MANAGING THE PSYCHOLOGICAL CONTRACT - CIPD

MANAGING THE 

PSYCHOLOGICAL CONTRACT 

© Michael Wellin 2008 

©Business Transformation Ltd 2004 T: +44 (0) 207-278-6006

CONTENTS 

ACADEMIC STUFF 

NEW IDEAS 

PRACTICAL APPLICATIONS 

SO WHAT 

© Michael Wellin 2008 www.businesstransform.co.uk

ACADEMIC STUFF 


PSYCHOLOGICAL CONTRACT CONTEXT 


EMERGENCE OF THE 


‘The Bible’ (3000 BC) - Deuteronomy Chapter 10 & 11 - refers to 

the mutual expectations between God and the Jewish People 

‘The Social Contract’, (1762), Jean-Jacques Rousseau, - examines 

the relationship between the individual and the state 

‘Understanding Organisational Behaviour’, (1960) Chris Argyris – 

the psychological work contract refers to the implicit 

understanding between a group of employees and their foreman 

‘Organisational Psychology’, (1965) Edgar Schein – the unwritten 

expectations between every member of an organisation and the 

managers in the organisation 


THE ‘PSYCHOLOGICAL CONTRACT’ 

It is about the relationship between an employee and the 

organization that employs them 

It is concerned with expectations and obligations 

It is implied and unwritten 

It is mutual and two way 

People have feelings about the way their psychological 

contracts are fulfilled which drive their behaviour & actions 


LEGAL CONTRACTS AND 


LEGAL CONTRACT 

Formal and impersonal 

Written & explicit 

Subject to laws of the land 


It is what I expect personally and what 

is expected of me 

It is not written anywhere, and often 

implied & not spoken about 

It is subject only to custom and 

practice 

E.G. My hours of work are 09.00 to 17.30 

There is no contracted overtime pay 

E.G. There is a formal grievance procedure 

for compensation for delay 

E.G. In practice I am expected to stay as long 

at it takes to do the job, and sometimes stay 

till 20.00 

E.G. My boss listens to me if I have concerns 

and deals constructively with issues 


EVOLVEMENT OF THE 


‘Psychological Contracts in Organisations’ (1995) Denise 

Rousseau; 

“The psychological contract refers to individual beliefs shaped 

by the organisation regarding the terms of an exchange 

agreement between individuals’ and their organisation” 

‘Managing the Psychological Contract’ (2007) Michael Wellin: 

“The Personal Deal refers to the unwritten expectations which 

operate at all times between people who interact with one 

another. It underpins the way each of us relate and work 

with family, friends, colleagues, customers, & suppliers.” 


PSYCHOLOGICAL CONTRACT CONTENT 

Wellin 

Macro Factors 

Herriot et al 

Turnley & 

Feldman 

Coyle 

Shapiro 

Rousseau 

Westwood 

Challenge X X X X 

Development X X X X 

Environment 

X 

Equity 

X 

Involvement X X X X 

Org Reputation 

Pay & Benefits X X X X 

Pay Equity X X X X 

Responsibility X X 

Security X X X X X 

Support X X X X 

Teamwork 


RELATIONSHIP & TRANSACTIONAL 

PSYCHOLOGICAL CONTRACTS 

Involves a short term relationship trade 

of extrinsic rewards & money for labour 

TRANSACTIONAL 


RELATIONSHIP 


Involves a long term relationship 

trade of personal security for loyalty 

From Rousseau D.M., (1989) Psychological and Implied Contracts in Organisations, The Employee 

Responsibilities and Rights Journal, Vol. 2, 121-139 


MACRO CHANGES IN THE 


BUREAUCRATIC PSYCHOLOGICAL 

CONTRACT (1930/S TO 1995) 

Organisation is ‘parent’ to employee ‘Child’ 

NEW ADHOCRACY PSYCHOLOGICAL 

CONTRACT (1995/S - 

Organisation & employee are both ‘Adult’ 

Organisation defines employees worth & identity 

Employee defines their own worth & identity 

Those who stay are good & loyal, others are 

disloyal 

Regular flow of people in and out of the 

organisation is healthy 

Employees who do as they are told will work 

until they retire 

Long term employment is unlikely – expect & 

prepare for multiple employments 

Promotion is the primary route for growth 

Growth is through personal accomplishment 

From Kissler, G. ‘the New Employment Contract’ Human Resource Management 33, 335-352 


BREACH OF THE PSYCHOLOGICAL 

CONTRACT 

Breach of Psychological Contract is common; 69% people 

report breach in last 10 days (Conway & Briner 2002) 

Fulfilment of training components of the psychological contract 

were significantly related to employee commitment, (Coyle 

Shapiro & Kessler 2000) 

Different studies show a self reported link between 

psychological contract breach and deviant work behaviour 

(Coyle Shapiro 2002). 

Personality impacts reaction to Breach of the psychological 

contract – e.g. Conscientiousness (Konovsky & Organ 1996) 


SOME NEW IDEAS ABOUT THE 



THE PERSONAL DEAL 

WHAT YOU 

GIVE ME 

WHAT I 

EXPECT 

FROM YOU 

WHAT YOU 

EXPECT 

FROM ME 

WHAT I GIVE 

YOU 


THE PERSONAL DEAL 

WITH A RESTAURANT 

YOU EXPECT 

The table you booked is available 

when you arrive 

The waiter is courteous & makes 

pleasant small talk 

The waiter knows about the food 

on the menu 

The correct food arrives 

The food is of a high standard 

The waiter can talk knowledgably 

about the wine list 

You are not pressurised to leave 

as soon as you stop eating 

THE RESTAURANT 

EXPECTS 

You turn up at the time you 

booked 

You come from the targeted 

economic client group 

You are in a frame of mind to 

enjoy the food 

You order at least 2 courses from 

the menu 

Behave in a way that allows other 

diners to enjoy their meal 

Pay for your meal plus the 12.5% 

optional service charge 


HOW AN EMPLOYEE MAY REACT TO 

A BROKEN PERSONAL DEAL 

WHAT MY 

LEADER 

GIVES ME 

WHAT I 

EXPECT 

FROM MY 

LEADER 

Not receive 

anticipated 

promotion 

Less personal 

support 

Less interesting 

work 

Increased hours 

Adapt to change 

More work 

WHAT MY 

LEADER 

EXPECTS 

FROM ME 

WHAT I 

GIVE MY 

LEADER 

DECISION 

TO QUIT ! 


TRADITIONAL 

Long term, impersonal, based 

on complex rules & procedures 

and principles of justice, e.g. 

local authority, Royal Mail etc 

PERSONAL DEAL TYPES 

RATIONAL 

MERCENARY 

Short & medium term, focus on 

extrinsic rewards e.g. 

temporary employees, e.g. 

Kelly, Manpower, agency 

nurse, contract programmer 

STABILITY 

CHANGE 

RELATIONSHIP 

Personal, based on close long 

term feelings and mutual 

agenda & trust, e.g. 

traditional partnership, 

family firm 

EMOTIONAL 

DEVELOPMENTAL 

Medium term – focus on knowledge 

development & application, e.g. 

recent graduates, professionals 

and e.g. E & Y, Clifford Chance 


MEASURING THE PERSONAL DEAL 

TRADITIONAL 

MERCENARY 

impersonal 

rules & 

natural 

justice 

(5) 

(4) 

(3) 

(2) 

(1) 

(1) 

(3) 

(2) 

(4) 

(5) 

performance 

& extrinsic 

rewards 

REQUIRED 

NOW 

personal 

trust & 

mutual 

relationship 

(5) 

(2) 

(3) 

(4) 

RELATIONSHIP 

(1) 

knowledge 

acquisition & 

application 

DEVELOPMENTAL 

Chapter 6 page 27 

© Michael Wellin 2008 www.businesstransform.co.uk 

(1) 

(2) 

(3) 

(4) 

(5)

PRACTICAL 

APPLICATIONS 


THE PERSONAL DEAL IN 

PRET A MANGER 

WHAT PRET A MANGER 

EXPECT FROM EMPLOYEES 

WHAT EMPLOYEES CAN EXPECT 

FROM PRET A MANGER 

Reasonably hard working Get paid as much as we can afford 

(not as little as we can get away 

with) 

Good sense of humour 

Cosmopolitan atmosphere as a 

result of diverse employee 

backgrounds 

Enjoy delicious food Invest in people training & 

development (in-store trainer) 

Start early and leave early Most managers are promoted 

from within 


THE IMPLIED PSYCHOLOGICAL 

CONTRACT AT PRET A MANGER 

PRÊT GIVES IT’S PEOPLE 

• As much as we can afford to pay 

• Cosmopolitan atmosphere as a 

result of diverse employees 

Investment in training and 

development (in-store trainer) 

• Most managers promoted from 

within 

WHAT I 

EXPECT 

FROM 

PRET 

PRÊT EXPECTS FROM PEOPLE 

• Reasonably hard working 

• Good sense of humour 

• Enjoy delicious food 

• Start early and leave 

early 

WHAT I 

GIVE PRET 


THE IMPLIED PSYCHOLOGICAL CONTRACT 

AT ERNST & YOUNG 

E&Y gives its people 

• Recognition & reward for 

individual contribution 

• An enjoyable place to work 

• Care, listen & respond to 

people’s ideas and concerns 

• Continuous learning opportunities 

WHAT I 

EXPECT 

FROM E & Y 

E&Y expects from its people 

• Do the right thing & succeed for 

clients 

• Energy, enthusiasm – 

stretch & excel yourself 

• Build relationships, teamwork 

& the courage to lead 

• Take charge & personal 

responsibility for your career 

WHAT I 

GIVE E 

& Y 


RICHER SOUNDS PERSONAL DEAL 

EMPLOYEES GET 

THE COMPANY GETS 

Fun at work 

Recognition – ‘Golden Aeroplane 

Award’ 

Reward – senior sales earn £18K – 

including weekly profit share 

Communication 

Loyalty – promote from within, 

loyalty lunch at Ritz 

Hard work 

Adapt to customer activity 

Customer Service 

Highest no of UK suggestions 

Low shrinkage 

Loyalty 


RICHER SOUNDS 

BUSINESS & PEOPLE PERFORMANCE 

Ranked as the top of 1.3 million companies in the UK British owned 

business to work for 

Supercare warranty has been commended by publications such as 

The Independent, Guardian and Which magazine 

Equal opportunity employer 

Give 22% of profits to charity and employee profit sharing scheme 

Very low shrinkage – 0.5% compared to retail average 2-3% 


WHAT IS YOUR PERSONAL DEAL WITH 

YOUR EMPLOYER 

YOU WANT & EXPECT FROM 

THEM 

 

• 

 

 

THEY WANT AND EXPECT 

FROM YOU 

 

 

 

 

 

 

 


SO WHAT 


CREATING A CULTURE TO 

SUSTAIN BUSINESS GROWTH 

Diagnosis identified silo working 

Trained leaders to conduct one to one Personal Deal 

discussions in 2 day leadership workshop 

Managers had Deal discussions with individual employees 

Business Teams discussed their Deals – particularly service 

functions with operational units 


THE PERSONAL DEAL WITH 

MY MANAGER 

WHAT MY 

MANAGER 

GIVES ME 

WHAT I 

EXPECT 

FROM MY 

MANAGER 

WHAT MY 

MANAGER 

EXPECTS 

FROM ME 

WHAT I 

GIVE MY 

MANAGER 

© Michael Wellin 2008 Chapter www.businesstransform.co.uk 3 page 14

AUDIT OF CULTURE CHANGE TO 

SUSTAIN BUSINESS GROWTH 

“M Power is one of the few change 

Programmes I have seen that seems 

to have really made a Difference“ 

…..IIP Inspector Aug 2003 


USING THE PERSONAL DEAL TO ACHIEVE 

MAJOR INTERNATIONAL PROJECT 

Working with team of 300+ engineers who delivering the construction 

drawing for £B++ international project 

Employee research found that needed to fulfil different behaviours & 

competencies for success than those used in parent company 

Created Personal Deal Toolkit for use by managers in ‘one to one’ 

discussions with team members 

Trained Project Managers to hold agree ‘Personal Deal’ with each team 

member discussions 

Personal Deal discussion being implemented in 2008 


BUSINESS VALUE OF THE PERSONAL DEAL / 


Strategic 

Contributes to future direction of 

the organisation & survival in the 

competitive environment 

Aligns and engages people to strategy and vision 

Enables managers to create better 

understanding with their people 

Creates clarity for people about 

what they need to do, and can 

expect 

Framework for HR 

processes – recruitment, 

induction, performance 

and management. 


HOW HUMAN RESOURCE 

MANAGEMENT CREATES BUSINESS VALUE 

BUSINESS 

STRATEGY 

HUMAN 

RESOURCE 

PRACTICES 

PEOPLE & HR 

OUTCOMES 

BUSINESS 

OUTCOMES 

Business Growth, 

Customer Focus, 

Product 

Innovation, 

etc 

Performance 

Review, 

Managing Change, 

Assessment, 

Managing the 

Psychological 

Contract 

Commitment, 

Adaptability, 

Retention, 

Recruitment Costs, 

Absenteeism 

Job 

Performance, 

Innovation, 

Revenue 

Growth, 

Profit 

The Personal Deal provides a practical vehicle for leaders to translate 

Business Strategy into HR practices and Business Outcomes, and live the 

Employer Brand 

Chapter 10 page 24 


FIND OUT MORE 

1. ‘Managing the Psychological Contract’ by 

Michael Wellin, Gower, 2007 

2. Contact Michael direct; 

mike@businesstransform.co.uk 

www.businesstransform.co.uk 

+44 (0) 20 7278 6006 


REFERENCES 

Jean-Jacques Rousseau, ‘The Social Contract’, (1762),, Penguin Classics, UK 

Argyris, Chris, (1960), ‘Understanding Organisational Behaviour’,The Dorsey Press Inc., 

Homewood, Illinois 

Conway, N. and Briner, R. B, (2002), ‘A Daily Diary Study Of Affective Responses To Psychological 

Contract Breach And Exceeded Promises’, Journal of Organizational Behaviour, 23, 287-302 

Coyle-Shapiro, J. and Kessler, I, (2000), ‘Consequences Of The Psychological Contract For The 

Employment Relationship: A Large Scale Survey’, Journal of Management Studies, 37:7 0022-2380 

Herriot, P., Manning, W. E. G. and Kidd, J. M, (1997), ‘The Content Of The Psychological Contract’, 

The British Journal of Management, Vol. 8, 151-162 

Kissler, G., ‘The New Employment Contract’, Human Resource Management, 33, 335-352 

Konovsky & Organ, (1996) 

Rousseau D.M., (1995), ‘Psychological Contracts in Organisations’, Sage Publications, California, 

USA 

Rousseau D.M., (1989), ‘Psychological and Implied Contracts in Organisations’, The Employee 

Responsibilities and Rights Journal,Vol.2,121-139 

Schien, Edgar H., (1965), ‘Organisational Psychology’, Engelwood Cliffs, N.J. 

Wellin, Michael, (2007), ‘Managing the Psychological Contract’, Gower Press 

Westwood, R., Sparrow, P. and Leung, A, (2001), ‘Challenges To The Psychological Contract In 

Hong Kong’, Int. J. of Human Resource Management, 12, 621-651

MANAGING THE PSYCHOLOGICAL CONTRACT - CIPD

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