Sample Answer
Understanding of Psychological Contracts
Introduction
In today’s workplace, managing relationships between employers and employees goes far beyond the written employment contract. A major part of this relationship is shaped by what is known as the psychological contract. This refers to the unwritten expectations, beliefs, and mutual obligations that exist between an employee and their employer. For HR professionals, understanding psychological contracts is essential because they influence job satisfaction, motivation, retention, and overall workplace culture.
The Concept and Significance of Psychological Contracts
The term psychological contract was first introduced by Argyris (1960) and later developed by Rousseau (1989). It represents the informal, emotional, and perceptual side of the employment relationship. Unlike a legal contract, which defines tangible terms such as pay and working hours, the psychological contract covers intangible expectations like respect, recognition, development opportunities, and fair treatment.
For HR professionals, the psychological contract is significant because it acts as a framework for understanding how employees perceive their relationship with the organisation. When employees feel that their expectations are met, they are more likely to stay committed, perform better, and trust management. However, when they feel that promises have been broken, their morale and productivity often drop. HR must therefore manage and monitor these expectations to maintain a healthy organisational climate.
Origination and Formation of Psychological Contracts
Psychological contracts begin forming as soon as an individual interacts with an organisation , even before employment begins. The recruitment process, interviews, onboarding, and daily management interactions all contribute to shaping an employee’s perception of what they owe to the organisation and what the organisation owes them in return.
For example, if a recruiter promises career growth opportunities, the employee may form an expectation of regular promotions or training. These expectations, though unwritten, become part of the psychological contract. HR professionals play a vital role in managing these perceptions through transparent communication, realistic job previews, and consistent follow-ups.
Major Aspects and Components of Psychological Contracts
Psychological contracts are generally divided into two main types: transactional and relational (Rousseau, 1995).
-
Transactional contracts focus on short-term, specific exchanges such as pay for performance or temporary work arrangements.
-
Relational contracts involve long-term relationships built on trust, loyalty, and personal development.
The main components of a psychological contract include:
-
Mutual obligations – what each party believes they owe to the other.
-
Perceptions and expectations – how each side interprets fairness, effort, and reciprocity.
-
Trust – the emotional foundation that sustains the relationship.
-
Communication – the process through which promises and expectations are clarified.
These components work together to influence motivation, commitment, and performance. HR professionals must ensure that communication and management practices align with these expectations to prevent conflict and disengagement.
Contract Diversity and Breaching
Contract Diversity refers to the variation in psychological contracts across employees or groups. Not all employees hold the same expectations. For example, younger workers may expect flexibility and rapid career progression, while older employees may value job security and stability. HR professionals need to recognise these differences and adapt policies and practices to accommodate a diverse workforce.
Breaching occurs when employees perceive that their employer has failed to meet promised obligations. For instance, if an employee was assured opportunities for promotion but is later overlooked, this can lead to a psychological contract breach. Such breaches often result in lower trust, reduced motivation, absenteeism, and sometimes turnover. HR plays a key role in preventing breaches through honest communication, fair treatment, and consistent follow-through on organisational commitments.
Evolution of Psychological Contracts in the Workplace
Over the years, psychological contracts have evolved due to major shifts in organisational culture, technology, and employment trends. In the past, contracts were more relational, employees expected job security in exchange for loyalty. However, in the modern workplace, especially with the rise of flexible and remote work, contracts have become more transactional and individualised. Employees now value autonomy, work-life balance, and meaningful work.
HR professionals must understand this shift to manage expectations effectively. They must balance organisational goals with employee wellbeing, ensuring that both sides maintain mutual respect and trust.
