Psychological Contract In Employer-Employee Relationship

Published by MBA Skool Team, Published on September 22, 2014

Confining ourselves to the typical Psychological Contract guiding employer-employee relationship in younger readers’/participants’ Intellectual Capacity Building to enable them to understand the reality of our total being. In this article we wish to be practical and not intellectual. After all, this is precisely the intention of all Conclaves- where the participants, especially such younger ones, go away with a sense of fulfillment in having learnt an approach altogether different and quite new. Therefore we explore differently and take another route. We attempt to flow from the macro to the micro of inter-linked relationships of positive nature and vice versa within corporate and beyond.

Attracting corporate and student participation alike, this article of ours shall challenge current 'best' practices of our managing of expectations during times of Complexity and Change, Whistle blowing and Organization Citizenship Behavior. What could be different but appropriate Leadership, re-defined and distinct from the theatrical fun of attending lectures & conclaves? Indeed we believe such appropriate re-defined leadership, is beckoning India’s, nay the world’s Youthful Worker-Managers for a better change.

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Denise Rousseau defines Psychological Contracts as mutual beliefs, perceptions, and obligations that define the dynamics of relationships; distinct from formal contracts. We take this proposition forward beyond the realm of 'employment contracts' into the paradigm of “Contracts” (as defined by Rousseau) that exist (or do not?) between a citizen and his nation, between parents, between parents and children, between the teacher and the taught, between friends and colleagues in formal/informal scenarios. In so doing we seek to state that any beneficial relationship entirely depends on the conscious or unconscious risk awareness between both parties in the development of stronger relationships–as exist (or do not?) exist contextually. And this risk awareness, for whatever its value, impacts all our relationships everywhere to alter behavior.

Psychological Contracts have enabled conquest of Planet Earth. We are expanding into conquest of Life in our perceived Universe. However among nations there is neither unity nor bonding. If America has the freedom to bomb out Libya, Iraq and Afghanistan; Russia and China also exert their might across the Baltic, Ukraine and China Seas as does India and Pakistan over Kashmir with Israel and Palestine/Hamas over Gaza. The relationships are very dynamic and risky but not at all positive. Our relationships are fragile; hence Psychological Contracts are also negative in nature. The key issue is if negative Psychological Contracts are controlling quality of our lives and living than the positives Denise Rousseau seeks to define; or we seek to understand from him and therefore not understand! Our lives involve nurturing relationships of whatever nature with whomsoever competently or ineffectively. Actually, we stand on the brink of disaster – ecologically, materialistically and spiritually! Therefore confining ourselves to only employer-employee contract is meaningless when such ‘contract' is intrinsically very much related to what we functionally need to become i.e. better, transparent human beings-on a collaborative and cooperative journey to ‘Live and Let Die’. But this article is not a Bondish sermon; though we believe if Ian Fleming were indeed alive, he would define today’s LPG as remarkably transforming into insecure, unstable and ineffective relationships across domains where we are absolutely unable to manage our expectations of each other and one another. But yes, there can be other different perspectives articulated based on higher sensibilities of the same.

We believe all Psychological Contracts enable us to elevate from the mundane to the natural human spirit of effective “Meaningful” relationship. One such example would be the distinction in thinking patterns between Occidental and Oriental civilizations-the “I think, therefore I am” syndrome versus the “I am, therefore I think” syndrome. This has been the epicenter of all conflicts in relationships. And we believe all relationships are indeed Psychological Contracts!

Therefore, in building our relationships across time and space, we are trying to move from a discontinuity in life to one of continuity, from disharmony to harmony, from ‘Sight’ to ‘Insight’. We call this thinking pattern and behavior “Competent Motivation”. This continuity comes from our core values, self-images, visions aided/abetted by our prejudices and stereotype behavior. We cannot ignore the evolutionary history (soil and culture) we are parts and products of. Everything is propelled by a CONSCIOUS desire within us to transform for a better change. This in effect enables conscious awareness to have or not have effective Psychological Contracts.

As per our perspective, the ‘efficacy’ of life to grow and grow through unnatural greed, desires and powers has totally mismanaged the expectations of the complexity in relationships. A powerful minority of 5% of the world population controls majority assets of the world. Many of us unconsiously contribute to unethical best practices and these also involve the ordinary non-Whistleblower type empolyees of Enron, MCX-commodity market- aka J. Shaw, Mckinsey Insider trading -aka Rajat Gupta and Rajaratnam, Scams of Shahara and Sharda of Roy and Sen varieties etc. Lack of transparency and truthfulness permeate the whole commercial and other transactions we live by day in and day out on Planet Earth.

Contextually, all employer-employee relationships are based on economic needs and heirarchial relationships within which a powerful psychological contract exists. Our question is where exactly should we draw a line in order to not cross the "laxman rekha"? This indeed is the challenge in all relationships, aka Psychological Contracts.

Table A below indicates our life-journey through different dimensions, the succinct meanings and questions addressed explained in Vedic Management. It ideates on the individual and cosmic forces that are at the back-end of human behavior- say for example the compulsions that happened in the live burning of the GM(HR) in Maruti’s Gurgaon Plant factory last year. What are the levels of self-realization of those persons who burnt him to death? What frenzy unleashed by the management compelled them to do what they did, for instance? Such examples are happening daily with a forced fury across our society- it can and does happen to you and me, with your parents, with your teachers and with your friends. Psychological Contract indeed but of a very subtle nature! Hence we need to understand all relationships are contractual and carry the same risk management; differences are in degrees. Such awareness will bond us to effectively deal with antagonistic and non-antagonistic contradictions.


Sl. No


Your Dimension


Questions Arising


Self Management


Micro-level Management of Body, Mind & Intellect;

Physical, Emotional & Creative aspects; Your Conduct & Personality attributes

What is your SWOT? How to improve/ overcome them? How to manage yourself?


Relationship Management

Individual Relationship  with External entities

Family, Varna (class), Asrama (life-stage), Indian or Pakistani? General Mgmt principles, assumptions and & concepts within heirarchies

Where do you belong to? How do you learn? How to properly manage relationships with family,friends, colleagues, groups?

How to effectively manage relationships with Society? What are the various general mgmt principles and how to apply these?


Cosmic Management

Individual & the Cosmic Forces

Universal Level, Ecology

Environment, Cosmic Forces

What are the environmental concerns? What is link between plant-life management and animal life management? Should human beings propitiate the cosmic forces?


Spiritual Management

Individual & the Inner Spirit

Subtle level, Atman, Self-realization, Eternal Bliss

What is the nature of inner spirit? What is the meaning of self-realization? How to move on…?

Table B provides a similar but much more recent allusion arrived at brilliantly by Daniel Goleman’s Emotional Intelligence Model – a fundamental in Behavioral inputs. There are very few differences bewteen the two aforesaid Models which both speak of and enunciate Psycholocical Contracts or transactional relationships between two persons, between individual with a group, between groups with groups. And this is precisely what we all are doing- at the micro or macro levels. But what is most interesting is that Table A and Table B, though eons apart in time and space history, are actually talking the same language!

And thus, given this macro overview but within a micro perspective we now have a powerful choice. We need accept or reject that employer-employee 'contract' is part and parcel of the larger contract we hold to ourselves as Citizens, Parents, Teachers and Students. Unless we develop ourselves on the 'whole', how can a 'part' be effective? Let us move to create that demographic dividend or a demographic disaster in the VUCA World of our rapidly emerging multi-generational workforce.

This article has been authored by Aritra Bhattacharya & Partho Sengupta from KIIT School of Management

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