

Effectively managing a psychological contract

Effectively managing and fulfilling the psychological contract requires proactive efforts from both employers and employees. Here are strategies for each party.

Employer	Employee
Clearly communicate organizational values, expectations, and policies to employees.	Clearly communicate personal expectations, goals, and concerns with supervisors
Be transparent about the organization's goals, challenges, and decision-making processes.	Take initiative in professional development and seek opportunities for growth
Employee involvement in decision making process	Be adaptable to changes within the organization and demonstrate flexibility.
Training and development opportunities	Invest in continuous learning and skills development.
Recognition and appreciation through reward and recognition programs	Strive for excellence in job performance.
Work-life support balance through policies	Seek and be open to constructive feedback
Provide regular and constructive feedback on employee performance	Advocate for a healthy work-life balance when needed.
Ensuring fair and competitive compensation and benefits	Be a team player and support the success of others.
Promotion and career development	Uphold high ethical standards and professional conduct.
Help employees navigate and adapt to organizational changes.	Take an active role in personal career planning.

Main features of psychological contracts

1.    The psychological contract is DYNAMIC and can change over time. It evolves as individuals and organizations adapt to new circumstances, such as changes in leadership, economic conditions, or shifts in organizational priorities.

2.    TRUST is a foundational element of the psychological contract. Both parties need to trust that the other will fulfill their perceived obligations.

3.    Effective COMMUNICATION is essential for establishing and maintaining a healthy psychological contract. Clear and transparent communication helps to align expectations and prevent misunderstandings

Conclusion

Organizations can improve employee relations and foster a positive work environment with the help of psychological contract. Organizations can improve employee engagement, productivity, and satisfaction through psychological contract. HR specialists are essential to the successful management of psychological contracts, relationship-building, and overall success of the company. Organizations may foster a culture of respect, cooperation, and understanding between employees and HR by. This will result in long term employee-HR relations.

Madusha Perera

2023

References

Armstrong, M., 2023. Armstrong's Handbook of Human Resource Management Practice. 16th ed. London: Kogan Page.

Guest, D., 2007. HRM & the Worker. Towards a new psychological contract, Volume 46, p. 128.

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Stevenson, M., 2018. HR Exchange. [Online]
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Stevenson, M., 2019. HR Exchange. [Online]
Available at: https://www.hrexchangenetwork.com/employee-engagement/articles/psychological-contract-the-pros-and-cons
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