Psychological Contract definition

The psychological contract refers to the unwritten set of expectations of the employment relationship as distinct from the formal, codified employment contract. Taken together, the psychological contract and the employment contract define the employer-employee relationship.

Originally developed by organisational scholar Denise Rousseau, the psychological contract includes informal arrangements, mutual beliefs, common ground and perceptions between the two parties.

The psychological contract develops and evolves constantly based on communication, or lack thereof, between the employee and the employer. Promises over promotion or salary increases, for example, may form part of the psychological contract.

Managing expectations is a key behaviour for employers so that they don’t accidentally give employees the wrong perception of action which then doesn’t materialise. Employees should also manage expectations so that, for example, difficult situations or adverse personal circumstances that affect productivity aren’t seen by management as deviant.

Perceived breaches of the psychological contract can severely damage the relationship between employer and employee, leading to disengagement, reduced productivity and in some cases workplace deviance. Fairness is a significant part of the psychological contract, bound up in equity theory – employees need to perceive that they’re being treated fairly to sustain a healthy psychological contract.

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