The Psychological Contract
Perceptions of mutual obligations
by which both parties to the
employment relationship interpret,
act and respond to each other.
The Psychological Contract (Management Perspective)
(Adapted from Denise Rousseau, 1995)
Old Deal – ‘Relational’
A fair day’s work for a fair day’s pay
do as you are told
a secure job
steady pay increases
And you’ll be part of:
a dull but safe organisation
New Deal – ‘Transactional’
A flexible, mutually beneficial partnership
develop the competencies we need
apply them in ways that help us to
behave consistently with our new
a challenging work environment
rewards for your contribution
And you’ll be part of:
a revitalised, dynamic organisation
Typical Negative Psychological Contract (Employee Perspective)
The Real Deal – ‘Diabolical’
More work and more risks for the same pay
Do your job plus someone else’s
Volunteer for extra tasks
A job if we can
Gestures that we care
The same pay
And you’ll be part of:
An untrustworthy organisation with change
The Employee Psychological Contract:
Determinants & Outcomes
(Adapted from Guest 1998)
(+ or -)
Shifting Employee Expectations:
A New Psychological Contract?
Commitment to own career
rather than to organisation
greater job satisfaction
Belief that changing jobs is
necessary for career growth
personal responsibility for
Commitment @Work 2003
How committed are employees to
How effective are current workplace
practices in meeting employee needs
Which practices have the greatest
influence on employee commitment?
How confident are employees about
their organisation’s current & future
How effective are HR departments in
taking care of employees?
How effective are the organisation’s
Second annual Australian survey
Conducted in USA since 1997,
Canada since 1999 and UK since
1,200 phone interviews in May-June
Randomly selected national sample,
weighted to reflect gender distribution
in each state
Respondents had to be over 18,
working at least 20 hours per week
and not self employed
Five point Likert scales:
Disagree/Well Below, through
Neutral/Meets to Agree/Well Above.
2003 Findings: Commitment Level
(Comparable 2002 figures shown in brackets)
Productivity: 53% (37%) believed that their co-workers make efforts to improve
their skill, and 55% (40%) agreed that co-workers made personal sacrifices to assist
Pride: Although 62% (48%) would recommend their organisation’s products and
services, only 44% (33%) would recommend their organisation as one of the best
places to work.
Retention: 59% (54%) intended to stay with current employer for several years, but
only 39% (36%) would stay if offered a similar job elsewhere with slightly higher pay.
28% would leave for a 10% pay increase and 58% would leave for 20% increase.
Responsibility: 78% feel responsible for helping the organisation to succeed and
63% feel responsible for helping their supervisor to succeed.
Trust: Only 48% share the values of their organisation while just 40% trust its
Overall: Commitment Index up to 94.0 (91.5) but commitment is inconsistent and
polarised, with more feeling responsibility toward the organisation and supervisor
and greater pride in produces/services, but less than half share their organisation’s
values, trust its leaders, would recommend it as a good place to work, or would resist
external pay opportunities.
2003 Findings: Commitment Demographics
Groups with lowest overall
Workers under 30
Workers in production or operations
Workers with postgrad. degrees
Workers in organisations with 1001-
Workers with 1-5 years of tenure
with the organisation
Workers working >60 hours per
Workers without onsite child care or
paid maternity leave
Workers who prefer working alone
Groups with highest overall
Workers over 60
Workers with PhD
Workers in small and very large
Workers with <1 year or >5 years of
Workers working 31-35 hours per
Workers with on-site child care & paid
Workers who prefer working in team
2003 Findings: Commitment Drivers
(Effectiveness =negative response rate <17%; ineffectiveness = negative response rate > 24%)
Expectations met or exceeded regarding: fairly treatment (94% positive), safe secure workplace
(89%), workplace health & safety (89%), work environment free from fear, intimidation & harassment
Expectations not met regarding: stress-free work environment (39% negative), organisation’s concern
about their job security (24%), OHS (23%).
Expectations met or exceeded regarding: communication of reward package (88%).
Expectations not met regarding: communication of benefits options (31%negative), pay program’s
encouragement of ownership and loyalty (39%), pay & benefits encouragement of performance
(40%); link between performance and pay (30%).
Although most organisations do not offer a share plan, 52% of employees say that they would
participate if one was offered.
Expectations met or exceeded regarding: trust shown in employees to do what is right for company
Expectations not met regarding: employee retention (33% negative), employee involvement in
planning change (33%), open candid communication (25%), people taking responsibility for the
results of their actions (21%).
Expectations not met regarding: personal growth opportunities arising from job and training provided
(28% negative), communication of career opportunities (32%), efforts to create climate of learning
(22%), managing and communicating change (37%), ability to attract new workers (29%), and ability
to retain key staff (29%).
Expectations not met regarding: management’s recognition of the importance of personal or family life
Commitment Drivers: Average Success Rates 2002 & 2003
Implications for HR Practice: A Balanced Psychological Contract?
Main shortcomings are in the middle-order drivers (rewards, affiliation,
Don’t neglect lower level needs (safety/security & financial rewards)
Provide pay and benefits packages that encourage a sense of loyalty and
Dom more to involve employees in meaningful decision-making and change
Be more effective in linking performance and pay and in communicating the
Create an organisational work environment that minimises stress.
Manage and communicate changes in a way that encourages employee
alignment with the organisation’s core values and strategic goals.
Provide more effective opportunities for in-house learning and growth.
Recognise the importance of personal and family lives.
Accentuate strategies designed to address employees’ higher order needs
(personal growth, work/life balance).
Aligning Reward Practices and Psychological Contracts
(Adapted from Denise Rousseau)
Highly Specified/High Risk
Pay based on short term results
e.g. STIs in ‘prospector’ firms
Pay not performance-linked; total pay
static; retrenchment packages
e.g. pay in turn-around firms
Mix of person-based base pay,
STIs and LTIs
e.g. high involvement ‘analyser’
e.g. traditional ‘defender’ firms