Looking for Better Workforce Outcomes? Start With Psychological Contracts

“Find the right questions. You don’t invent the answers, you reveal the answers.” – Jonas Salk

What happens when failures and mistakes happen in your organization? Is the first reaction for people to create distance so as to not encounter blame? To what degree do people feel comfortable bringing up difficult issues in meetings? Is your organization telling people to not surface uncomfortable truths and experiences?

Companies are constantly evolving their workforce strategies to keep pace with business needs. Not only are all kinds of staff—contractors, temporary, part-time, and full-time—essential for business outcomes, they also power ways of working, a resilient culture, resizing, and the future of work. This is especially true during challenging, unusual, and uncertain times, particularly as virtual and remote working become the norm. To transform intentionally and successfully, organizations must begin to get beneath standard engagement, attrition, and retention data and instead focus on their psychological contracts with employees.

What are psychological contracts?

Different from traditional, formal and written policies, psychological contracts are implicit, informal working agreements that develop between employers and employees. They evolve through the mutual exchange of expectations, promises, and behaviors and can vary slightly between groups of employees within an organization. When psychological contracts are solid and strong, and expectations are fulfilled, they lead to positive internal and external business outcomes (e.g., increased organizational commitment, retention, and customer experience). When psychological contracts are weak, and expectations are unmet or violated, they lead to detrimental outcomes, both in and outside of the business (e.g., decreased organizational commitment, retention, and customer experience). And they usually have a deep impact on employee engagement and the overall employee experience.

Commitments around promotion, salary increases, or training and development—to offer a few examples—can be part of a psychological contract. Other examples include the type of work, roles, and responsibilities presented to employees. And even feedback and performance review processes can all be part of a psychological contract.

Despite dedicated people, money, and time, many organizations continue to struggle with employee engagement, trust, psychological safety, interpersonal communication, and other core people-related metrics that have very tangible ROI. Measuring these seemingly intangible factors so that you can shift, transform, and respond to the external environment drives business success. So then, where is the disconnect? How can so much attention be given to foundational business needs with a limited or non-existent move of the proverbial needle?

Answering workforce questions with psychological contracts

Much like a doctor discovering an underlying condition, organizations need to be able to ask the right questions to get to the right diagnosis. One reason many organizations fail to get effective outcomes from their employees comes down to resources. Money and time are dedicated to treating symptoms and not the core problem(s). Here are three steps you can take to use psychological contracts for better workforce outcomes.

  1. Apply a systems-thinking view. The ways in which psychological contracts play out in an organization have a significant impact on the dynamics of that organization’s entire workforce. Due to the complexity of individual, group, and organizational interactions, this challenge calls for a systems-thinking view. Systems thinking is the practice of considering how various elements (systems) interact and influence one another within a larger, macro-system.
  2. Tap into existing infrastructure. The incredibly exciting aspect of focusing on psychological contracts, though, is that it does not require new technology, surveys, or tools for gathering feedback. Instead, structure current and existing data-gathering mechanisms in a way that assesses the strength of psychological contracts with employees. The result? Invaluable workforce information that will not only drive engagement and retention, but also organizational commitment, motivation, and resiliency. In other words, by designing and weaving the right questions into existing platforms, your company can get the information it needs to truly transform for success.
  3. Acknowledge the two-way exchange. Psychological contracts are a two-way exchange. With influencing factors in and outside the organization, psychological contracts are innately prone to ongoing modification. Ultimately, this makes it much more important that leaders pay attention to psychological contracts and uphold their integrity. To reinforce this two-way exchange, actively inquire about the needs and desires that contribute to this ongoing dialogue.  A simple way to check this is the Excess-Deficit check where leaders proactively search for “What is present that may not be necessary,” and “What is missing that may need to be present.”

Psychological Contracts

Organizations provide the working environment, prompt the hiring process, and define the talent needs for their employees. Applying a psychological contracting lens to these essential activities can unlock your workforce’s potential through improved employee engagement, trust, psychological safety, and more. You can monitor this process more intentionally by applying a systems view, making the most of your current infrastructure, and acknowledging these contracts as a two-way exchange. Soon enough, you’ll find answers to age-old questions like, “Why aren’t employees optimally engaged?” or, “Why is the attrition rate higher than desired?” It all comes down to psychological contracts.