Psychological Contracts for Employers and Employees

Jul 17, 2000

My 80 year-old parents just came up from Kirkwood, Missouri, for a short visit. As is always the case, my dad and I eventually got around to talking about business. I don’t know anyone who has read and studied business, management, and psychology more than my father, Fred Zweig. Anyone who knows him will tell you he has the equivalent of about a half-dozen PhDs in a variety of different disciplines. He spent his working career in advertising, marketing, and management consulting, and has worked with organizations involved in everything from potato chips to birth control, from trucks to several Catholic orders. And one thing he and I both agree on is this— most organizations are lousy places to work. As a result, morale suffers, there’s staff turnover, and quality and profitability erode. But that need not be the case, especially in the A/E/P and environmental consulting industries, which are predominated by smaller firms with private (and involved) ownership. Here, we are in control, not the stock market or some dispassionate investors or bureaucrats. We can create the kinds of organizations that exist for a higher purpose than to just make a profit and that treat people with dignity and respect. In return, we should be able to expect our intelligent and motivated workforce to do what it takes to keep our clients happy and do what’s best for our firms in every case. Critical to creating an environment that encourages this type of appropriate behavior for the benefit of all is something my dad calls a “psychological contract” between the company and its employees. Whether this needs to be written and signed by all affected parties I am not sure. It probably should be to give it real meaning. Either way, whether it has been formalized or merely implied, the contract exists. And the gist of this psychological contract is that both parties have obligations and responsibilities to each other: the company to the employee and the employee to the company. Here’s my thinking on the key elements that should be addressed in such a contract: Intentions of all parties. Management should state that its intentions are good. Employees should know that the firm will not do anything deliberately to harm them or take advantage of them in any way, and that management expects the same kind of treatment in return. Management should state that it wants to run a profitable, growing business, that those are essentials, but they will not take advantage of employees to do it. Management and employees should acknowledge their mutual dependence on one another. Ethics, honor, and integrity. Management should state that it will be ethical and honorable, and will have integrity in every dealing with employees and customers. Management should communicate that this is the only kind of business it is interesting in running. Employees should acknowledge that this is the proper approach to take, agree to support it, and point out any instances where it is not the case. All parties should agree that any and all instances of unethical or dishonest behavior by any member of the organization must be immediately confronted. Clients and customers. Management should state that the business exists to serve clients and customers, and that their satisfaction is essential to the long-term survival and viability of the firm. Employees should state that they understand this fact and agree to always serve clients and customers of the firm to the best of their ability. Both parties should agree that either of them can and should immediately address any instance where clients and customers are not being properly served using the full resources of the organization. Continuing employment. Management should acknowledge its responsibility to run the company such that it is financially viable and able to provide continuing employment for those who are contributing to its success. Management should state that not being able to do this is a failure to meet its responsibility. Employees should acknowledge that they have to make a contribution to the growth and profitability of the organization in order to remain a part of it. Access to information. Management should acknowledge its responsibility to share any and all information that impacts the organization with the employees who are dependent on it, unless sharing this information jeopardizes the organization. Employees should acknowledge their individual and collective responsibility to share with management any and all information that could potentially impact the organization in any meaningful way. There are other provisions that need to be included in this psychological contract, but I’ve run out of space. In any event, I’d strongly consider formalizing this agreement if you are interested in keeping your employees and clients over the long haul. It just makes sense. Originally published 7/17/2000.

About Zweig Group

Zweig Group, three times on the Inc. 500/5000 list, is the industry leader and premiere authority in AEC firm management and marketing, the go-to source for data and research, and the leading provider of customized learning and training. Zweig Group exists to help AEC firms succeed in a complicated and challenging marketplace through services that include: Mergers & Acquisitions, Strategic Planning, Valuation, Executive Search, Board of Director Services, Ownership Transition, Marketing & Branding, and Business Development Training. The firm has offices in Dallas and Fayetteville, Arkansas.