Psychological Contract

Glossary of HR Terms What is the Psychological Contract

What is the Psychological Contract?

The Psychological Contract refers to the unwritten set of expectations and beliefs between an employer and an employee about the reciprocal obligations of the employment relationship. Unlike formal contracts, which specify pay and job duties, the psychological contract covers intangible expectations such as career growth, job security, fairness, loyalty, and recognition.

Why it matters

When employees perceive that their employer fulfills the psychological contract, they are more likely to show commitment, engagement, and discretionary behaviors like Organizational Citizenship Behavior (OCB). When employees perceive a breach, such as lack of promised opportunities or unfair treatment, it can lead to dissatisfaction, reduced trust, lower performance, and higher turnover.

How it affects HR

HR shapes the psychological contract by setting expectations during recruitment, reinforcing them through onboarding, and sustaining them with fair policies and consistent communication. When promises of growth, recognition, or support are met, employees feel trust and loyalty, leading to stronger engagement and retention. When expectations are breached, HR must repair trust through transparency and corrective action. By actively managing the psychological contract, HR ensures employees’ lived experiences align with organizational commitments, reducing turnover and building long-term commitment.

Strengthen the unspoken contract at work

A psychological contract is the unwritten set of expectations between employees and employers. Plum helps fulfill that promise by aligning people’s strengths and motivators with meaningful work and growth opportunities. When expectations and reality match, trust grows and retention improves.

Reinforce the psychological contract with Plum

Common use cases/Examples

  • A candidate expects development opportunities based on recruitment messaging but leaves when they don’t materialize.
  • Employees feel loyal to an employer that supported them during personal challenges.
  • Breach of contract occurs when layoffs happen despite implied job security.
  • Employers build stronger contracts through transparent communication and fair treatment.
  • Managers reinforcing trust by following through on commitments.

Examples of companies that emphasize it

  • Enterprises like Deloitte and PwC, which invest in employee development programs to meet career growth expectations.
  • Tech firms such as Google or Microsoft, where psychological contracts are shaped by cultures of innovation and flexibility.
  • SMBs and startups that rely on close-knit relationships and transparent communication to maintain trust with employees.

FAQ

A formal contract covers legal, tangible obligations like pay and job duties, while the psychological contract includes unwritten expectations like growth, fairness, and support.

It begins during recruitment and onboarding, shaped by what candidates are told, organizational culture, and early employee experiences.

Employees may feel betrayed, leading to disengagement, reduced performance, cynicism, or turnover.

Yes, through honest communication, acknowledgment of breaches, and renewed commitments to employee expectations

It influences engagement, trust, performance, and retention, making it a critical but often overlooked factor in employee experience.