What is the psychological contract?

The psychological contract refers to the unwritten, intangible agreement between an

employee and their employer that describes the informal commitments, expectations and
understandings that make up their relationship.
The psychological contract shouldn’t be confused with a written employment contract – they
are two very separate things. An employment contract sets out the legally-binding
agreement between the two parties – but that contract on its own provides a very narrow and
reductive view of the employee-employer relationship as a whole.
That relationship is also composed of many other expectations that, whilst not fully
formalised, are just as important. While an employment contract is a legal agreement printed
on paper, the psychological contract is built from the everyday actions, statements and
promises of one side of the relationship and how they are received by the other.
An employment contract deals with the transactional exchange of labour for reward. The
psychological contract describes the more informal perception of what each side commits to
the relationship and what they might receive in return.
Aspects of a psychological contract could include any of the following:
 Job security
 Opportunities for promotion
 Opportunities to learn and improve (Learning and Development)
 The employer’s reputation in society
 The perception that the employee’s work contributes positively to society
 A supportive manager
 A perception of fairness in the company’s internal processes
 The perceived fairness of pay
 An expectation to go ‘above and beyond’
 The perceived fairness of a Perks and Benefits package
Why is the psychological contract important?
When it comes down to it, a written employment contract that a team member has with their
company does not have a great deal of influence on their day-to-day experience of work.
In reality, that contract is something you sign on your first day and then probably don’t see
much of during the rest of your time at the business. Unless the employee and employer end
up in a legal dispute, that contract might well just stay in a filing cabinet at the back of the
office.

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When it comes to how an employee acts, works, and behaves, what holds far more influence
is the perceived fairness of the psychological contract they have with their employer.
Try to think of the psychological contract as a relationship, just like any personal
relationship you have in your own life.
If you have a friend that consistently lets you down, demands more of you than they ever give
back or often leaves you feeling taken advantage of, then it’s very easy for that relationship to
turn sour. While it might suit one person, the other feels like they have a raw deal – and
rightly so.
On the other hand, a friendship where that support flows both ways feels worthwhile and
valuable to each side.
A psychological contract between an employee and an employer works exactly the same way
– for that relationship to flourish in the long term, both sides have to feel that it is balanced
and their contribution is fair.
A balanced psychological contract
Team members who feel their psychological contract is fair – in that it is equally
balanced and they get out just as much as they put in – generally perform better at work,
show more commitment to the company’s objectives and are far more likely to ‘go the extra
mile’.
What is important for employers to understand is that what constitutes a balanced
psychological contract will vary from employee to employee and that – crucially – it will also
change over time.
What seems like a 'fair' relationship will not remain the same over the course of a person's
career. Their life will evolve and what they need from their employer will evolve with it.
For example, many young employees often value opportunities for growth over and above
job security. At that time in their life, that might well be where their priorities lie. However,
that won't stay the same forever – at a different stage of their life, job security could well be
their new number one priority.
An imbalanced psychological contract
If an employee is engaged in a psychological contract that they feel is unfair – one that asks
them to give more than they receive back in return – then it can be easy for them to
feel demotivated, undervalued and under-appreciated.
Much of the time, if a company has an issue with employee churn or low employee
engagement, that problem can be directly related back to a psychological contract that seems
unfair and out of balance.

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What is a breach of the psychological contract?
If an employer breaches an employment contract, then there are legal ramifications. While a
psychological contract might be much more informal, breaching it still has very real
consequences.
Let’s take a look at what a psychological contract breach could look like:
Imagine that a company hires a young graduate called James as a new Account Manager.
Now, James is relatively inexperienced and the salary he is offered is slightly lower to reflect
that – but the hiring manager explains that the role offers plenty of opportunities to
develop and he can reasonably expect to move up the ranks fairly swiftly.
Over the next 18 months, James is a model employee: hitting all his targets and pulling out all
the stops for the company. But despite all his hard work, James is regularly passed over for
promotion – and when he goes looking for more varied and challenging work to develop his
skill sets, his manager quietly encourages to carry on with his own work.
Now, there’s been no breach of James’ employment contract here. He is being paid at the
rate that he agreed to and the company has no legal obligation to promote him or offer him
more challenging work – but there has certainly been a breach of the psychological contract.
James had been going above and beyond for the company in the expectation that his efforts
would be rewarded with the opportunity to progress his career. From his perspective, that
agreement hasn’t been fulfilled.
Repairing a breach in the psychological contract
When it comes to the psychological contract, preventing a breach from occurring in the first
place is far more effective than trying to repair it afterwards. The informal nature of the
psychological contract means that it relies heavily on trust to keep it intact – if it is breached
once, then it can be difficult to repair that trust.
The key to maintaining a strong psychological contract comes down to clear communication
and managing the employee's expectations. It’s important that every employee in your
business understands what they can expect from their time there, so make sure you keep an
open dialogue with every member of your team. That way, any frustrations or
misunderstandings can be picked up and dealt with early, before they turn into anything more
serious.
ATTACHMENT IN THE WORKPLACE
Human beings are both genetically and neurologically geared to form relationships with
others, therefore Attachment perceptions are formed in any social structure e.g. clubs, social
gatherings, churches, network events etc.

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 When a new employee joins an organisation, they go through a similar Attachment process
to that of infant and parent, whereby perceptions of security, trust & value, acceptance and
belonging (either consciously or subconsciously) are being formed. In this instance, the
“primary carer” is the Direct Manager. If the employee fails to attach to the organisation, this
will impact the entire relationship they have with the business from a productivity and
engagement perspective.
 It’s important to note that the new employee is attempting to bond with the organisation (i.e.
the social entity) not the Direct Manager. However, it’s the Direct Manager who has the most
influence over the strength of this bond. From a workplace perspective, there are 4
components to consider:
 (1) Critical Attachment Period” (CAP)
(2) The Direct Manager’s Influence/Impact
(3) Core Attachment Perceptions
(4) Key Response Behaviours
 The “Critical Attachment Period” (CAP)
(1) When a new employee joins an organisation, they go through the “Critical
Attachment Period” (CAP) during their first 120 days of employment. During this
time, a two way assessment is taking place between the new employee and the
organisation. Firstly, the organisation is assessing both the potential (future)
contribution of the new employee, as well as their cultural fit. In other words, the
organisation is determining whether they have made the right hiring decision.
Secondly, the employee is actively assessing whether they’ve made the right choice
i.e. how well they fit in, the degree to which the experience matches their expectations
and whether they can visualise themselves being a productive member of the team in
the long term. 
(2) The Direct Manager’s Influence/Impact
Just as a child forms an Attachment to their primary carer, within a workplace context the
primary carer is typically the employee’s Direct Manager. The impact of the Direct Manager
is therefore significant in helping the new employee attach to the organisation. In fact, over
80% of the employee’s perceptions formed during the “Critical Attachment Period” (CAP)
are directly influenced by the immediate Manager or Supervisor. 
(3) Core Attachment Perceptions
The strength of bond (or Attachment) between with the employee and organisation is based
on the core Attachment perceptions of:

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• security;
• trust & value;
• acceptance; and
• belonging.
 These core Attachment perceptions are formed based on 20 workplace drivers. These drivers
describe and quantify perceptions such as:
• the professionalism experienced during the recruitment and selection process;
• the clarity of pre-employment communication;
• the effectiveness of the orientation process;
• the availability of training and incremental learning;
• whether the job description truly reflects the role; and
• whether they understand the performance expectations.
 (4) Key Response Behaviours
This strength of bond (as determined by the employee’s perceptions of the 20 workplace
drivers) leads to key response behaviours which include:
• Risk of attrition; and
• Discretionary effort & performance
Compliance vs. Commitment and the relationship to engagement
One of the current criteria being used in measuring organizational success is the
engagement of employees in the pursuit of the organization’s strategy and goals. I have
found, in most of my work with coaching and developing employees at the team and
individual contributor levels, that they want to be more engaged…what they often find
lacking from their leaders and managers is a lack of clarity around goals and vision to which
they can commit their engagement. Often, individual contributors and teams lack a clear
understanding about how their goals align with the organization’s strategy and business.
Without this link, often compliance is substituted for engagement in an effort to fit more with
the cultural norms of the organization.
Compliance implies an adaptation of internal behavior to external rules and a
tendency to yield readily to others in the hopes that they know “better” where the goals and
objectives of the organization fall. Commitment, on the other hand, implies a dedication and
understanding of the outcomes with a personal interest (or motivation) to be an integral part
of the process in achieving the goals of the organization. Commitment = engagement. For
simplicity’s sake, this can play out 4 different ways between leaders/managers and their
teams:

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Compliant Team/Compliant Leader
The dynamic of compliant teams and compliant leaders can often be the result of
organizations that have rigid structures and processes in place. The team and leaders know
the rules and procedures of what they need to accomplish and efficiencies are gained in the
flow of information and work…but creativity and innovation are severely hampered if the
team and manager don’t know the “why” of their work. In other words, teams and leaders
need a clear understanding what they do and its impact on the success of the company.
Compliant Team/Committed Leader
Committed leaders can often be guilty of “looking up” the organization; trying to
meet the needs of their direct leaders rather than making sure their teams clearly understand
the strategic direction of the company and engaging the team in the pursuit of company goals.
Leaders in this dynamic often let personal ambition and relationships guide their actions, not
fully understanding their management responsibilities in guiding and developing their teams.
Teams can become compliant when the leader does not make the time or effort to
communicate vision and direction of the organization.
Committed Team/Compliant Leader
Committed teams don’t appear out of nowhere, typically there has been an
accomplished leader (either formal or informal) that has brought the team to this point. The
danger here is the discouragement of team commitment through the efforts of a new or
inexperienced manager. If possible, transitions should be anticipated and monitored to ensure
a high performing team doesn’t get “over-managed” in the new leader’s effort to establish
control.
Committed Team/Committed Leader
This dynamic is typically where the highest levels of employee engagement occur.
Teams know what needs to be done in regard to the objectives of the company and they
understand their roles. Committed Leaders understand how to communicate, as well as,
encourage and monitor performance associated with the organizational goals. These leaders
recognize a committed team and they coach rather than manage their associates.
Given, that for most companies, 70 – 80% of the workforce is composed of individual
contributors, front line leaders and supervisors have the most impact on helping a majority of
employees make the transition from compliance to commitment. Leaders and managers who
can articulate a clear line of sight from the company’s strategic goals and make it relevant to
their teams objectives and outcomes are the ones who will be successful drivers of increased
engagement for organizations. One of the key skills a new leader must develop is the ability

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to understand and communicate a clear line for sight from the company’s vision and business
strategy down to the efforts and objectives of teams and individual contributors. Clear vision
leads to better commitment which leads to higher engagement.

Qualities in a Professional for Better Relationship with Co Workers

An individual must share a warm relationship with his fellow workers to remain happy and
satisfied at work. Don’t fight with your colleagues and spoil the decorum of the office. You
need people around to talk to, discuss several issues, evaluate the pros and cons of your ideas
and finally come to a solution which would be fruitful to you as well as others.
An individual must have certain qualities for a better relationship with his fellow workers:
One needs to be sensible enough to understand that every organization has a set of
policies and it is mandatory for everyone to abide by the rules and regulations. One
can’t go against the policies no matter whether he likes them or not. One can’t get all the
comforts at his office just like home. You can’t be too fussy at work. If your organization is
paying you; they would also expect work from you. At work you cannot always take leaves
whenever you like. There would be times when you wish to be with your friends, but if your
organization needs you, you have to be there at any cost. Excuses don’t work in such a
scenario. Professional commitments are far more important than personal pleasures. Don’t
give your management an opportunity to raise a finger against you.
Stay positive and motivated. Nothing works better than self-motivation. Look for reasons to
stay motivated. Remember happiness lies within you. Enter your office with a smiling face.
Don’t work out of any compulsion. If your job is getting stagnant, it is always better to move
on. Don’t stick to it and crib. One must understand that every organization would have some
or the other problem, you can’t leave all of them. You need to adjust somewhere so why not
in your present company? Be a little adjusting and try to be friendly with your team members.
Don’t spread rumours or pull anyone into controversies.
Avoid pretending to be good in front of your boss. Such a habit might earn you a bad name
in your team and your fellow workers might ignore you when you need them. Your work
speaks and nothing apart from that really matters. Don’t try to play politics against anyone
just for a promotion or mere appreciation from your boss. One should never manipulate truth
and pass on the information as it is. Never backstab anyone. Honesty always pays in the long
run.
An employee has to be a good communicator for an effective employee relationship. Be
transparent in your communication. Never play with words with an intention to confuse

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others. If you do not agree to anyone, don’t simply say a yes. Sit with him and discuss in a
way to convince the other party.
One needs to be firm on his statements. Don’t change your mind quite often. It leads to
misunderstandings and confusions among others.
Be patient and never be rude to anyone. One should speak what is acceptable at the
workplace. Don’t use foul words against anyone. Learn to keep a control on your tongue.
Avoid being hyper at work. It is always better to ignore minor issues rather than fighting with
others.
One needs to be disciplined at work. Follow your organization’s policies. Never be late to
work. If your office timing is 9.30 AM, make sure you are there sharp at 9.28 AM. Work for
yourself, not for others. Your boss cannot always sit on your head. If your superior is not
there in the office, it does not mean you will roam here and there. Sit at your workstation,
concentrate on your work and leave on time. Don’t unnecessarily irritate people. If you are
not disciplined; no one would appreciate you.
One should respect his superiors as well as his colleagues. Relationships would never
improve unless and until you respect others. Treat all as one.
One should give his team member his desired space. Respect each other’s privacy. Too
much of interference in each other’s work is bad. Avoid staring at anyone’s computer screens
or try overhearing anyone else’s conversation. Don’t open couriers or notepads not meant for
you. It might contain something confidential and the other person may not like it.
One should always keep his superiors in the loop in every communication. If you are
sending an email to an external party make sure a cc is marked to your boss and he is aware
of the entire development. Any information meant for all team members should be
downloaded to them in the correct way.
Avoid being jealous at work. If your colleague has done well, do appreciate him.
Concept of Industrial Relations:
The term ‘Industrial Relations’ comprises of two terms: ‘Industry’ and ‘Relations’.
“Industry” refers to “any productive activity in which an individual (or a group of
individuals) is (are) engaged”. By “relations” we mean “the relationships that exist within the
industry between the employer and his workmen.” The term industrial relations explains the
relationship between employees and management which stem directly or indirectly from
union-employer relationship.
Industrial relations are the relationships between employees and employers within the
organizational settings. The field of industrial relations looks at the relationship between

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management and workers, particularly groups of workers represented by a union. Industrial
relations are basically the interactions between employers, employees and the government,
and the institutions and associations through which such interactions are mediated.
The term industrial relations has a broad as well as a narrow outlook. Originally,
industrial relations was broadly defined to include the relationships and interactions between
employers and employees. From this perspective, industrial relations covers all aspects of the
employment relationship, including human resource management, employee relations, and
union-management (or labor) relations. Now its meaning has become more specific and
restricted. Accordingly, industrial relations pertains to the study and practice of collective
bargaining, TRADE unionism, and labor-management relations, while human resource
management is a separate, largely distinct field that deals with nonunion employment
relationships and the personnel practices and policies of employers.
The relationships which arise at and out of the workplace generally include the
relationships between individual workers, the relationships between workers and their
employer, the relationships between employers, the relationships employers and workers
have with the organizations formed to promote their respective interests, and the relations
between those organizations, at all levels. industrial relations also includes the processes
through which these relationships are expressed (such as, collective bargaining, workers’
participation in decision-making, and grievance and dispute settlement), and the management
of conflict between employers, workers and TRADE unions, when it arises.
For better understanding of industrial relations, various terms need to be defined here:
Industry:
Industrial Disputes Act 1947 defines an industry as any systematic activity carried on
by co-operation between an employer and his workmen for the production, supply or
distribution of goods or services with a view to satisfy human wants or wishes whether or not
any capital has been INVESTED for the purpose of carrying on such activity; or such activity
is carried on with a motive to make any gain or profit. Thus, an industry is a whole gamut of
activities that are carried on by an employer with the help of his employees and labors for
production and distribution of goods to earn profits.
Employer:
An employer can be defined from different perspectives as:-
 A person or business that pays a wage or fixed payment to other person(s) in
exchange for the services of such persons.
 A person who directly engages a worker/employee in employment.

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  Any person who employs, whether directly or through another person or agency, one
or more employees in any scheduled employment in respect of which minimum rates
of wages have been fixed.
As per Industrial Disputes Act 1947 an employer means:-
In relation to an industry carried on by or under the authority of any department of [the
Central Government or a State Government], the authority prescribed in this behalf, or where
no authority is prescribed, the head of the department;
in relation to an industry carried on by or on behalf of a local authority, the chief executive
officer of that authority;
Employee: -
 Employee is a person who is hired by another person or business for a wage or fixed
payment in exchange for personal services and who does not provide the services as
part of an independent business.
 An employee is any individual employed by an employer.
 A person who works for a public or private employer and receives remuneration in
wages or salary by his employer while working on a commission basis, piece-rates or
time rate.
 Employee, as per Employee State Insurance Act 1948, is any person employed for
wages in or in connection with work of a factory or establishment to which the act
applies.
 In order to qualify to be an employee, under ESI Act, a person should belong to any
of the categories:
 Those who are directly employed for wages by the principal employer within the
premises or outside in connection with work of the factory or establishment.
 Those employed for wages by or through an immediate employer in the premises of
the factory or establishment in connection with the work thereof those employed for
wages by or through an immediate employer in connection with the factory or
establishment outside the premises of such factory or establishment under the
supervision and control of the principal employer or his agent.
 Employees whose services are temporarily lent or let on hire to the principal employer
by an immediate employer under a contract of service (employees of security
contractors, labor contractors, house keeping contractors etc. come under this
category).
 Employment: The state of being employed or having a job.

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Labor MARKET:
 The MARKET in which workers compete for jobs and employers compete for
workers. It acts as the external source from which organizations attract employees.
These markets occur because different conditions characterize different geographical
areas, industries, occupations, and professions at any given time.
 An industrial relations system consists of the whole gamut of relationships between
employees and employees and employers which are managed by the means of conflict
and cooperation.
 A sound industrial relations system is one in which relationships between
management and employees (and their representatives) on the one hand, and between
them and the State on the other, are more harmonious and cooperative than conflictual
and creates an environment conducive to economic efficiency and the motivation,
productivity and development of the employee and generates employee loyalty and
mutual trust.
Actors in the IR system:
Three main parties are directly involved in industrial relations:
Employers: Employers possess certain rights vis-à-vis labors. They have the right to hire and
fire them. Management can also affect workers’ interests by exercising their right to relocate,
close or merge the factory or to introduce technological changes.
Employees: Workers seek to improve the terms and conditions of their employment. They
exchange views with management and voice their grievances. They also want to share
decision making powers of management. Workers generally unite to form unions against the
management and get support from these unions.
Government: The central and state government influences and regulates industrial relations
through laws, rules, agreements, awards of court ad the like. It also includes third parties and
labor and tribunal courts.
SCOPE:
The concept of industrial relations has a very wide meaning and connotation. In the
narrow sense, it means that the employer, employee relationship confines itself to the
relationship that emerges out of the day to day association of the management and the labor.
In its wider sense, industrial relations include the relationship between an employee and an
employer in the course of the running of an industry and may project it to spheres, which may
transgress to the areas of quality control, MARKETING, price fixation and disposition of
profits among others.

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The scope or industrial relations is quite vast. The main issues involved here include the
following:
 Collective bargaining
 Machinery for settlement of industrial disputes
 Standing orders
 Workers participation in management
 Unfair labor practiceS
Importance Of Industrial Relations
The healthy industrial relations are key to the progress and success. Their significance may
be discussed as under –
Uninterrupted production – The most important benefit of industrial relations is that this
ensures continuity of production. This means, continuous employment for all from manager
to workers. The resources are fully utilized, resulting in the maximum possible production.
There is uninterrupted flow of income for all. Smooth running of an industry is of vital
importance for several other industries; to other industries if the products are intermediaries
or inputs; to exporters if these are export goods; to consumers and workers, if these are goods
of mass consumption.
Reduction in Industrial Disputes – Good industrial relations reduce the industrial disputes.
Disputes are reflections of the failure of basic human urges or motivations to secure adequate
satisfaction or expression which are fully cured by good industrial relations. Strikes, lockouts,
go-slow tactics, gherao and grievances are some of the reflections of industrial unrest which
do not spring up in an atmosphere of industrial peace. It helps promoting co-operation and
increasing production.
High morale – Good industrial relations improve the morale of the employees. Employees
work with great zeal with the feeling in mind that the interest of employer and employees is
one and the same, i.e. to increase production. Every worker feels that he is a co-owner of the
gains of industry. The employer in his turn must realize that the gains of industry are not for
him along but they should be shared equally and generously with his workers. In other words,
complete unity of thought and action is the main achievement of industrial peace. It increases
the place of workers in the society and their ego is satisfied. It naturally affects production
because mighty co-operative efforts alone can produce great results.
Mental Revolution – The main object of industrial relation is a complete mental revolution
of workers and employees. The industrial peace lies ultimately in a transformed outlook on
the part of both. It is the business of leadership in the ranks of workers, employees and

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Government to work out a new relationship in consonance with a spirit of true democracy.
Both should think themselves as partners of the industry and the role of workers in such a
partnership should be recognized. On the other hand, workers must recognize employer’s
authority. It will naturally have impact on production because they recognize the interest of
each other.
Reduced Wastage – Good industrial relations are maintained on the basis of cooperation and
recognition of each other. It will help increase production. Wastages of man, material and
machines are reduced to the minimum and thus national interest is protected.
Thus, it is evident that good industrial relations is the basis of higher production with
minimum cost and higher profits. It also results in increased efficiency of workers. New and
new projects may be introduced for the welfare of the workers and to promote the morale of
the people at work. An economy organized for planned production and distribution, aiming at
the realization of social justice and welfare of the massage can function effectively only in an
atmosphere of industrial peace. If the twin objectives of rapid national development and
increased social justice are to be achieved, there must be harmonious relationship between
management and labor.
The main objectives of industrial relations system are:-
 To safeguard the interest of labor and management by securing the highest level of
mutual understanding and good-will among all those sections in the industry which
participate in the process of production.
 To avoid industrial conflict or strife and develop harmonious relations, which are an
essential factor in the productivity of workers and the industrial progress of a country.
 To raise productivity to a higher level in an era of full employment by lessening the
tendency to high turnover and frequency absenteeism.
 To establish and promote the growth of an industrial democracy based on labor
partnership in the sharing of profits and of managerial decisions, so that ban
individuals personality may grow its full stature for the benefit of the industry and of
the country as well.
 To eliminate or minimize the number of strikes, lockouts and gheraos by providing
reasonable wages, improved living and working conditions, said fringe benefits.
 To improve the economic conditions of workers in the existing state of industrial
managements and political government.
 Socialization of industries by making the state itself a major employer

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 Vesting of a proprietary interest of the workers in the industries in which they are
employed.

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