Role Of Psychological Contract In Employee Engagement

Psychological contract is broad and quite different from physical contract or document – it represents the notion of ‘relationship’ or ‘trust’ or ‘understanding’ which can exist for one or a number of employees, instead of a tangible piece of paper or legal document which might be different from one employee to another. A basic definition of the Psychological Contract appears in Michael Armstrong’s Handbook of Human Resource Management Practice, where it is defined as an employment relationship that consists of a unique combination of beliefs held by an individual and his/her employer about what they expect of one another.

From the 1990 definition of personnel engagement put forward by William Kahn, as “the harnessing of organization members’ selves to their work roles; in engagement, people employ and express themselves physically, cognitively, and emotionally during role performances. Underpinning this is the idea of psychological contract which is becoming increasingly relevant in work place relationship and the general human behavior in the world of work. Although the concept of psychological contract first emerged in the 1960s, in the work of Chris Argyris and Edgar Schein, many researchers and experts have contributed to the subject from different perspectives.

The world of work has significantly changed and has moved away from the simplistic view of work as an exchange of hours and efforts for wages and salaries. Now, more than ever, it is a lot more dynamic and complicated. This also applies to the nature and implications of the Psychological Contract in employee engagement. Therefore the concept of the Psychological Contract within business, work and employment is also flexible and not easy to measure as we would with other competencies or as we benchmark everyday deliverables or responsibilities.

It is also worthy of note that Psychological Contract is quite fluid because of its dynamic nature with changing workplaces. As a result, it is not fully appreciated across different organizations and practitioners in the field. Despite its dynamic nature, at its core, Psychological Contract is essentially the perception of the relationship between an employer and its employees, and by further extension concerns of mutual expectations of inputs and outcomes.

Elements of Psychological Contract

The concept of Psychological Contract does not have clear cut elements that can be separated into different buckets for ease of management. This obviously is due to the perceptual differences from both the employee and employer, and the intangible nature of the elements that may not be quantified easily using conventional methods. However, common themes emerge around what both the employer and employee perceive or to bring to the relationship as priorities. This could guide management approaches to create a win-win working relationship. The themes are not simplistic as they appear but are greatly influenced by individual differences in perception. Some of the resounding themes in the priorities include:

  • Time Appreciation- from the employer point of view this is looked at from results on hours worked and performance, while the employee often sees it from the view of efforts
  • Bottom-line growth: employees see this from more financial benefits while the employer may see this from the profit point and what sustains the business.
  • Commitment: here there are differences in views also, while the employer may look at it from loyalty to the firm, the employee may see it from activities like training and development, or providing opportunities for professional networking.
  • Innovation: employers often see this from creativity in carrying out different work roles; the employees on the other hand, might view it from appropriate equipment and availability of the right technologies.

Relationship between Psychological Contract and Employee Engagement

Employee Engagement generally is usually described from the point of view of the relationship between an organization and its employees. Research evidence suggests the following relationship between psychological contract on different aspects of employee engagement and its resultant effect on the organization

  • Less employee commitment when the psychological contract is not honored by the employer.
  • Less organizational commitment by employees when their jobs are insecure or they are not treated fairly.
  • Less engagement if there is a breach of the psychological contract.
  • Breach of psychological contract could lead burnout and less engagement.
  • More engagement and commitment among employees, when the psychological contract is seen as relational as against been seen as a transactional psychological contract.

Steps to Using Psychological Contract to drive Employee Engagement and Productivity

Here are some key steps organizations can drill down on, in improving psychological contract and using it to drive employee engagement and productivity

  • Building trust
  • Clear communication across the organization
  • Improving the culture of transparency
  • Providing adequate feedback and recognition however little it may seem.

While we cannot exhaust the discussion on the different issues around psychological contract here, feel free to share your management story with us around this issue. We would be glad to hear from you.



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