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especially, but If managed effectively, shaped by the organization, organization and individual, psychological contract is achieved from interaction of inducements and contribution. Concept of Psychological Contract Everyone knows how vital the employment contract is to the relationship between the employer and the employee, ‘an individual’s system of belief, but most significant theme underlying these definitions is that the psychological contract refers to an employee’s unexpressed beliefs, faith,, expectations, the literature provides a number of definitions for the psychological contrac. , commitment, regarding terms of an exchange agreement between him/herself and the organization’, CEO SAS 1. For example, or ‘what employees are prepared to give by way of effort and contributions in exchange for something they value from their employer ......

Index & Contents

Psychological Contract

Psychological Contract

“The goal is to strip away everything that gets in our employee’s way.”

- Eric Schmidt, CEO Google

“We are firm believers that happy employees equal happy customers.”

- Jim Goodnight, CEO SAS

1. Concept of Psychological Contract

Everyone knows how vital the employment contract is to the relationship between the employer and the employee, especially, these days. The employment contract covers the formal and legal aspects of employment, in many cases, employee provide workforce only in return for their payment or salary as stated. On the other hand, the psychological contract can be distinguished from that.

The psychological contract(PC) can be defined as the unwritten understandings and informal obligations between two parties, an employer and its employees, regarding their mutual expectations of how each will perform their respective roles. The psychological contract is concerned with the perceptions of both to the employment relationship, organization and individual, of the reciprocal promises.

Additionally, the literature provides a number of definitions for the psychological contract. For example, ‘an individual’s system of belief, shaped by the organization, regarding terms of an exchange agreement between him/herself and the organization’, or ‘what employees are prepared to give by way of effort and contributions in exchange for something they value from their employer, such as job security, pay and benefits or continuing training’ is that.

The common, but most significant theme underlying these definitions is that the psychological contract refers to an employee’s unexpressed beliefs, expectations, promises and responsibilities with respect to what constitutes a fair exchange within the boundaries of the employment relationship.

Unlike the legal contract, the psychological contract is highly subjective, which makes it inherently difficult to manage, but If managed effectively, it will encourage and develop mutual trust between the parties, matching the expectations and commitments of the organization to those of their employees. But the psychological contract is regarded to be broken or unfair, this negative contract can result in employees becoming de-motivated. Many employee attitudes such as trust, faith, commitment, enthusiasm, and satisfaction depend heavily on a fair and balanced Psychological Contract.

The psychological contract is consisted of the following four expectations, which are expectation that employees want to get from their organization and employees want to offer to, also, expectation that organization hope to offer to their employees and Expectation that organization hope to get from their employees. Simply put, psychological contract is achieved from interaction of inducements and contribution.

(For a better understanding of the psychological contract, here are some related theories.)

2-1. McGregor’s XY Theory

Theory X and Theory Y are still referred to commonly in the field of management and mo

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