Tearing up the Psychological Contract

Most people have heard of the psychological contract but even if they haven’t they have experienced it – it’s the implicit agreement between an employee and employer – a sort of ‘I scratch your back you scratch mine’ agreement. The actual, written contract of employment (if you have one) is a small fraction of what actually exists as an often unspoken agreement between employer and employees. 


If your employment contract changes – you want a change of working hours or your employer wants to change your conditions – it goes through a formal process to get that changed and somehow a new agreement is formed. 


But if the psychological contract is implicit, how do you change it? How do you know if someone else has changed it? This is a big issue for both employers and employees. Especially if it changes suddenly and at scale. 


The pandemic has done exactly that – completely changed, and even to some extent undermined the psychological contract.  Something like a huge rise in remote working or remote work enabled roles completely changes the deal for employer and employee. However, most people aren’t naming these changes. 


So in this week’s article, we would look at what is happening with the psychological contract and its cousin, the Employee Value Proposition. 


What was in the ‘old’ contract?


The psychological contract used to be as simple as “Work here for your whole life, don’t annoy the exec and you stay, give up much of your life to pay for things for your family, retire in the knowledge you will have some money, maybe get a gold watch and a firm handshake”. It might sound like the 50s, I’m pretty sure in the UK this was also the 80s. 


A lot of the above is quite tangible and can be ‘carried’ by policy and the actual employment 

contract, as well as wider employment law. 


Based on UK law (because that’s where I am based) the diagram below shows the introduction of new legislation related to working conditions since the 1800s. A general trend in favour of the rights of workers is shown in particular with a flurry of legislation coming in since 2000. I have side-stepped Brexit here which opens the doors to much more exploitation of workers and is a bit of an anomaly in the general trend which otherwise replicated many other developed countries.  It’s also worth noting that these are only those changes enshrined in law. The law often falls somewhat behind ‘best practice’ and way behind progressive companies, especially in periods/industries of high demand for talent where employees tend to set the pace. 

Employee rights and the change of psychological contract

Employee rights legislations over the years


In parallel with the observable legislative changes what companies are doing to attract or retain talent has moved towards more intangible concepts such as ‘employee engagement ‘, or ‘corporate social responsibility ‘, ‘inclusion’. 


In this regard, it has followed the legislation towards employee-centrism – at least in organisations based on high skill. But the employer has gained too – they often have an expectation that you should, within reason, work things out for yourself. It’s the sharp edge of empowerment. No more spoon feeding – achieve your outcomes.  


Many HR teams, therefore, are slightly better equipped than they were to manage people out who don’t meet explicit expectations (like being ‘proactive’ for middle management) the organisational system is designed instead to restrict the growth and opportunities of those who aren’t playing the game very well. 


Of course, the problem with this implicit game, which has always been there to some extent, is it creates an ‘in’ and ‘out’ of the loop crowd. One group has the secrets, and one group  does not – or has a lot less of them. This poses major problems for inclusion because that ‘in-group’ is determined by many implicit things such as ‘face fit’, culture, education, network etc. That’s of course when it isn’t being blatantly discriminatory. 


So the psychological contracts seemed like a good thing or at least a neutral thing that just ‘is’, until you peel back the layers whereby people’s progress can be stifled for a reason they don’t understand. But now we are at a point where it is continuing to change, at perhaps a faster pace, and both sides of the deal had better understand it. 


Things disrupting it 


I know, the term ‘disruptor; is hugely oversized. I don’t blame you if you roll your eyes. But truthfully there are subtle forces at play that are changing the dynamic fast enough that we can call it disruption. Here are a few.


Security always used to be part of the deal. The employer would pay a ‘good’ wage – whatever good meant to you – and in general, you could guarantee they would carry on doing so. The employer knew they would have someone in your role, or they would know well ahead of time if you were leaving and plan accordingly. 


Now we suspected for a while that the deal was changing. We had a lot of headlines about Millennials having less loyalty (it’s not true but they do move around a bit more). But now the pandemic has helped people to realise they can work for people who are further away, or completely remote, and many have made the jump. 


Security on both sides, if your talents are in demand, was an illusion. An agreement for convenience. People are now resigning in droves simply because they have more choice. They weren’t worried about leaving and employers have no way of knowing what else might drive large worker migrations now choice has increased. If you announce an unpopular policy (like enforcing 3 days in the office) you might have a more visible and more financially painful response than you would have had previously. 


A shift away from ‘social cultures 


Whilst it isn’t true for all demographics I posed the question early in the pandemic about the lessening instance of work cultures. Or at least the work cultures defined by drink, snack and foosball tables. 


Some of the recent research seems to back up my early predictions with employees sending a message to employers that ‘we can take care of that’. And this is when I’m not sure people have really embraced the life that they can have in their local community – much of the time spent at home, for many, as in and out of lockdown or the threat of lockdown. Not an environment where you are likely to experiment with new social circles more closely linked to where you live. And right now everyone is going back to the office and enjoying drinks with others. 


But there are always limitations on how you can behave with colleagues. Once we have worked out, we can meet people nearby, on a work night (because we can be there earlier) or for lunch, or even just a coffee, where we can really let our hair down – I think this will shift further. So the deal was ‘since you have to come in to work we can make it nice and fun for you to be here’. Now employers are whispering the first part of that sentence and employees are saying “Sorry, now I have to do what?”


For example, I normally attend a Chinese boxing lesson at 09.00 on a Thursday, and next week I have arranged to meet a local Shaman for a coffee. Many have retained their lunchtime runs or morning walks when they are working from home. 


For now, the takeaway for employers is that the social side of work will be a diminishing differentiator. Better to plan for the long term and plan activities around the assumption that this is something as high up on people’s priorities as it was. Perhaps with a slight difference for the youngest demographics who might have moved around a lot recently and are looking to expand their social circle through work.  


For employees, you can become socially independent from your employer by ensuring you build social networks that aren’t linked to work. Your mental health might benefit from social circles (shaman optional) that come with the lowest possible cost (i.e. live near, no barriers to openness, no implied competition, no need for facade).  That made me sound callous about the value of your work colleagues as friends didn’t it? 


But if you cut them loose you can make brand new friends. That still sounded callous didn’t it?  


More informal set-ups


Previously the psychological contract wasn’t actually like a contract, it was more like a rumour. Because the sort of expectations set at the top by the nameless and faceless ‘employer’ would be translated through HR, Managers and behavioural norms of your colleagues. Manages in particular have a very clear role to play in creating an environment where you think/feel/do things. 


So what about if other options are available. What about the Teal/no manager/flat organisations. Or even more DAO organisations. I’m not ‘selling’ the latter as it’s too early to tell, but we could add to these innovative organisational structures to become a freelancer. All of these options, more available than ever before, report a way of fundamentally readdressing the value of a psychological contract. By taking the manager out there are fewer ‘rules of engagement’ that are fundamentally representative of the organisation. 


Or perhaps more correcting employees will have a lot more direct influence over those rules and the rules are likely to be a lot lighter and emphasise effective working over consistency – a preoccupation of the larger and more corporate spheres. 


Essentially then as an employee, I can opt-out of the implicit, potentially game playing psychological contract altogether. And whilst there is an argument that we are always in some sort of contract – this term seems redundant if it’s constantly reinvented. 

Talent economy 


I have hinted at this already but I wanted to call it out clearly. It isn’t true for every profession or every industry but overall the developed world is experiencing a labour shortage with potential conflicts only likely to exacerbate the issue. 


In short whilst policy has been moving in favour of the employee and so has more implicit effort for employers, we have the very ‘hard’ power possessed by those with in-demand talents. 


In many ways, this is an entirely separate force, especially on the micro-scale where people with in-demand skills are able to negotiate favourable contracts but are also treated with reverence in the ‘psychological contract’ arena. 


However in the macro-scale, where it applies unevenly across different roles/industries the average effect of a more talent-centric economy can be felt in the inability of companies to resist employee-driven needs. Or at least those companies who are resisting may also be the companies experiencing the Great Resignation.  




It probably started before Glassdoor but they represent an internet-driven trend in transparency that has been taking place for years. I sometimes talk about the ‘glass wall’ of Employee Value Propositions. The concept is that you should assume that the best way to attract or secure new talent is by treating the existing talent in a way that you would be proud to advertise. 


It has a number of benefits including a reduction in the cost base. Lots of companies cynically drive an edge between the schemes that take place in order to keep employees and those strategies used to attract them. Often with the latter getting the lion’s share. But if you had actual glass walls (or in this day and age webcams) projecting everything that went on in your organisation you need only show how you treat your employees in order that everyone could make their own mind up. In theory, this would mean less spending on job ads and less overall spend on recruitment. 

Line break 

If you don’t believe me that it’s already the state of play for your organisation then go onto any specific forums for your industry, especially tech, and you will see it. People are already talking about you as an employer. Or check out the many surveys and forums dedicated to talking about graduate schemes. 


The point here is that there is a reason that the term Employee Value Proposition is often used interchangeably with the internal and external reality of a company’s approach to its employee. The psychological contract has become something by which your organisation is evaluated and since it can’t be found committed to on paper as it is in a traditional contract, it’s instead discovered through the experience of past and present employees. 


Great, so what do we do? 

Create more employee feedback loops

The annual survey isn’t cutting it anymore. For many, it’s too unwieldy and the action planning off the back of it too bureaucratic. Don’t get me wrong, if you have got in really slick where you work, and you think it would be a terrible message to end it now, then don’t. With those sorts of things, you need to end on a high (say 3 years year-on-year improvement). 


But at the very least you need to supplement the annual survey with more innovative ways of talking to the team: 

  • Lose the anonymity  – of course there might be questions where you want to retain it but ask yourself is this culture you want to build? 
  • Frequent might be better – get your organisational scientist to test and calibrate some ideas. For example, if you really do want to understand the organisational sentiment you don’t actually have to ask everyone. The employee survey has long since been ousted as a tool for senior management – so be honest about that and poll 10 of the employees every month. Track it against organisational initiatives. 
  • Create dialogue groups – these are sounding boards where you get brave about sharing concerns and ideas with a cross-section of the employee base. These are not consultation groups – they have no peers other than the power to be listened to and heard. Don’t go there with decisions that have already been made. 
  • Enable managers to pool their teams – if you have a few layers of hierarchy this is particularly useful for those who manage large teams they don’t always get to speak to. Slack add-on has this functionality. 
  • Actually listen between the lines – I have been party to ‘all-hands’ meetings where the same question has come up more than once and no real action taken. Afraid to say a clear ‘no’ probably because they don’t have a good reason, senior leaders look out of touch every time the question comes up. If you can’t deal with input in these forms then don’t ask for it – or get a lot clearer in your answers. 

Expand the definition of employee 

No, I don’t mean legally, I mean psychologically. As we have seen, this idea of loyalty is a bit of a myth. People leave when they have more choices and they have more choices than ever before. 


We have raised many times at Hello Monday that the future of labour is a much more mixed model than traditionalists would suggest. Putting DAOs to one side for the moment, we can expect an economy that includes a substantial amount of: 

  • Full-time workers who can never go to your ‘hubs’
  • Workers in any location including countries you aren’t based in 
  • Fix-term workers 
  • Freelance/SOW workers 


Mix this in with more traditional work types and whilst you should end up with much lower costs overall you will have to invest a little more in good coordination – this will be skilled managers training in managing a modern workforce or, in no/low manager organisations, designated coordination roles. 


Revisit your assumptions

It’s only relatively recently that the employer hasn’t held all or most of the cards. So many organisations behave in a way that the company has the power. For example: 

  • Internal comms behave more like internal PR – assume everyone already knows everything and so your job is to clarify not spin or ‘wait for the right time’.
  • Assume you are not an employer of choice – every stage of recruitment is an opportunity to win over a new employee – you get to choose only from the employees that still want to work for you at the end so maybe ditch the 5-week process.
  • HR need to realise that they can’t use labour laws as their ‘blueprint’ or ‘foundation’ in quite the same way – these will always be lagging behind and in themselves make assumptions about where the power lies
  • Consistency has less power – you might have been able to apply rules ‘across the board’ because it was cheaper for you as an organisation. From now on assume you are trying to keep employees like customers – meet their needs. You will have to make some choices for economies of scale but currently, the default is to standardise across grades (for example).


Think bigger and longer-term 


Humans often hide from the fact that life is highly unpredictable and ‘stuff happens’. It almost sounds flippant to refer to mass employee migration, government policy, pandemics and war as ‘things that happen’. I don’t mean it to but the reality for employers and employees is that we aren’t in control. So much can happen we can’t influence that it behoves us to think long term. 


I volunteered for a while with a charity that was looking to become more self-managed. It was a slow and painful transition – as is often the case. This was made more complex by the transitory, highly skilled, and volunteer status of most of the workforce. 


We noticed was that many people joined because its purpose resonated with people – this was something that never changed even if their availability didn’t at the time. So what I worked on was a way of capturing everyone who was ever interested in joining as a volunteer and anyone who had ever joined. 


This made complete sense for an organisation where career stage and role fit are divorced (you might lead an architecture team but volunteer as an agile coach). But if we are thinking long term about how we build an employer brand and employee experience, I think it makes sense to keep engaged with those who have left as well as those who have ever expressed an interest in what we do. They become part of our long term talent strategy. Employee engagement follows the trend of customer engagement where brand loyalty is built before they spend a single penny and is maintained long after the transaction is complete. 

employee cycle



This diagram is a very simple representation of an employee cycle through the lens of the relationship we have with the employee rather than being too painstaking about their exact career stage. 


The segment size shows a fairly representative level of investment (time and energy) in candidates at that point in the relationship. I‘m effectively suggesting that stage 4 is hugely undervalued. I want to be clear that this stage is not an attraction – that’s a very traditional (and valid) concept. This is actually extending your talent strategy into known individuals not emplpoyed by you. Effectively your psychological contract is built and experienced when the employees do not work for you. These lines become blurred anyway if, as suggested above, you broaden your definition of employee. At stage 4 you are: 

  • Starting conversations with talented people vaguely in your space before you have a role for them 
  • You are regularly (not necessarily frequently) contacting ex-employees to see what they are doing/how they are progressing 
  • Using customer engagement channels to recruit (although they are unknown at this point – they are known to you) 
  • Reengaging with any applicant that gets past the early  stages – perhaps offering to add them to biannual company updates – or reaching out more directly/regularly if there is a reason 


A lot of this takes place in some form at the moment but in a more nepotistic way (staying in touch with friends) and driven by individual leader relationships. Really embracing ‘full-cycle talent engagement’ can help to find purpose-driven employees and contractors that have already ‘bought what you are selling’. 


Besides we just talked about transparency – stage 4 is happening away but if you aren’t managing it then you are potentially damaging your employer brand by doing nothing. 




Leaders and HR professionals alike need to realise the ‘deal’ they may have accepted as an employee in the past will no longer cut it. So much has changed so fast in the world of work that we need to challenge all of the assumptions of an age-old paradigm. This is incredibly hard and so this article helps by laying out some specific areas where the shift may be necessary: 

  • Reducing the emphasis on job security 
  • Not use the social or cultural elements as a selling point for many employees 
  • Start to flatten your organisation – even in small pockets so employees are empowered to define their own deal wherever possible 
  • Recognise employees have more choice, especially in tech/knowledge workers in general – get them in and productive quickly, keep in touch after they leave 
  • Embrace using skills and talent in part-time/fixed term/freelance/SOW employees 


Although this list is far from exhaustive so it’s more important to understand and make it real in everything you do, that the psychological contract feels a lot less like a ‘contract’ and more like perpetual ongoing negotiations. In order to really take advantage of this, you will need to reengineer the ethos around devolved power in your organisation. But for now, just take small steps to create a more employee-focussed and human-centric organisation. 













Photo by Kelly Sikkema on Unsplash