The psychological contract is changing. Are business leaders prepared?

The psychological contract is an unwritten but understood agreement that outlines the relationship between the employer and employee.  The concept emerged in the 1960’s and describes the informal commitments, expectations and understanding that make up the employee-employer relationship.   It draws on insights from psychological and organisational behaviour.  The psychological contract highlights the ‘human’ side to the employment relationship. This should not be mistaken for the written terms and conditions of employment found in the contract of employment which sets out the legally binding agreement between the two parties.

The psychological contract describes how the employee-employer understand their relationship each from their own point of view.  It looks at expectations and assumptions of one another and is ordinarily studied from the employee perspective.   The quality of the psychological contract will influence how the employee behaves day to day and the psychological contract is based on an employee’s sense of trust and fairness that the employer is honouring the ‘deal’ between them.   A violation or perceived violation of the psychological contract can have a negative effect on the organisation.  Breaches by the employer are not always preventable because external factors such as an economic downturn can impact the ‘deal’.  However, negative outcomes can be significantly reduced if the employee feels the situation is being managed fairly by their employer.

Since Covid-19 research undertaken by the Chartered Institute of Personnel Development (CIPD) has identified that there has been a shift in employee expectations and how they feel about work, the psychological contract is evolving.  Leaders and HR professionals need to recognise and manage this change. 

Since 2020 many employees have reassessed what matters and what is important to them.  Some employees have been forced to do this because of how they had to juggle work and home life at the height of the pandemic, during lockdowns and living through personal experiences never seen before.  Employees became weary, frustrated and anxious over long-term job security, others opted to change profession or stop working completely.

Leaders faced opposition when trying to return to the office/site and back to normal working practices. Tension and disengagement are felt as employee expectations about work flexibility, empowerment and in some industries the sense that the employer ‘owes’ them (employee) for working through the pandemic is evident.  

A sense of belonging comes from having a shared purpose and leadership is about creating an environment where all employees can thrive and connect with the organisation.  In the current climate this is becoming more difficult as organisations struggle to find a way forward when uncertainty has become endemic.

Research published by the CIPD, the Good Work Index, which is an annual benchmarking survey into job quality of over 5,000 workers across different sectors and occupations in the UK indicates 43% of employees stated that they work for money, this has increased when compared to 36% in 2019.  There has also been a slight drop from 58% to 55% of employees who said they would remain in work even if they didn’t need the money.   This change in attitude is concerning for management if less is being derived from the intrinsic value placed on work.  The Good Work Index, studies data from seven areas:

•  Pay and benefits – subjective feelings regarding pay, pension contributions and any other employer benefits.

• Contracts – types and security of role

• Work-life balance – how much work encroaches on personal life, commuting time and HR provisions for flexible working

• Job design and nature of work - workload and intensity, empowerment, autonomy, matching skills sets to job complexity, development opportunities

• Relationships at work – social support, psychological safety quality of relationship with management, colleagues and quality of people management

• Employee voice – opportunities and channels for feedback and views shared between management and workers

• Health and wellbeing – positive and negative impacts of work on physical and mental health.

The latest 2023 research shows that the cost-of-living crisis which has seen inflation hit record high levels is having an impact, so is the discontent being witnessed in the public sector.  Job satisfaction in the UK remains fairly high but there is a shift away from engaging and fulfilling jobs.

The CIPD define good work as being:

• Fairly rewarded

• Gives people the means to make a secure living

• Provide opportunities to develop skills and a career which give a sense of fulfilment

• A supportive environment with constructive relationships

• A work-life balance

• Supports healthy physical and mental well-being

• Gives people a voice and choice to shape their working lives

• Accessible to all

• Affect by a range of factors including HR practices, quality people management and workers

The 2023 Good Work Index survey shows differences between the private and public sector workforce.  Predominately that the public sector workers think they are not paid enough, are overworked and under pressure to the point that it negatively affects their mental health.

The survey also indicates that people are more confident that they could find another job.  Flexible working has increased albeit this was driven by the necessity of homeworking due to Covid-19, nonetheless the trend is likely to be irreversible.

In regard to whether the situation since 2019 has got worse the survey reports a mixed bag.  Some of the indicators in the public sector have got worse whereas private and voluntary sectors remain fairly the same.  Interestingly the share of public sector workers who reported an adverse impact on their mental health showed little change when comparing 2019 to 2023 but overall workload related pressures in that sector does not seem to have eased.

Generally, how people feel about work has changed and it is naive for leaders to simply believe that it will go back to normal.  Leaders need to be recognising the need to move towards designing a future that meets the expectations of the employee and employer.  To do this organisations need to consider three stages and develop a plan:

• Work before the pandemic

• Work during the pandemic

• Work now, amidst new/different ways of operating and hybrid working

None of us are the same as before and recognising that will help design the future of work.

If you have a particular issue or scenario that you would like to discuss, please do not hesitate to contact us on 01473276170, info@sos-hr.co.uk, or use our contact us page. 

*Source CIPD

Please note that the content of this article is for general information and reference only and does not constitute legal advice.  Always take advice and follow the correct best practice.