When an individual starts working for a company, an official contract between them and their employer is formed. However, what people do not always realize is that a different type of a binding agreement takes place at the same moment. This contract is called a psychological one, and just as its official counterpart, it defined the relationship between an employer and their employee. These agreements are implicit and focus on determining “the understandings, beliefs, and commitments that exist between an employee and their employer” (Jones, 2017, para. 1). A psychological contract can be transactional and relational in its nature. The former is formed for a short period of time, during which the employee focuses more on their career and their personal aspirations. Relational contracts are considered more long-term as it aims to create a good relationship between the employer and their workers that is based on mutual respect and trying to fulfill both organization and individuals goals. Many researchers have recently described a shift in this area, with most of these implicit agreements being of the transactional orientation. The purpose of this paper is to analyze whether this change is happening.
The Definition of a Psychological Contract
Unlike written contracts, psychological ones are implicit, making it hard to define the exact terms upon which they are formed. Initially, this term was coined in the 1960s by “behavioral theorists Chris Argyris and Edgar Schein” with many subsequent studies adding to the existing concept (The Psychological Contract, 2010, para. 2). In general, psychological contracts are formed between an employer and their employee and define the organizational and personal goals that both sides have and what they expect from each other. This agreement is the result of a two-way conversation, so both parties are responsible for maintaining a respectful working relationship. Additionally, both sides have the right to terminate their official contract if some of the implicit terms are not met.
While a psychological agreement has some similarities with a formal one as they both can define the responsibility employers and employees have to each other, they have a number of distinctions that sets them apart. The most impactful difference is the fact that the former is not written and, therefore, has the capacity to “constantly develop based on the communication between the two parties” (Stevenson, 2018, para. 4). As a result, a psychological contract is more equipped with reflecting on how the relationship between an employer and their employee is defined in any particular moment, which is beneficial for both the company and the individuals themselves.
Types of Psychological Contracts
Relational contracts are formed for a long-term relationship in the workplace and, therefore, benefits greatly from the fact that these agreements remain unwritten. As individuals continue working for an organization, they are bound to change their goals and what they expect to get from their company. This trend is noticeable in the behavior of employers as well. Relational contracts help build mutual respect and trust between the two parties as they continue to navigate what defines their working relationship.
Transactional agreements are short-term and aim to fulfill specific goals that employers and employees have without considering the future of their cooperation. This type of contract is suitable for workers who do not plan to stay with a company for a long enough time for any potential to develop. Employers can be interested in such agreements as well if they need an individual who can complete a short-term talk. Overall, transactional agreements do not focus on building trust in the relationship as they only aid in making the temporary cooperation be beneficial to both parties.
Current Psychological Contracts
Many researchers believe that most of the current psychological contracts are transactional in nature. This opinion can perhaps be explained by the idea that agreements of this type offer more to the employees who, therefore, prefer them to relational ones. For instance, a study by Aggarwal and Bhargava found that transactional contracts are predictors of “innovative work behavior” (2010). However, the same paper stated that relational agreements created a better relationship between the company and its employees as the subordinates take pride in the achievements of their organization. This would imply that long-term workers prefer this type of psychological contract as it allows them to be more confident in the future of their careers.
Additionally, some studies prove the current popularity of relational agreements. For example, one study aimed to find out how employees react to breaches in psychological contracts. The results showed that workers found it more devastating if their employers broke the terms of a relational agreement than if something similar happened with a transactional one (Ballou, 2013). Additionally, studies show that “temporary employment hires show lower commitment to the organization than those on permanent hires” (Saunders & Thornhill, 2006, p. 452). These findings exhibit the fact that individuals in search of a serious commitment to a company that will support them and their career still prefer relational contracts, and employers are interested in forming them as well.
Several researchers have written about their perceived change in the nature of current psychological contracts with employees and employers preferring the transactional type. However, while this form of agreement is gaining tractional, relational ones are still preferred by individuals in search of a permanent job. This can be explained by the fact that this type of contract caters to someone trying to build a career better than a transactional one.
Aggarwal, U., & Bhargava, S. (2010). Predictors and outcomes of relational and transactional psychological contracts. Psychological Studies, 55(3), 195–207.
Ballou, N.S. (2013). The effects of psychological contract breach on job outcomes. (Publication No.4327) [Master’s thesis, San José State University]. Scholarworks.
Jones, M. (2017). What is a psychological contract? Breathe HR. Web.
Saunders, M.N.K., & Thornhill, A. (2005). Forced employment contract change and the psychological contract. Employee Relations, 28(5), 449–467.
Stevenson, M. (2018). . HR Exchange. Web.
The Psychological Contract. (2010). Business Balls. Web.