Psychological contract: what it is and why it determines motivation and retention
The relationship between a company and an individual is not limited to what is written in a contract.
Every day, through decisions, behaviors, and messages that are more or less implicit, a set of mutual expectations is built that profoundly influences motivation, trust, and retention within the company.
This "whole" is part of what is known as the psychological contract, i.e., the set of beliefs and expectations with which people interpret the company's commitments to them (and vice versa).
Many phenomena that are currently causing concern for HR departments (such as declining engagement and other behaviors like quiet quitting and quiet hiring) do not stem from formal problems, but from a disconnect between what people expected and what they perceive they are receiving.
The psychological contract is a tool for aligning expectations, behaviors, and decision-making systems, ensuring consistency between what the company communicates and what people experience. Let's take a look at what the psychological contract is, why it directly affects motivation and retention today, and how you can make it more solid and sustainable over time.
What is the psychological contract?
The psychological contract is the set of implicit expectations that govern the relationship between a person and the organization they work for.
Unlike a normal "legal contract," the psychological contract is not written, signed, or recorded in any official document, but it greatly influences how people interpret their role, evaluate company decisions, and choose how much effort to put in or whether to stay.
Unlike an employment contract, which formally defines rights, duties, remuneration, and working hours, the psychological contract concerns what people expect from the company and what the company expects from them on an unspoken level: opportunities for growth, recognition, fairness, autonomy, stability, and trust.
The concept has its roots in organizational psychology. Kurt Lewin had already highlighted the importance of perceived dynamics in people's behavior in work contexts; subsequently, Denise
Rousseau systematized the theme, defining the psychological contract as a mental representation of
mutual obligations between individuals and organizations.
The components of the psychological contract
The psychological contract is based on a balance between what the organization expects from people and what people expect from the organization. These expectations are rarely formalized, but they influence behavior, levels of commitment, and decisions to stay much more than companies often realize.
From the company's perspective, implicit expectations may relate, for example, to reliability, openness to change, results orientation, flexibility, and alignment with organizational values. Even when not openly stated, these requirements emerge through evaluation systems, career decisions, and behaviors that are rewarded or penalized on a daily basis.
From the employee's perspective, implicit expectations relate to professional growth, recognition, fairness, stability, autonomy, and consistency between what is promised and what is actually experienced.
If these expectations are confirmed by actual experience, the sense of belonging is strengthened; when they are not met, a rift opens up that can lead to disengagement or departure.
Three factors are certainly decisive in holding these dimensions together: trust, reciprocity, and perception of fairness:
- Trust enables people to invest in the long term.
- reciprocity regulates the balance between contribution and return;
- The perception of fairness influences how business decisions are interpreted, even when they are not favorable to the individual.
Transactional and relational psychological contract
Not all psychological contracts are the same. In literature, two main forms are distinguished: transactional and relational.
The transactional psychological contract refers to a short-term exchange: in fact, we are talking about the provision of a service in exchange for remuneration and defined conditions. We can find it in highly standardized contexts, temporary roles, or the initial stages of an employment relationship, where emotional and identity investment is limited.
The relational psychological contract, on the other hand , develops over time and is based on a deeper mutual commitment. This includes expectations of growth, development, recognition, and continuity. It is typical of core roles, key talents, and organizations that focus on retention and internal development.
How does the psychological contract impact motivation and engagement?
The psychological contract acts as a lens through which people interpret their work experience.
The mechanism is quite simple: when implicit expectations are confirmed in everyday reality, motivation tends to strengthen spontaneously. Conversely, when people perceive a gap between what they expected and what they receive, engagement gradually erodes.
In recent years, this mechanism has become even more relevant due to a structural change in workers' expectations. The implicit promise of stability in exchange for loyalty is no longer sufficient. People evaluate work based on the quality of the overall experience: opportunities for growth, consistency of values, work-life balance, and a sense of usefulness.
The psychological contract has therefore shifted from a logic of security to a logic of meaning.
The psychological contract is also closely linked to issues of purpose, growth, and well-being. People expect their work to be meaningful, to contribute to a coherent path of development, and not to compromise their psychological balance.
When an organization manages to maintain consistency between what it communicates in terms of values, opportunities, and attention to people, and what is actually experienced, motivation increases.
If you are interested in the topic of motivation and engagement, please also read:
How skills assessment promotes employee retention
How skills assessments strengthen employer branding from within
What happens when the psychological contract is violated?
A breach of the psychological contract occurs when a person perceives that the organization has failed to fulfill an implicit promise, an expected commitment, or a principle of fairness.
As we have specified, there does not need to be any actual formal breach: it is sufficient that the experience does not match the expectations built up over time.
When this fracture occurs, the effects are not immediate but often follow a recognizable trajectory:
- trust begins to erode: people begin to question the reliability of the organization and its managers;
- engagement declines: willingness to invest extra energy, collaborate proactively, or "go above and beyond" decreases;
- Emotional detachment grows: work is experienced in a more instrumental way, with less identification and sense of belonging.
- The desire to resign increases: even without explicit signs, the search for alternatives takes shape, which can result in sudden turnover (if you want to know what the "hidden costs" of turnover are, download this report for free).
One example we can cite in this regard concerns growth expectations. Let's suppose that a company communicates, during the selection or evaluation phase, the possibility of development and advancement. Over time, however, these opportunities do not materialize or are managed in a non-transparent manner. Even without a written promise, the other person may perceive a breach of the implicit agreement: the result is disillusionment, a decline in commitment, and, often, a decision to leave the role.
What can HR do to prevent a breach of the psychological contract?
The psychological contract is not formed in a single moment, but is built and renewed every day through decisions, behaviors, and organizational messages.
Within this process, HR and managers play complementary but distinct roles: HR defines the system, managers make it a reality in people's everyday experience.
As HR, you will be responsible for designing consistent processes, from recruitment to development, reducing the gap between what the company says and what people experience. Managers, on the other hand, are the most immediate interface of the psychological contract: through feedback, assigned priorities, and operational choices, they transform organizational promises into tangible realities or, conversely, into sources of frustration.
WHAT TO DO?
- Make mutual expectations explicit: clarify what the company expects in terms of contribution, autonomy, and responsibility, and what people can expect in terms of growth, support, and recognition.
- align communication and decision-making processes: avoid employer branding, internal messages, and actual practices telling different stories. Consistency is the first line of defense for trust;
- supports managers in their role as "guardians of the agreement": trains managers on feedback, managing expectations, and communicating boundaries, especially in times of change or uncertainty;
- Detect subtle signs of misalignment: Use structured listening, assessment, and feedback tools to identify frustration, cynicism, or declining engagement early on, before they lead to resignation.
How Skillvue helps companies make the psychological contract clearer, more consistent, and more sustainable
The psychological contract is based on implicit expectations. For this very reason, one of the greatest risks for organizations is managing it on the basis of perceptions, habits, or subjective judgments, rather than structured evidence.
Skillvue supports HR in transforming the psychological contract from an "invisible" dimension to a manageable lever, thanks to objective and standardized assessments of skills, potential, and motivation.
Through rapid and scalable skill assessments, the company can obtain a clear and shared picture of what people can do today and what they can realistically develop over time.
Specifically, Skillvue allows you to:
- align expectations and decisions on growth, development, and internal mobility, reducing implicit promises not supported by data;
- make evaluation criteria more transparent, limiting perceptions of arbitrariness or injustice that fuel breaches of the psychological contract;
- support managers and HR in discussions about expectations, providing an objective basis for feedback, development plans, and career paths;
- understand in advance and pick up on signs of misalignment between role, motivation, and potential before they translate into disengagement or turnover.
Want to turn the psychological contract into a concrete lever for engagement and retention?
Start with data, with Skillvue's Skill Assessments.
