What psychological contract do you have with your employer?

Alongside your contracted salary and benefits, you have a set of unspoken expectations about what your employer will do for you. If they fail to deliver, the consequences can be dire for everyone involved.

While it’s not a concept that most people are familiar with, researchers have been studying psychological contracts for decades. Among both scholars and HR practitioners, it’s now recognised that employees create mental agreements detailing what they owe their employer and what their employer owes them.

“Imagine you’ve worked for your employer for several years,” Dr Sarah Bankins, a Senior Lecturer at Macquarie Business School and former HR practitioner, says. “You regularly put in unpaid overtime and answer work emails on the weekend. You’re also doing a post-graduate degree, in your own time, to improve your skill set.

“One day, you ask your boss for a couple of days off to complete an important uni project. If they brusquely refuse that request, you’re likely to think the relationship is unfair. Or to put it in more technical terms, the psychological contract you had with your employer will have been breached.”

Up until now, there hasn’t been much research into the longer-term results of workers’ psychological contracts being violated. Bankins set out to rectify that.

Psychological contracting 101

“It’s not surprising people have unspoken deals with employers and react badly when they are breached,” Bankins says. “We all have relationships with individuals and organisations that involve unstated but implicitly understood mutual obligations. We generally don’t respond well when those obligations aren’t met.”

Anyone who has been in the workforce for any length of time has an intuitive sense of what psychological contracts are and what happens when they are breached.

“A common psychological contract is, ‘I’ll be a loyal, hard-working employee and my employer will reward me with pay rises and promotions, or even just recognition that I’m doing a good job,’” Bankins says. “If an expected pay rise or promotion fails to materialise, the employee will feel let down. They will react in some way to what they see as a breach of that contract.”

There are two big limitations of existing psychological contracting research. Firstly, it hasn’t fully examined the process by which psychological contracts evolve. Secondly, it pays insufficient attention to the coping mechanisms employees can make use of when their contracts are breached.

“Someone who misses out on a promotion may resign. Or their employment relationship might deteriorate so much they exit through dismissal,” Bankins says. “But that’s usually not what happens. In most cases, the employment relationship continues. Often employees ‘renegotiate’ their psychological contract and go back to being both productive and content.”

Post-breach coping strategies  

To gain insight into how individuals respond to psychological contract breaches, Bankins worked with 12 companies to survey new staff entering their graduate programs. Four online surveys were sent out over 14 months. Bankins also conducted phone interviews with some of the graduates.

“The sample was made up of employees in Australia and New Zealand, usually in their 20s and entering full-time employment for the first time,” Bankins says. “These workers weren’t expecting immediate pay rises and promotions. But they did have expectations that they would be doing interesting work, that their supervisors would take an interest in their professional development and that they’d be recognised for their work.”

So, what happened when the grads’ expectations were disappointed?

Problem-solving – “This is the approach recommended in career-advice articles – raising an issue with your manager and seeking to resolve it,” Bankins says. “Lots of the grads believed they weren’t being given challenging tasks. Some grads would raise this with their supervisor. Often but not always, their supervisor took action to resolve the issue.”

Self-initiated compensation – “This is related to problem-solving but involved the grad acting independently,” Bankins says. “For instance, one grad felt he was trapped doing pointless tasks for a negligent supervisor. He approached senior colleagues and asked them about their life and work experiences. In his words, he pro-actively set out to ‘find as much learning as I can’.”

The compensatory effect – “This is where one expectation is not fulfilled but this is seen to be compensated for by another expectation being met,” Bankins says. “For instance, a grad might tell themselves, ‘I’m having to navigate a lot of intra-office power struggles but I’m getting to work on interesting projects’. Or ‘I haven’t been able to work in the departments I expected to but I’m learning a lot of skills that could come in handy one day.’”

Future focus – “This is where someone decides they can tolerate an unsatisfactory situation temporarily because they anticipate things improving,” Bankins says. “Grads would tell themselves, ‘I’m not stuck doing this boring work forever. I’m sure my next rotation will be better.’ ”

Support seeking – “Put bluntly, some grads said, ‘The work is crap but the people are great,’ ” Bankins says. “That is, while they may have had to do tedious tasks or deal with difficult managers, they enjoyed the relationships they had with their colleagues. These good relationships can be a huge source of support and advice for grads when they experience contract breaches.”

What employees and employers need to understand

Certain coping mechanisms are likely to lead to better outcomes than others but Bankins points out that choosing the ‘right’ one is complicated. “The boilerplate advice given to employees is that they should aim to problem solve in the first instance. That is, they should raise issues and try to get them resolved because sometimes a manager may not even know the employee thinks a breach has happened, as this type of contract is often unspoken.

“But sometimes issues don’t get resolved. There were grads who asked their supervisor for more challenging work and were rebuffed. In those circumstances, grads biding their time until they could rotate into another department was a sensible and common strategy.”

Bankins advises workers who have their psychological contracts breached to be mindful of what they are thinking and the longer-term consequences of their thoughts.

“If you’re a grad who will have the opportunity to move to another business area soon, a future-focus mindset is a rational response,” she says. “But if you’ve been stuck in a dead-end job for five years and your situation isn’t changing, considering looking for a new role makes sense rather than believing your working conditions will magically improve at some future date.”

It might be assumed that most employers think it’s too hard to manage employees’ psychological contract breaches. But Bankins suggests that just having conversations with staff can avoid potentially costly frustrations on both sides.

“It’s often easy to circumvent breaches,” she says. “For example, a business owner or line manager can explain to a staffer that challenging economic conditions mean they can’t give them a pay rise this year. They can then reassure the staffer that they value their efforts and plan on rewarding them when things pick up, or they can offer them some other opportunities in the meantime.

“Taking a few minutes to have that conversation can avoid a situation where they either have to manage a now-disgruntled employee or absorb significant costs replacing them if they leave.”