Psychological Contract

In: Business and Management

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The Changing Nature of the Psychological Contract and its Impact on Modern Organizations


Kheeran Dharmawardena Executive Summary

Drawing on recently published work by experts in the field of organizational behavior, this paper aims to outline the aspects of the psychological contract that need to be considered in todays demanding work place. It shows how the contract affects the individual, the managers and the organization. The paper further discusses the advantages of recognizing the changing psychological contract and how an organization could form contracts that are beneficial to both the employee and the employer.


Psychological contract, the unwritten agreement between an employer and employee, is changing in the post job security economic environment. With the popularity of contractual, short term employment within organizations, employees are now seeking to create a psychological contact which is more about self-actualization.
This change in the psychological contract has implications on organizations that seek to have a work force that is motivated and committed towards the organizations goals.

What is The Psychological Contract?

The psychological contract according to recent definitions is an individual's beliefs concerning the obligations that exists between the employee and the organization (Lester, Turnley et. al., 2002) .

The contract is composed of an individual's perceptions about what they expect the organization to provide (competitive wages, advancement opportunities, job security) in return for what they provide the organization (a fair day's work, loyalty) (Lester, Turnley et. al., 2002). Unlike formal employee-employer contracts, the psychological contract is inherently perceptual and therefore employer and employee may have different…...

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