How will your “Psychological Contract” with your employer change as a result of the COVID-19 crisis?

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Barron Williams

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This month, I wanted to take a look at how the changing Psychological Contract between employers and employees could play a significant role in bringing back confidence and stability.

COVID-19 is changing every aspect of our lives, and it is taking a devastating toll on the UK economy. In the recruitment industry, uncertainty is one thing that clients and candidates don’t want or need.

I’ve had several recent conversations with candidates who would not usually respond to approaches for roles but are now more receptive due to the uncertainty the crisis has created.

Some are finding loyalty hard to give and in short supply as their organisations get to grips with implications of the pandemic as it affects them. It’s clear that some are reacting better than others in terms of how they are protecting their relationship with their employees.

Situations and circumstances vary of course so we maybe shouldn’t necessarily be too critical, however, it has and will affect the employee/employer relationship.

The UK economy has experienced a significant shock since the start of the pandemic; GDP has fallen dramatically, and we’re seeing unprecedented decline in output for production and services.

According to McKinsey, UK GDP in 2020 is expected to shrink by 9%, overall, although, I’ve seen reputable sources quoting much higher numbers.

It is unknown territory but such a dramatic drop in output will have large-scale ramifications for employers and employees alike.

Whilst these sort of numbers are of concern, some still suggest that this could be a short-term economic slowdown rather than a full blown depression.

Or is that wishful thinking?

You do sense people are ready to embrace the new normal, to adapt and get on.

The recent opening of shops with large queues outside many high street clothing stores clearly demonstrates this.

Government projections suggest a 35% decline in GDP for Q2 2020, followed by a strong recovery for Q3 and Q4, before hopefully a return to some sort of stability come the start of 2021.

The recruitment industry will have a significant role to play in the post COVID-19 new normal

With the Bank of England warning that unemployment could more than double by the end of 2020, the recruitment landscape is changing.

We will play a pivotal part in finding both candidates new roles, and helping clients adjust and adapt to finding the right people for their ‘new’ organisation.

This is a shift that will incorporate the increasing adoption of new technology in the shape of video interviews and virtual onboarding, as well as need to embrace flexible and remote working.

Combined with increased levels of competition for roles and a willingness for candidates to explore new opportunities and different sectors.

All this means that future relationships between employers and employees will be different by necessity.

The concept of the “Psychological Contract” is not a new one but I feel it will become a critical component in the post-COVID world of recruitment, and it is surely to be tested by both sides as organisations and individuals acclimatise to new ways of working.

What is the Psychological Contract?

The Psychological Contract is a concept developed by organisational scholar Denise Rousseau. It represents the mutual beliefs, perceptions and informal obligations between an employer and an employee.

Emerging in the early 60s, it is core to understanding the complexities of the employment relationship from both sides of the coin.

The Psychological Contract itself refers to what are basically an unwritten set of expectations in the relationship between employer and employee, distinct from the formal, structured Employment Contract.

However, combined together, the Psychological Contract and the Employment Contract, are what defines the overall employer/employee relationship.

Traditional loyalty to an organisation and formal commitment are becoming less prevelent, a trend we’d seen for many years, before the pandemic hit.

Organisations have become more focussed on a transactional relationship with their employees, as the market for management labour has evolved.

As employees we’re encouraged to pursue a more career driven approach where changing roles is the best way to progress and move up the ladder.

Employers have moved towards shorter-term tenures for exec roles, which brings with it advantages and disadvantages.

Within Rousseau’s Psychological Contract, there are five distinct types of contract:

  1. Relational
  2. Transactional
  3. Balanced
  4. Transitional
  5. Work Engagement.

The Transactional Contract is focused more on the explicit elements of the contract without accounting much for the intrinsic qualities of employees.

More common in organisations with authoritative management styles and hierarchal control, Transactional Contracts are associated with a lack of trust in the employer, and greater resistance to change.

Will even the most well-rewarded in these types of organisations tolerate this in the future?

Surely, more transactional cultures will be harder to justify, even if more difficult to change?

Will we see a shift to greater Relational Psychological Contracts?

Relational psychological contract on the other-hand stress interdependence of the organisation, a high degree of social exchange and they tend to be longer term in nature.

Organisations may seek to gain advantage by placing more trust in employees to work from home and allow more flexible working hours. Agility requires flexibility.

McGregor’s X & Y Theory looks at what motivates us to come to work each morning.

In Theory Y it stresses the importance of ‘Participative Management’ that emphasises leadership, and it shares many similarities with the Relational Contract.

Both place a high degree of emphasis on the fact that commitment and belief are the intrinsic values of people to want to work for something, beyond the obvious monetary reasons.

Relational Contracts by their nature are more about trust and increased acceptance of and to change. Not all employer/employee relationships easily lend themselves to further flexibility – some roles will always require a certain level of rigidity of course, and for good reasons.

What are the implications of the new normal?

Organisations have had to embrace a seismic shift to home-working, so what does this mean for the Psychological Contract?

  • Relational and Balanced Contracts have a positive impact on work engagement. 
  • Contracts included in the long-term dimension lead to higher work engagement. 
  • Contracts that provide socio-emotional support lead to higher work engagement.

With greater emphasis on home-working and self-motivation, the Psychological Contract will be critical in providing a means of establishing effective relationships between an organisation and their employees.

Effective communication will be key as we all adapt to less face to face interaction. Social skills will be even more important when managing remote teams and departments.

The maintenance of such ‘contracts’ will help to keep those relationships healthy, however, companies now need to establish ways of adjusting the terms of the Psychological Contract to meet the needs of an increasingly mobile and versatile workforce.

Are the days of working 14 hour days in the office now gone?

The coronavirus pandemic has touched every part of society, shutting down the majority of the country and challenging our very nature as humans to be ‘social’.

In an employment context, stress and anxiety may well be exacerbated. For us, we’ve been unable to go into the office and meet face to face with clients or candidates, a key part of our business pre-COVID. That’s OK, however, in a ‘people business’ we’re noting that we need to adapt our inter-personal relationship development skills.

Working from home brings many a challenge for organisations and their employees, for all of us.

Perhaps you’ve been furloughed?

How does that affect your ‘loyalty’ to your employer?

Do you have concerns about future employment?

Recent events have created uncertainty in the minds of many.

Industries such as retail, travel and hospitality have been decimated. Recovery may be incredibly slow.

The closure of schools means that working parents may be struggling to balance work with family life. Employers able to be flexible and supportive are now much more appreciated.

We’ve all had to make massive adjustments.

What might this mean for the future?

How organisations have reacted to the crisis has, and will continue, to affect the Psychological Contract between employers and employees.

For employers, the challenge remains to treat people fairly and to maintain goodwill, despite difficult circumstances, These are the people who will be there as we get through this.

For employees, recent events will have affected how they feel about their current employer, positively and negatively. Some will feel less secure. Either way, it will affect how people value and prioritise the ‘soft’ elements of the relationship.

The Psychological Contract will, in my opinion, be as important as the physical employment contract in the future. Forward-thinking organisations will recognise this.

If you’re looking for your next role, then please feel free to Upload Your CV or Call Us for an exploratory conversation. If you’re looking for a senior executive for your organisation, please use our Client Upload Form or Call Us now.

Barron Williams

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