Psychological Contract 2.0? – Amending the psychological contract as the environment of work life changes

The psychological contract was first identified in the 60’s by Chris Argyris and it can be argued that currently there has never been a more critical time to understand the concept due to the implications caused by the COVID-19 pandemic on organisations. The psychological contract is a more informal embodiment of the employer-employee relationship, compared to a codified employee contract. It is built on the perceived promises between the employee and employer.

As we emerge from the COVID-19 pandemic, it is obvious to see that the workplace has changed greatly, and some aspects of remote working may be around for a while. Remote working was introduced quickly and unexpectedly into many workplaces, and this rapid transition may have caused the psychological contract to become more strained as it moved into a virtual environment. In light of this, it is fundamentally important that employers and employees correctly begin to re-establish the new expectations, obligations and ambitions they have of each other, to ensure that inadvertent breaches of the new psychological contract do not occur. After all, a positive psychological contract is fundamental to people performance and engagement and for organisations to bounce forward out this crisis instead of backwards.

This blog will help readers better understand what the psychological contract is, how to avoid – or begin to amend – breaches in the contract and how each employee has different needs and circumstances that need to be recognised in the psychological contract.

Making sense of the psychological contract

The psychological contract is largely made up of perceived promises between the employer and employee: trust is the key basis for the social exchange (Van den Heuvel, Sjoerd & Schalk, 2015). A breach of this unwritten contract happens when it is perceived that employers have not fulfilled promises that the employee has made or vice versa (or an actual breach has occurred). The response to this breach – by both employers and employees – is negative and can lead to reduced commitment, trust and organisational citizenship behaviours as well as increased staff turnover.

COVID-19 and the Psychological Contract

The pandemic has led to unprecedented times. Businesses and employees have been forced to adapt and begin to work in ways that we have previously not done before. Not only are businesses and employees having to manage issues caused by working from home (e.g. technology, collaborating in virtual teams) but other challenges such as childcare, home schooling, isolation and the blurring of boundaries between work life and home life. Issues have also arisen from concerns over job security, personal/career and development. These are sensitive and, if mishandled, can lead to a feeling that the psychological contract has been breached. If this translates into negative changes in attitudes and behaviour, then this could be detrimental to the performance of the business.

It is very difficult for an organisation to retrieve the situation once the employee feels that the psychological contract has been breached. Employee retention is a major concern for businesses in a current job market that is competitive for talented professionals. To bounce forward out of this pandemic will require talented employees to drive the business. If talented employees are not performing and/or are looking at other job opportunities because they are feeling disengaged, then the chances of success will significantly reduce.

Organisations need to understand any changes to the psychological contract arising from remote working and COVID, before attempting to revise it. Good data is key. As a first step, businesses should gather first-hand information on the impact on psychological contract through employee surveys. This information can then be analysed to assess where the issues truly lie and ensure that the responses respond to employee needs. In addition, the data can be used as a basis for benchmarking, to assess whether any changes introduced are having the desired positive effect on the psychological contract.

Pulse surveys are a great place to start. These can take place outside of the traditional annual engagement survey, which provides a once-a-year snapshot and instead allows organisations to measure whatever they want on a regular basis, since they are simpler and easier to administer. The first survey will highlight areas of required change and also gives the organisation a starting point with baseline data. Regular tracking allows the organisation to link improvements to actions taken by comparing present data with the baseline data. This can help ensure the organisation is focusing on the right things.

Next steps?

Effective communication from leaders within the business is essential. Good communication is key in the process of identifying, responding to and developing an action plan to amend the psychological contract. Each employee will have different challenges arising from the pandemic, so businesses need to ensure that the steps they implement are relevant and have the desired impact. For example, not every employee will have a spare room or a home office they can use. Effective communication will enable leaders to identify these differences and prevent employees from feeling forgotten and deserted.

It is important for businesses to understand that in the present virtual environment they may need to step up and to support the needs of the employees by going that ‘extra mile’. There are several different avenues businesses can take to start heading in the direction. Ultimately, the goal should be to develop an employee engagement ecosystem suitable for remote working that promotes productivity and reduces the likelihood of breaching the psychological contract.

1. Key performance indicators (KPIs) should be monitored better and utilised so that line managers are able to make individual adjustments for employees. Some fundamental examples of KPIs that should be monitored include employee absenteeism and employee performance.

2. Businesses can provide extra support to employees through benefits such as Employee Assistance Programmes. Remote working can leave employees feeling disconnected, bored and lonely. This can have detrimental effect on employee wellbeing and organisations should review, amend and recommunicate the services which they offer to employees.

3. Remote group activities are another great way to maintain employee engagement and limit the likelihood of the contract being breach. An example of a remote group activities that can be used within businesses is a virtual ‘walk the world’. Employees can get together online and plan to walk a certain amount of distance for charities of their choice. This can give employees superordinate goals and encourages organisational citizenship behaviours that mitigate the risk of breaching of the psychological contract.

Conclusion & Call to Action: How will you review and amend your psychological contract?

In summary, organisations need to understand the true needs of their employees and how the psychological contract has been impacted by the new virtual environment. This can be done via pulse surveys that provide vital data that businesses can draw on, to make sure they are heading in the right direction.

From there businesses need to develop initiatives to better support employees through the challenges of remote working and begin to review and fill any gaps which may have developed in the psychological contract, as set out above. These initiatives will allow for the development of a new employee engagement ecosystem that can mitigate – or avoid potential breaches of the psychological contract.

Author: Harrison Wood

References

Argenti, P., (2020) Communicating Through the Coronavirus Crisis. Harvard Business Review. https://hbr.org/2020/03/communicating-through-the-coronavirus-crisis

Argyris, C. (1960). Understanding organizational behavior.

CIPD (2020). Coronavirus (COVID-19): Flexible working during the pandemic and beyond.

Jafri, M. H. (2012). Influence of psychological contract breach on organizational citizenship behaviour and trust. Psychological Studies, 57(1), 29-36.

Van den Heuvel, S., Schalk, R., & van Assen, M. A. (2015). Does a well-informed employee have a more positive attitude toward change? The mediating role of psychological contract fulfilment, trust, and perceived need for change. The Journal of Applied Behavioural Science, 51(3), 401-422.