Article: The psychological contract: a highway to enhancing employee experience

Strategic HR

The psychological contract: a highway to enhancing employee experience

Unlocking the potential that lies hidden in the deeper, mutual, informal, unspoken and dynamic expectations of both employer and employee, is key to designing interventions aimed at enhancing employee experience.
The psychological contract: a highway to enhancing employee experience

The psychological contract is mutual relationship between an employer and employee – specifically, the unwritten set of mutual expectations of the employment relationship. It is distinct from the formal, coded and published employment contract. While the theory first appeared in the 1960s (Chris Argyris and Edgar Schein), it is highly relevant to organizations even today

The debate and efforts have moved in recent times to `employee experience’ versus `engagement’. As tools and technology provide the enhanced physical experience, it will need to be based on a deeper study of the psychological contract. Design thinking solutions around these set of mutual expectations and the feasibility/ extent of addressing them is key to the enhancing the employee experience. 

Let’s take a look at some key characteristics of the psychological contract

(a) Mutuality: Expectations exist on both sides, the employee as well as the employer 

(b) Informality: These are unwritten and often unspoken expectations and thus can be likened to an iceberg. The formal employment contract constitutes the top visible portion, while several unspoken expectations lay underneath. It may consist of generation (X, Y, Z) related/ cultural/ gender sensitive aspects of work-life. 

(c) Dynamic: changes with time: Expectations of both, the organization as well as employees change over a period of time. Expectations of Gen X were long-term employment, opportunities to learn on the job and tenure based growth, while organizations expected loyalty and commitment. Gen Y expected meaningful work, mobility, quick rewards and a mid-term contract while the organization expected agility, ownership, and increased accountability. Gen X is increasingly looking towards professions in line with personal interest areas, are more entrepreneurial, expect a vivacious environment and the contract with the organization is transactional. Organizations meanwhile are expected increasing levels of technological prowess, agility and value creation from all employees. 

Employee engagemet

The significance of strategic employer branding to the psychological contract

The organization’s employer brand has several implications on the psychological contract. The employer brand being the unique employee value proposition, it is the key reason why individuals choose to work with a given organization and not another. It is also one of the determinants of employee stickiness. 

Implicitly and/or explicitly, the employer brand creates a set of expectations at an individual, group as well as societal level. When these expectations are honored through the years and through vagaries of business, the organization earns the respect of the employees within and the potential talent outside as well. The brand needs to be crafted with care so as to evolve with the fiercely changing competition as well as meet the changing workforce needs. 

Shared responsibility: When organizations focus only on the recruitment and onboarding dimensions of their employer branding efforts, they run the risk of disillusionment through later stages of the employee lifecycle. So, if the brand promise at the time of hiring is that of an organization which offers tremendous growth opportunities, and yet later puts stiff conditions on the availability of those opportunities, the result is likely to be a disgruntled workforce. Similarly, if the organization signs up to a robust ethics code, its financial practices, customer management practices too need to adhere to the code, and not just people management practices. Thus, management of the employer brand as well as the informal, unspoken expectations built around it amongst stakeholders becomes a shared responsibility amongst the various functions of the organization. 

Gen X, Y and Z and the psychological contract

Top employer brands invest millions in culture building in a deliberate and mindful manner. Periodic adjustment of sails and investing in initiatives that support and encourage mindset shifts makes sound business sense and also helps employees keep pace with the change. It is as much the responsibility of the organization to support and enable its employees (especially Gen Z) to make the transition, as it is important for individuals to align, up-grade, up-skill and address the new business and customer requirements. 

Core values may not change in themselves but may need to be re-interpreted in order to remain contemporary. Reinterpretation benefits both, employees and the organization; in terms of what behaviors would continue to be recognized and rewarded and which would not. Let’s take the example of the `old’ value of commitment and loyalty. If the organization seeks to strengthen a meritocracy based culture, in the new avatar, commitment and loyalty would be valued only if accompanied by up-skilling with agility and resulting in value creation. A clear communication on what constitutes meritocracy, the desired competencies at various roles and levels, resources available to employees to upgrade skills, the methodology for measurement of results, as well as the rewards/impact of achievement and would go a long way in honoring the psychological contract for all generations.  For Gen X who may have seen longer cycle times in technological change, and more focus on tenure for growing to higher levels, this would serve as a heads-up as well as a directional. For Gen Y and Z, it re-iterates the need for constant up-gradation, innovation, and a value creation mindset. 

Gen X is also the generation most highly impacted by layoffs and the modern transactional nature of employment contracts. While some organizations abruptly announce the termination of the contract, many top employers take a moderate and rational approach, with better results i.e lesser litigation, smooth exit management and minimal disruption to operations. In doing so, they have addressed the unwritten expectations of a humane exit experience. The organization would have thus fulfilled the psychological contract with not only Gen X, but also with Gen Y and Z in that it promotes a meritocratic and yet humane culture.

In conclusion

In the quest for building a superlative employee experience, it is imperative for leadership to be responsive to not only overtly stated employee expectations but also the deeper, culturally sensitive, unwritten and unspoken ones. Continual dialogue to discover and address these expectations lends authenticity and relevance to the interventions designed for the purpose. It earns respect and trust from employees and strengthens the employer brand from within.

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Topics: Strategic HR, Employee Relations

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