A psychological contract, a concept developed in contemporary research by organizational scholar Denise Rousseau,[1] represents the mutual beliefs, perceptions, and informal obligations between an employer and an employee.
It is distinguishable from the formal written contract of employment which, for the most part, only identifies mutual duties and responsibilities in a generalized form.
[4] Psychological contracts are formed by beliefs about exchange agreements and may arise in a large variety of situations that are not necessarily employer-employee.
[6] Parallels are drawn between the psychological contract and social exchange theory because the relationship's worth is defined through a cost-benefit analysis.
This has similarities with relational psychological contracts in terms of common emphasis on commitment and belief in the intrinsic motivations of people who may want to work for something beyond merely monetary reasons.
[5]The content of psychological contracts varies widely depending on several factors including management style, as discussed earlier.
This negotiation is sometimes explicit, e.g. in appraisal or performance review sessions, but it more often takes the form of behavioral action and reaction through which parties explore and draw the boundaries of mutual expectation.
The map followed by the parties is the development of an individualized career path that makes only reasonable demands on the employee, with adequate support from managers and co-workers, for a level of remuneration that is demonstrably fair for a person of that age, educational background, and experience.
[17] Similarities are drawn between the psychological contract and social exchange theory in that the relationship's worth is defined through a cost-benefit analysis.
[19] If managed effectively, the relationship will foster mutual trust between the parties, matching the objectives and commitments of the organization to those of their employees.
The main cause of disappointment tends to be that middle managers are protective of their status and security in the eyes of their superiors, and this can introduce conflicts of interest when they are required to fulfill their obligations to their subordinates.
Perceptions that one's psychological contract has been breached may arise shortly after the employee joins the company or even after years of satisfactory service.
A breach in the contract may occur when the organizational changes are not necessarily beneficial for employees because of extenuating factors such as globalization and fast-changing markets.
Further, if the activities of the organization are perceived as being unjust or immoral, e.g. aggressive downsizing or outsourcing causing significant unemployment, its public reputation and brand image may also be damaged.
[20] Psychological contracts have also been theorized to occur within teams of individuals as they share everyday experiences, are subject to similar team-level promises, and interact collectively with other organizational agents.
[21] Based on the macrosociological perspective of social exchange theory as well as theories on the role of social influence in psychological contract evaluations, shared psychological contract fulfilment (PCF) shapes the relationship between individual PCF and outcomes,[22] as well as facilitate the emergence of specific team states.