The Unwritten Contract – Psychological Contracts in the Workplace

The Unwritten Contract - Psychological Contracts in the Workplace

The Unwritten Contract - Psychological Contracts in the Workspace

When you hire a person employee you take them on with a written agreement that includes terms of an employment agreement include such items such as pay, time off and extended benefits. But you also take on that person with unspoken agreement, the psychological contract. The psychological contract is what we expect of other people but don’t tell them. 


People have a habit of holding people accountable for things they expect, in spite of the fact that the employee didn’t tell you they expected this of you. In approaching an organization, employees make two classes of decisions: a decision to join and a decision to participate. The decision to join is based is based on a combination of the employment agreement and the psychological contract. These unwritten contracts cannot be overlooked as they form the basis for the individual’s beliefs regarding the terms and conditions of a reciprocal agreement with the organization. 


When an organization deviates from what employees perceive as their expected terms, it breaches the psychological contract, triggering intense emotional responses such as moral outrage, shock, indignation, betrayal, resentment, and anger. This disillusionment stemming from broken psychological contracts can lead to a cascade of negative consequences, including reduced employee job satisfaction, performance, commitment, attendance, discretionary effort, and desire to remain with the organization. Moreover, it fosters increased organizational cynicism. A company staffed by employees who feel deceived or betrayed cannot aspire to be a high-performance organization.


In Organizational Behaviour, The Experimental Approach the author states, The correlation between superior workplaces and enhanced productivity, profitability, and customer satisfaction is evident. A significant factor contributing to this phenomenon is the markedly reduced staff turnover in top-tier workplaces compared to their competitors. (For instance, in a 2001 study published in Fortune, the I00 Best companies exhibited an average staff turnover rate 50 percent lower than their counterparts.)High turnover exacts a considerable toll on enterprises, be they for-profit corporations, nonprofits, or governmental agencies, due to the elevated expenses linked with recruiting and training fresh personnel. Conversely, organizations renowned for being excellent employers tend to attract top-tier talent, thereby enhancing overall staff quality, which in turn bolsters performance. Moreover, an intangible yet crucial element contributing to the superior service and product delivery of exemplary workplaces is employee morale. Elevated morale fosters environments where employees are predisposed to providing superior service, thus yielding enhanced outcomes.


Elements contributing to an organization’s excellence as a workplace:

  • Trust: A significant aspect contributing to workplace satisfaction is the trust between employer and employee.. The employee needs to trust in the management’s believability, competence and integrity. A manager must deliver on promises, or at the very least create an open dialogue when promised cannot be kept. 
  • Accessibility: Senior executives should be perceived as individuals who engage with others rather than remaining secluded in their corner offices on the top floor. A practical method to demonstrate accessibility is by having lunch in the staff room with all employees. This practice serves not only to showcase accessibility but also to foster camaraderie and collaboration among staff members.
  • Answer hard questions: Management needs to be able to answer difficult questions from employees. The focus must be on two-way and not top-down communication. This is so very important because when an organization can make itself available to it’s employees it allows for innovation and problem solving.
  • Respect from employer: Employees need to feel that management respects them. 
  • Showing Recognition: Employees need to feel that their work is recognized and appreciated. 
  • Demonstrating Personal Concern: Those working for you want to be seen and understood as a person and not just as an employee. 


Commitment is fostered by teamwork that builds important social relationships at work, challenging jobs that develop employees and allow them to utilize their talents, and pride in their organization. 

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