Time to Renew Your Psychological Contract?

By Donna Howes, CPHR

“If, as organizations often claim, people are their best asset and fundamental to effective continuity arrangements, then breaches of the psychological contract will have counterproductive implications for organizational resilience.”1

Research into the existence of a psychological contract and its contribution to both healthy and productive organizational cultures has deepened in recent decades to reveal rich insights about the nature of the employer-employee relationship.

Behavioural scientists have defined the psychological contract as the “unwritten set of expectations operating at all times between every member of an organization and the various managers and others in that organization.” (Makin et al. 1996)

The reach and relevance of the psychological contract is intuitive, and generally experienced as the way things work around here “in spite of what head office says.”

So, how relevant is this notion of a psychological contract in today’s change-driven, profit-centric, “adapt-or-die” business culture? A diverse range of British Columbia’s top companies say “extremely relevant.”

Strong Link Between Identity and Motivation
“I see the psychological contract as an extension of our self-identity,” says Peter Comrie, a Kelowna-based specialist in human dynamics with Full Spectrum Leadership. “In reality, it is the basis of our social values, beliefs, attitudes and behaviours—both in life and in the workplace.”

Healthy workplace cultures recognize the whole person and know the importance of engagement surveys that keep them attuned to what employees’ value most about themselves and their contribution to the workplace. This strong link between what employees value most about themselves—and how well the organization responds to these expectations—is the essence of a robust psychological contract and the hallmark of a resilient organizational culture.

The Resilience Factor: When It Matters Most
“You understand the true value of a person and who they are during times of challenge or crisis,” says Deborah Fox, human resources manager with Kohler Canada-Hytec. “We recently had a significant life event that affected our entire Hytec team, and seeing how people stepped up really displayed their compassion and contribution as an individuals in support of those most closely affected.”

Leading up to this event had been an 18-month change initiative in response to an unprecedented disruption in market conditions and a recognition amongst leaders that over time the culture had become “good and comfortable,” but not what they wanted most: a great culture.

Their goal was to refresh Hytec’s culture so that it could continue growing without breaking the existing psychological contract amongst the company’s 150-strong workforce—individuals who’d over the years become a “family.”

The operations lead team understood that trust was a major ingredient of the shift, along with an unwavering commitment to communicate with and listening to all employees.

“We just really tried to over communicate. It’s being consistent and being open and honest, and it’s been breaking down the skepticism about ‘why are they doing this’ and asking ourselves, ‘are we doing this for the right reasons,’” says Fox. “What we’re observing for the most part is that people see us trying to do all the right things even when sometimes we don’t succeed. As managers we’re trying to show that we care, and that at the end of every decision is a human being.”

This is a prime example of how trust within the employment relationship permits the possibility of fundamental change without breaching the “unwritten agreement” between employer and employee. It is the essence of human resilience and adaptability to making a direct contribution to the organization’s ability to compete and succeed during tumultuous times.

Of Broken Promises and Trust
A Harvard Business Review article titled “The Neuroscience of Trust”2 quotes a 2016 PricewaterhouseCooper global CEO survey reporting that “55 per cent of CEOs think that a lack of trust is a threat to their organization’s growth.”

H.Y. Louie, one of B.C.’s oldest and largest companies in retail and wholesale groceries, believes in the importance of an employer living up to its unwritten commitments in the psychological contract.

“In previous roles I’ve seen companies promise certain vision and value propositions, but when you get there and become part of the culture, you find out ‘wow this isn’t what they told me’,” says Shawn Needham, senior director of human resources with H.Y. Louie. “This leads to a total misalignment of values and a very uncomfortable, or even hostile situation because of the high level of uncertainty and mistrust that it generates.”

A Need for “Hire” Values
In order to set new hires up for success Needham says it pays to give special attention to aligning “what we say” with “what we do” throughout the recruitment and onboarding of new employees. She believes that the psychological contract needs to be in sync with the written contract to establish transparency and trust in the employment relationship from the beginning.

“As the employer, hiring decisions can be costly both in human and business terms,” says Needham. “That is why we spend time to understand and align values-based expectations early in the recruitment process.”

If as often quoted, 89 per cent of hiring failures are due to poor cultural fit, there is a vigorous case to be made for stewarding a culture that embodies your brand promises both inside and outside the organization. According to McCoy and Elwood, coauthors of Human Factors in Organizational Resilience: Implications for breaking the Psychological Contract3, “Congruence between core values, beliefs and behaviours is vital, as any hint of misalignment will undermine the leader’s credibility.”

Noted researcher, Josh Bersin, principal and founder of Bersin by Deloitte and keynote speaker at the 55th Annual HR Conference + Tradeshow, revealed that two-thirds of Millennials and Baby Boomers state that an “organization’s purpose” is the reason they choose a specific employer.

Underpinning this significant trend is the sobering realization that only 23 per cent of organizations surveyed (2017) believe their employees are fully aligned with the corporate purpose—a ticking reminder of the impact of breaking or ignoring the true potential of establishing the psychological contract from the outset of the employment relationship.

An Invaluable, Unspoken Trust Endures
Holding to that contract does more than keep an organization on the rails. Rocky Mountaineer is the number one privately-held, luxury train provider in the world. In addition to being a much admired brand and proud ambassador for Canada, it is an internationally recognizable brand with team members in Canada, the United States, Britain and Australia.

“We are a purpose-driven organization,” says Adam Charania, VP of human resources with Rocky Mountaineer. “And our purpose is to be creators of life-changing experiences. In order to do that, we believe that people are our most valuable asset. How people show up and are motivated at work is critical to us achieving that purpose, and ultimately our business outcomes.”

Rocky Mountaineer takes a down-to-earth management approach with team members and intentionally refers to the ‘psychological contract’ as the importance of individuals buying into the company culture and values: those aspects that are outside the employment contract itself.

Being mindful of how teams work together to achieve results rather than just the results has allowed Rocky Mountaineer to retain valuable team members, especially through challenging times such as with the wild fires that impacted communities across British Columbia this year. What the company witnessed were amazing examples of dedicated team members giving everything they had to deliver on the Rocky Mountaineer brand promise.

As VP of human resources, Charania looks to understand what motivates people to want to give more to an organization—and to provide even more discretionary effort during crises.

“For me the answer comes back to, ‘we’ve invested in them and they’ve invested in us.’ We’ve built trust together.”

Donna Howes, CPHR, is principal of Humanity at Work and founder of CoachingWise, an ICF designation that recognizes organizations who build and sustain a coaching culture.

(PeopleTalk Fall 2017)


1. “Human Factors in Organizational Resilience – Implications of Breaking the Psychological Contract” Business Journal, Volume Four, Issue One (2012)
2. Harvard Business Review
3. Continuity Central




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