Psychological contract and leadership commitment

Traditional contracts evidencing the hiring of a new person are based only on formal aspects – starting with salary, working hours or mode of performance, through assigned duties, and ending with additional arrangements (e.g. regarding no work for competitors). In many respects, however, the contract signed by both parties does not cover all the elements that matter when starting a new job.

First and foremost, there is a lack of agreement on issues that affect the relationship and employee engagement – such as mutual obligations and corresponding work standards. These unwritten expectations (presented and mutually agreed upon, for example, on day 1 of work) are referred to as a psychological contract. Below we explain what exactly this kind of informal “contract” consists of.

What is a psychological contract in an organization?

What is a psychological contract in an organization? The psychological contract in an organization refers to the mutual expectations, obligations and norms that exist between employees and employers. It is an unwritten agreement that defines the obligations that each party takes on and the benefits that both parties expect from each other in the context of the labor relationship.

It covers both formal and informal issues that affect the behavior and motivation of the organization’s employees. It is worth noting that – although it is an arrangement that is not written into the employment contract – it has a huge impact on, among other things, the satisfaction, loyalty and commitment of employed people to their duties. Keep in mind that the psychological contract is flexible and can vary between individual employees, teams or hierarchical levels.

Key elements of a psychological contract

Although the psychological contract is usually individually tailored in terms of individual elements to the requirements of a particular employee (and sometimes the industry or company culture), a few of the most popular issues can be listed, which are usually taken into account:

1. Working conditions – employees expect the employer to provide them with, among other things, the necessary equipment, resources and other tools to carry out their duties.
2. Salary expectations – adjusted to market conditions, fair (also to other employees) or increased due to performance for work or changing economic situation is the basis for any employed person.
3. Opportunities in terms of professional development – an unwritten arrangement is that the employer will support the development of its employees both by investing in them and by responding to requests made.
4. Work-life balance – it is also crucial for employees to separate their private and professional lives and find fulfillment in both areas (which at the same time helps in avoiding professional burnout).
5. Mutual respect and social recognition – every employee expects their management, superiors and co-workers to treat them with respect, fairness and equality (within decision-making processes, non-discrimination, etc.)

Leadership commitment – the other side of the psychological contract

Leadership commitment, in turn, refers to the expectations that supervisors have of their team members and what they pledge to provide (responding, among other things, to the employee requirements described above).

Employers expect, among other things, that employees will carry out assigned duties in pursuit of the goals set by the team or the organization as a whole, for which they will receive a set salary and additional benefits. In response, they should create an environment conducive to effective work, provide appropriate tools and resources, and ensure that employees are supported in carrying out their tasks. Additionally, it is important to, among other things:

• Cared about fairness in the treatment of employees,
• Provided equal access to opportunities for advancement and development,
• They resolved conflicts fairly and transparently,
• Supported the development of employees, enabling them to acquire new skills.

Reciprocity – the basis of the arrangement

Without a doubt, the most important aspect of a psychological contract is reciprocity. Employees expect employers to keep their promises regarding pay, career opportunities, working conditions or respect, while employers are primarily concerned with high productivity, loyalty and commitment to duty on the part of employees.

Such expectations on both sides translate into the demonstrated attitudes, motivation and behavior of employees in the organization. If both parties feel fulfilled within the framework of a common arrangement, their commitment, productivity and job satisfaction increase, which in turn positively affect the performance of the organization as a whole.

Psychological contract – summary

We should state without a doubt that the psychological contract is a crucial element in building lasting relationships, engaging employees as well as maintaining a healthy organizational culture. After all, paying attention to the intangible aspects of employment brings numerous benefits to both employees and the organization as a whole – primarily because understanding and meeting mutual expectations fosters commitment, motivation, job satisfaction and loyalty.

However, it is worth remembering that a psychological contract is not something having a fixed shape. Treat it as a dynamic process that requires constant attention and response to the changing needs of employees and the organization (discovered, for example, through regular dialogues, feedback or monitoring of attitudes and behavior). Only in this way will it ensure that the expected results are achieved.

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