Psychological Contract

The Role of the Psychological Contract in the Contemporary Workplace – An Interview with Prof. Denise M. Rousseau

  • What is the psychological contract?

  • How can we measure it?

  • The contract and remote working

  • Solutions

  • Violations of the psychological contract

  • Employees responses to violation

  • The future of the psychological contract

After an unusually early morning, the eminent work psychologist Denise M. Rousseau is in her Pittsburgh office awaiting a phone call from England. Rousseau, now Professor of Organizational Behavior at Carnegie Mellon University, has had an enduring interest in
the often complex relationships that exist between employees and their  organizations. She is today participating in an interview to discuss aspects of  these working relationships and to explore the concept of the ‘psychological contract’.

So what was the raison d’être or impetus that prompted Rousseau to enter the field of organizational behavior and the continuing fascination with the psychological contract?

‘my motive was to let workers speak’

Coming from a blue-collar background, Rousseau has always had a strong interest in the dynamics of the employment relationship from the worker’s vantage point. She was struck by the biased nature of the academic literature and its focus on a management’s perspective, rather than that of the employee.

The conception of the psychological contract was not instantaneous, however. It was not until the middle 1980’s, during the period of substantial organizational downsizing, that Rousseau, after more than 12 years in the field, began to associate the mistreatment of employees with a violation of an agreement. It was at this point that ‘the light bulb came on’ and she began to think that perhaps there was almost a contract-like mental model of how people thought about their work. The downsizing, delayering, and other changes that have occurred in many organizations have meant that the deal, or psychological contract, that many employees felt they had with their organization has been broken.

  • The Psychological Contract Defined

‘if we can define the construct, … we can operationalize it in some way, shape or form’

When discussing complex issues or concepts it is often good practice to establish a definition of terms. Many text books and papers have tried to define the psychological contract, with varying degrees of success. Rousseau tries to keep her definition brief and minimalist, appreciating the benefits of parsimony. To summarize, she sees the psychological contract at work today as ‘an individual’s subjective belief in the reciprocal nature of the exchange relationship between himself/herself and a third party, based on the promises made or implied in their interactions’.

  • Measurement of the Concept

Rousseau has also tried to quantify aspects of the psychological contract with the formulation of the Psychological Contract Inventory (PCI). The PCI is designed to act as an assessment tool for determining the generalizable content of the psychological contract in organizational research. It also functions as a self-scoring appraisal to support executive and professional development. Although the measure goes some way to make accessible the experiences employees have of a psychological contract, it is by no means a definitive measure. Rousseau accepts that there will always be ‘local, unique and personal’ aspects of a contract which can not be standardized. They may be coded, but that would only render a qualitative type of data. Rousseau is a believer in incorporating both types of data into an analysis and, reiterating the work of Morey & Luthans (1984), delineated measures as being either etic or emic in focus, i.e. measures that are generalisable or idiosyncratic, respectively, across situations. [See Appendix I below for definitions of etic and emic]

The reason for two types of measure?   ‘It’s because it is so rich, and there are so many dimensions one can tap’

  • Remote Working

When one begins to discuss modern or contemporary working practices, the idea of remote working often comes to mind. When asked what impact remote working and the development of IT will have on the psychological contract, Rousseau leapt to the opportunity to discuss something she, herself, teaches in class at Carnegie Mellon. [See Appendix II below for more information on Contract Theory]

‘I actually teach a course on managing in the virtual environment’

She feels that in distributed environments there exists an interesting interplay between workers, and there becomes, not surprisingly, a much greater need for explicit and continuous communication. However, although it may be difficult at first, remote workers do still create strong and intense relationships with each other, even at a distance.

‘there becomes a need for much greater explicitness in communication because you don’t have the peripheral cues that people use to fill in the blanks’

The development of working relationships in a remote environment is strengthened if familiarity existed before the workers became remote. That is, if people have a priori knowledge of their colleagues, despite being distant, they can still compensate for the lack of the usual face-to-face social cues. In fact, Rousseau noted that one is much more likely to witness pro-social behavior, citizenship activities and enhanced support amongst a distributed workforce when workers have this prior knowledge of each other.

‘and it’s almost indistinguishable from the kinds of social support that you’d see in a group that was face-to-face’

Although the lack of social cues can be overcome to some extent, remote working can have a definite impact on a worker’s loyalty to, and identification with, their employing organization or department. The likelihood that an organization is able to effectively make its overall identity and corporate nature salient to a remote worker is pretty slim, comments Rousseau. However, other relationships are strengthened; local task or workgroups and even client relations become increasingly significant and stronger bonds are formed. Furthermore, workers identifications and bonds become more idiosyncratic and specific to each individual. After all, remote workers often do not have their peers around to exchange feelings on personal work issues. This raises the issue of competing cues or signals when ties with clients become equal to or even greater than those links felt with one’s organization.

‘what I find so fascinating is how people manage multiple attachments’

The fact that, in the changing workplace, organizations are not placing such great expectations of loyalty on their employees as in the past goes some way to account for such observations. In the days when a job was for life and employees formed strong loyalties to their employing organizations, the employee-employer relationship was almost like a family tie. This type of job situation often displays a ‘relational’ style of contract. However, many contracts are now more like ‘transactions’ with little or no emotional ties. The requirements of codes of conduct are also much leaner, states Rousseau. [See Appendix II below for more information on Transactional and Relational terms]

‘it’s all task-related and less interpersonally related now’

  • Solutions

Almost every organizational problem has a solution, and this is no exception. There are various steps an organization can take to rectify the negative consequences of remote working. The first step is to consider what happens when people become ‘virtual’ or remote. The attachment issues mentioned above are obvious implications and can be addressed by actively building familiarity amongst workers. Some organizations, especially the larger ones, make a point of gathering people together on a regular basis to build face-to-face connections and attachments and also create a sense of identity to associate oneself with. Of course, this is not always practical as workers may be in different countries or always on the move (e.g. travelling salesmen).

‘think about giving them developmental feedback, aside from just task feedback’

A second casualty of remote working is the development of employees. The literature has shown that remote workers are much less on the minds of management when training and development are being planned. Rousseau suggests that managers of remote workers need to remember to give developmental feedback as well as just task feedback. It’s natural to praise a worker when they have completed a task well or closed an important deal. What is often neglected is the continuous feedback, both positive and negative, and development of the remote employee.

Savvy organizations, as Rousseau puts it, take great care in maintaining good relationships with remote workers, knowing how fragile and difficult such relationships can be. These organizations carefully factor distributed workers into their training programs, reinforcing the delicate bonds and preventing issues that arise when workers are ‘out of sight, out of mind’.

‘one of the biggest issues is the erosion of trust in distributed groups.

Because of the lack of ‘peripheral cues’ in a distributed workplace, workers are often unable to gain a full understanding of the dynamics of their team or taskgroup. Workers may find themselves misinterpreting situations due to the failure to fully understand the motives or intentions of their colleagues. Consequently, there is a need for organizations to train people with their peers and colleagues if they are to become remote. This initial contact and relationship building aids later communication and assists workers to ‘fill in the blanks’ more positively.

‘it is more important to train people together periodically when they’re remote than it is for people who are regularly together’

There are sound business arguments for bringing remote workers back into the core organization, irrespective of the desire to build working relationships, trust and communication. In fact, some organizations are doing it both ways and are sending away workers who regularly work together. Sending core staff out for training and bringing in remote workers can serve to bring in new ideas and working practices; remote workers bring in their outside perspectives and core staff are sent away for training to gain new insight.

  • Violations

Even with the best intentions from both the employer and employee, relationships can break down and the psychological contract can be violated. Violation of the contract is a perceived failure to comply with its terms and conditions, and can be potentially damaging to all parties involved.  [See Appendix III below for more information on Violations]

‘violations have gone down … people are more realistic and more is communicated’

Although it may appear to some of us that we are now working in a cutthroat climate of employment, Rousseau does not believe that violations to the psychological contract are increasing. In fact, she believes exactly the opposite. Because performance requirements are now more clearly specified by employers and the fact that employees are increasingly holding more realistic expectations of their employing organization, violations may in fact be decreasing.

‘the hallmark is more explicit specification of performance requirements and better managed expectations’

A new trend, both with the increasingly distributed nature of work and the shift from strong relational ties to more hybrid types of employment relationship, is the existence of ‘idiosyncratic deals’ between employees and their employers. These deals demonstrate that employees, who are perhaps performing exactly the same role as each other, all have a slightly different set of priorities a when it comes to the terms of their psychological contract at work.  [See Appendix IVbelow for more information on Idiosyncratic Deals]

  • Reactions to Violation

A major problem in contract violation is understanding why some events, seemingly at odds with a contract, do not provoke adverse reactions, but other events that appear innocuous engender outrage and anger. How people respond to violation is largely a function of attributions made regarding the violator’s motives, the behavior of the violator, and the scope of losses incurred.   [See Appendix III below for more information on Violations]

Working in a distributed environment can have an influence on an employees perceptions of a violation and their consequent reactions. Because the perception of a violation is often dependant on social cues and the reactions of others in the setting, remote workers are potentially less prone to feel ‘violated’. Working in a remote setting demands greater explicitness of communication and hence less potential for violation to occur.

‘we see an emphasis placed on the history of the relationship in a remote working environment’

When presented with the hypothesis that the proliferation of remote working may create an additional dimension of violation reaction to the current active-passive/constructive-destructive framework, Rousseau was intrigued and accepted that reactions could indeed take different forms in a distributed environment. It is also more difficult to monitor such disaffection from remote workers as feedback tends to be thinner.

‘the feedback loop will be different … social cues are different, monitoring is different’

It is important, therefore, to continuously reinforce the bonds between workers and managers, maintaining a constant feedback loop amongst employees. After all, without clear feedback and communication there is no way for an employee to fully comprehend the underlying intentions of their employers.

  • The Future of the Psychological Contract

Rousseau believes that too much time has been spent examining the violation of the psychological contract and that research into fulfilment of the contract has been neglected. Specifically, the future of research will include trying to identify and understand those factors which give rise to ‘mutuality’, the agreement of commitments between employer and employee. Contemporary researchers and interested parties need to appreciate the fact that there is already a fair amount of mutuality in the workplace. Employees and managers do agree on more things then on which they disagree with regard to the nature of the terms of the contract and the commitment involved. Future research will hopefully shed light on the factors that account for this, albeit partial, mutuality.

‘I’d like to have a better understanding of what the cycle of exchange is … I want to understand what people explicitly feel themselves committed to’

  • Conclusion

The psychological contract’s versatility suggests that it, along with related constructs such as violation and change, has a central role to play in organizational behavior by better specifying the dynamics of the employment relationship. The psychological contract is clearly an important ingredient in the business relationship between employers and employees and can be a powerful determinant of workplace behavior and attitudes. It provides a potentially fruitful construct with which to make sense of and explore employment relationships.

Such contracts are subject to change and development throughout the duration of employment but, due to their subjective nature, are potentially prone to violation by both sides. Organizations trying to improve quality or efficiency of employees’ work by the use of industrial/organizational psychology can gain a great deal when taking into consideration the psychological contract and its abundant implications.

Appendix I – Emic & Etic Measures, A Distinction

Etic perspectives address generalizable features of a psychological contract, whereas emic measures focus on local and idiosyncratic content. Assessments using standardized scales to assess the extent to which workers experience a ‘transactional’ or ‘relational’ arrangement with their employer generally are etic in nature, applying a common framework across a variety of situations. In contrast, ethnographic interviews probing the subjective experiences of workers, with no a priori framework to test, typically are emic in nature. Emic assessments provide a qualitative description of the idiosyncratic meaning ascribed to employment.

from Rousseau, D.M. (2000). ‘Psychological Contract Inventory – Technical Report’.

Appendix II – 2×2 Model of the Psychological Contract, A Framework of Terms

Transactional and relational terms are fundamental components of most employment contracts. Rousseau proposed a 2×2 model of contemporary psychological contracts which includes the transactional and relational contracts mentioned above.

The concept of the psychological contract may be differentiated and categorized as being transactional or relational in nature in order to clarify an otherwise perplexing theory.

  • Transactional terms are usually short-term and performance related, involving set monetary exchanges. A good example of such a contract would be temporary secretarial work; commitment and development of skills are negligible and a specific wage rate and period of employment is agreed on.

  • Relational contracts are based on emotional involvement as well as merely financial reward. They tend to be far more long-term and involve significant investment by both the employer and employee. Relational contracts are present in occupations that involve extensive training, such as law.

The two proposed factors of the model are time frame and performance requirements:

  • ‘Time frame’ refers to the duration of the employment relationship

  • ‘Performance requirements’ are the prerequisites of performance as a condition of employment

It is widely believed that the longer a relationship continues between employer and employee, the greater the involvement between the two parties gets fostering feelings of trust, loyalty and mutual support. The 2×2 model creates a framework of four possible types of contract – not only transactional (short term, specified performance) and relational (long-term, non-specified performance) as considered above, but transitional (short-term, non specified performance) and balanced (long-term, specified performance) contracts are also present.

The transitional contract is usually present when elements of an organization change, such as during a merger or acquisition, causing uncertainty, distrust and instability in the workforce along with the possibility of high turnover. A practical transactional contract is often required to restore even a degree of trust between employees and employer. Conversely, a balanced contract is the hybrid of the relational and transactional contracts where shared values and commitments are present alongside the need to attain specific business goals (see Rousseau, 1995).

Although transitional and balanced contracts have previously been less prevalent, as the economic climate changes they are becoming increasingly widespread. Changes in technology and the emergence of the ‘flexible firm’ have significantly changed the nature of employer-employee relationships. This model, proposed by Rousseau, reduces the dichotomous nature previously associated with psychological contracts and, instead of appearing to be mutually exclusive, transactional and relational terms are now seen to interact with each other to a far greater extent.

Appendix III – When the Psychological Contract is Broken, The Causes of and Responses to Violations

Violations can take many forms:

  • Inadvertent violation occurs when both parties are willing and able to keep their part of the bargain, but conflicting interpretations lead one party to act in a manner at odds with the understanding of the other. An example of such a violation would be two people who misconstrue the time of a meeting and therefore fail their commitment to attend.

  • Disruption to the contract occurs when circumstances make it impossible for one or both parties to satisfy their part of the contract, despite the fact that they are willing to do so. For example, unexpected heavy traffic could prevent an employee from arriving at work on time.

  • Breach of contract occurs when one individual, who is capable of implementing the contract, refuses to do so and thereby intentionally creates a violation.

Rousseau proposes that it is the interpretationof the cause or source of these types of violation which influences how the violation is experienced and consequently how the victims behave in response.

Reactions to Violation:

Many employees feel that their psychological contracts have been violated in some way by their employer at some time. Because contracts are continually being created and sustained, organizations and employees often make accommodations for many inadvertent violations. Misunderstandings may be ignored and some remedied by rationalization. However, when a violation takes a more serious form, such as a breach of promise and trust, feelings of betrayal can occur.

According to Rousseau, there are four main courses of action an individual may take in response to a perceived violation which can be divided into two dimensions: active-passive and constructive-destructive.

  • Exit is often the last resort when dealing with contract violations and refers to voluntary termination of the violated relationship. Employers can terminate workers whose performance does not meet standards, and workers can quit an untrustworthy or unreliable employer. Both passive and destructive exit is by no means the only response to a violation.

  •  Voice in contract violation focuses on reducing losses and restoring trust by discussing issues of concern with a manager or other appropriate colleague/supervisor. It is an active, constructive effort to change the objectionable features in a situation and compensate for the violation while remaining in the relationship.

  •  Silence is a form of non-response and reflects a willingness to endure or accept unfavorable circumstances in the hope that they may improve. As a passive, constructive response it serves to perpetuate the existing relationship.

  •  Destruction/Neglect, which entails passive negligence or active destruction, is most common when voice channels do not exist or if there is a history of conflict. It can involve neglect of one’s duties to the detriment of the interests of the other party or involve more active examples of counterproductive behaviours. Vandalism, theft and work slowdowns are all examples of this type of response.

The choice of which of the four responses is implemented can be influenced by both personal predispositions and situational factors.

Appendix IV – Idiosyncratic Deals in the Workplace, An Explanation

In the more hybrid types of employment relationship, i.e. those in which there is a clear emphasis on results and each employee is responsible to a greater degree for the management of their own employability, Rousseau notices that the existence and management of ‘idiosyncratic deals’ is becoming ever more commonplace.

For example, there may be several employees in an organization doing the same job and receiving the same cues and signals from the company. These people will have many features of their psychological contracts which overlap perfectly; they have the same expectations and get the same rewards for certain things.

‘it is very common for workers to have slightly different deals than their peers … because they have a different manager or contribute in a different way’

However, because of personal variations, such as educational background or previous work history, some features of the individual employment relationships will be different. Of course, this is nothing new. What is new is the employing organization’s recognition of these differing expectations, needs and priorities. Organizations are now appreciating that different people want different things from their work (e.g. non-financial rewards, flexible working time, extra development training etc.) and they are becoming more flexible to their employees’ needs.

Organizations are now accepting that everyone will have a slightly different ‘deal’ with their employer.