Episode D.017 Upgrade the Psychological Contract

Psychological Contract
A Psychological Contract simply stated is the understandings, beliefs and commitments that exist between an employee and employer. Although it is unwritten and intangible, it represents the mutual expectations that are felt. It is different from a written employment contract because it is less rigid and formalized. The psychological contract is fundamentally a description of the employment relationship as perceived by each party. You will want to Upgrade it to improve employee engagement. 

Types of Psychological Contracts
Depending on who you talk to, there are two, four or six types of psychological contracts. Basically they are viewed as either Transactional or Relational but they can also be broken down into transactional, relational, transitional and balanced.


Violations of the Psychological Contract
Psychological Contract violation occurs where there is “contract outcome discrepancy”  or “reneging on promises” whether intentional or unintentional and real or perceived. Breaches of the psychological contract can lead to an employee becoming disengaged with their job and, if not resolved, can continue to cause demotivated employees that further results in a decline in performance.

​In more serious cases, the entire relationship can break down and cause the employee to exhibit negative and sometimes deliberately malicious or deviant behavior. 

For example, if there has always been an unwritten rule that staff can come in a bit late to work but then one day you decide to reprimand or punish this behavior, then this can cause resentment on the part of the employee as they will feel the psychological contract has been dishonored. 

The Upgrade Psychological Contract
Fairness and equity are important aspects of the psychological contract. They need to be maintained in order to sustain a robust and healthy psychological contract. 

It is the employer’s responsibility to try to maintain the employment relationship and to spot any deterioration or change in the psychological contract. It is easier to maintain the psychological contract than to repair it following a breach. 

Now is a great time to upgrade your existing psychological contact as many businesses begin to open their doors again and bring employees back to work or continue with remote work at home policies. Here are some suggestions for ways to upgrade your psychological contract:

1. ​Focus on Building trust. The owner-employee relationship is key to the health of the psychological contract and requires effort on the business owner’s part. 
2. Great Communication is one of the best ways to build trust. 
3. Practicing transparency. You might not know all the answers. It’s okay to open and honest as you and your employees work to find balance and rhythm in your new working conditions. 
4. Offer Feedback and recognition. Employees want to do good work. Ensure you are giving them feedback on what you like and what they could improve. Consider starting or upgrading an existing employee recognition program. 
5. Every employee is not created equal. Aligning their work with strengths will yield more productivity and motivation to exceed standards.