The psychological contract – employee wellbeing is in the finer details

We are all familiar with employment contracts; we read them with a fine-tooth comb, i’s are dotted, t’s crossed, and we sign on the dotted line before commencing new employment with fervour.

Yet when it comes to employee happiness in the workplace, it’s not the contract that counts. It’s the daily interactions between employees and management that affect motivation and job satisfaction - the ‘psychological contract.’

What is a psychological contract?

The ‘psychological contract’ was coined in the 1960s but wasn’t developed further until the early 1990s by Denise Rousseau, an American professor of organisational behaviour. The topic is now gaining traction once again in corporate health and wellbeing programmes.

The concept encompasses the intangible, mutual expectations of a working relationship and, in particular, how management interacts and communicates with employees.

These interactions could include a manager’s body language, casual conversations that actually refer to subjects of importance to an employee, and an employee’s perception of tone in texts and emails.

A clear example of the ‘psychological contract’ is a manager flippantly mentioning a promotion or career development opportunity at an after-work function and never formally following through.

This conversation may mean a lot to an employee who wants to succeed in their career and start to cause resentment when it’s not followed up down the track.

Why is the psychological contract important?

If communication between team members and managers is working well, the psychological contract is balanced. Employers are happy, putting in the effort, and working toward clear goals that are mutually beneficial for the business and themselves. Managers who effectively communicate with their team deliver on their promises with clear pathways for career development and progression.

The psychological contract breaks down when expectations based on what has been communicated to them - formally or informally, are not met. The breakdown in the psychological contract often leads to poor motivation and, more often than not, resignation.

Communication between employers and employees is key

A quickfire text message or email, an off-the-cuff remark that isn’t followed up, or differing perceptions of personal interactions between an employee and manager can all lead to an employee feeling undervalued.

Not recognising that employees perceive conversations and tone differently from managers could cause a simple misunderstanding to snowball. Particularly now when remote working is the norm.

The importance of picking up the phone or Zooming face-to-face cannot be underestimated for employee wellbeing and keeping the psychological contract balanced.

How can you integrate the psychological contract into your HR policies and procedures?

Before now, employees might have left a business without any explanation, leaving managers confused and surprised by the resignation.

If the psychological contract is formally recognised, organisations can address employee concerns early on and retain staff who might have left a role they otherwise enjoyed. So, how can you ensure teams are communicating clearly and effectively in the workplace?

The People Practice offers a variety of HR courses, corporate health and wellbeing programmes, and leadership coaching to help you put the psychological contract at the heart of employee communications, including:

HR consultation. We can work with managers to evaluate communication styles, highlight challenges within the organisation, and provide the tools for ensuring the psychological contract remains balanced from hiring to onboarding and beyond.

Individual leadership and mentoring programmes. If there is a communication breakdown, we offer emotional intelligence training to repair the breakdown and identify areas of communication to work on.

Culture and engagement strategy The psychological contract affects employees across all levels of your business. We can work with your HR team to create a culture and engagement strategy that helps all employees understand that the way we communicate affects other people.

Health and wellbeing training. The psychological contract means putting the health and wellbeing of your employees first. At The People Practice, we can help put organisational health and wellbeing programmes in place or provide advice on current wellbeing programmes.

While the term ‘psychological contract’ is relatively new in Australia, the concept is already entrenched in best practice HR policy. Employee health and wellbeing should be front and centre of HR policy within any organisation.

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