Three ways to form lasting psychological contracts with your employees

A psychological contract is an emotional bargain that binds an employee and a company together that's at its strongest when formed out of a shared purpose


The employer-employee relationship isn't often used as the central storyline of a movie or novel, but it's one of the most fascinating and intricate ones in your company.

A strong leader-employee relationship is creative, supportive and mutually respectful. It's forged with strong base values and maintained with constant care, evaluation and adjustment. Like most important relationships, this all happens via a psychological contract between two people, whether the parties involved know it or not.

A psychological contract is an emotional bargain that binds an employee and a company together. It can be created out of many different things — culture, money, power, or friendship — but it's at its strongest when formed out of a shared purpose.

How purpose fuels psychological contracts

Some companies have worked to form impressive relationships with employees. They accomplish this through a combination of generous compensation, collaborative cultures, positive working conditions and thoughtful, transparent leadership.

But as good as these companies are, some sense even more potential to deepen their working relationships and achieve higher levels of success.

Employees are more engaged when they're motivated by a purpose that aligns with their own. It's what makes them sign up for a position at a company not just on the dotted line, but wholeheartedly. They connect their own life's goals to the goals of the company, and they become more invested and present in the work they're doing.

New generations entering the workforce increasingly want purpose alignment in their career choices — even at the expense of salary. A study by Robert Half showed that many Generation Z workers would accept 10–20% less pay if a potential workplace had a mission they were passionate about.

It pays to get serious about purpose, because this employee preference will only continue to grow in in the years to come.

Three ways to build your psychological contracts for lasting success

Remember that at its core, each psychological contract should be based on a common purpose. Here are three effective ways to cultivate and maintain strong psychological contracts with employees.

Put your purpose front and center

One company that grew by putting purpose first is Ford Motor Company. From the very beginning of manufacturing his cars, Henry Ford expressed his commitment to fair pay and conditions and a mission to make cars that working class employees like his could afford.

This psychological contract made his workers feel like they had a stake in the company. In fact, so many workers were buying and driving Ford cars that it gave the company the boost it needed to become the household name it is today.

A psychological contract formed out of a shared purpose requires both parties to actually be aware of it. Your first challenge is to clearly state the purpose that drives the company. Be overt with potential employees when you meet them. Ask questions during the interview process that delve into each candidate's inherent, individual sense of purpose, such as: "What do you expect from your job?" or "Why do you think you'll thrive here?" Besides this, be sure that you're communicating with your current employees effectively and circling back to your overarching goals when you can.

A psychological contract that both parties "sign" for the same reasons has the potential to strengthen and become a challenging, mutually rewarding relationship. If the purpose is strong enough, it'll also grow organically as the company scales.

Make sure your purpose is actionable

Many contracts created at the start of an employee-company relationship aren't sustained over the long term — or even beyond the employee's first anniversary. Either work challenges get in the way and purpose is lost over time, or the stated purpose is superficial and doesn't have the power to actually connect people.

This is what has happened to Facebook over the years. The social media giant has a clearly stated purpose: To "bring the world closer together." On the surface, the company seems to espouse this purpose in everything it does. But look at Facebook's employee base, and you'll see that this internal community is a little confused. Legal battles and security concerns override Facebook's daily mission, and this has led to surprisingly short tenures at the company – employees stay for only two years on average.

Make sure your actions align with your purpose in order to uphold your end of the psychological contract. That means connecting every daily task and new project to a set of missions or value statements that employees personally connect with.

Reignite purpose as you scale

Even when a company sets out with a clear mission, it can lose its purpose as a result of scaling.

Amazon is a great example. The shipping company started with a clear goal of offering limitless choice and flexibility to shoppers. At first, this was an easy purpose with which employees could connect — they wanted to be part of this perfect marketplace. But the pressures of rapid growth impacted Amazon's hourly workers for the worse, and an astonishing number are currently living paycheck to paycheck.

Although Amazon recently raised its minimum wage to $15 per hour (the median salary for Amazon employees was $28,446 in 2017), the company also cut previous perks. This left employees wondering whether the raise would truly benefit them.

Ensuring employee alignment to purpose in this sort of situation is challenging. Amazon has scaled to unrecognizable proportions, but its purpose doesn't reach all employees in a way that is personal. That's why it's so important to make sure you have people and processes in place to maintain and advocate for company purpose at every turn.

Sure, you can scale and succeed without sticking to purpose, but there'll always be something lacking in the way your team members relate to the very work they're doing. As Generation Z fills the working world and grows in power, those employees are going to demand purpose-filled psychological contracts.

The solution? Make sure your company provides that sense of purpose — one that aligns with personal purpose — and keep it at the center of everything you do. This will help you create enduring psychological contracts that are strong, productive and beneficial.




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