The Psychological Contract: A plain-English guide for managers

Your employment contract tells you hours, pay and job title.

The psychological contract covers the real deal, the unwritten expectations that shape how people show up.

The CIPD describes it as influencing “how people behave from day to day”, built on everyday actions and how they are interpreted.  

Managers affect this daily, often without noticing; a delayed reply, a change of plan, a public thanks, a broken promise. Each moment nudges the contract in a positive or negative direction!

What is the psychological contract?

Think of the psychological contract as the running balance of expectations between a person and their employer. It is:

Perceptual. What people think was promised, not only what was written.  

Reciprocal. I do X, I expect Y in return.

Dynamic. It shifts with role changes, restructures and life events. 

Two segments help managers make sense of it:

Transactional = Tangible exchanges like pay, hours, equipment and training. 

Relational = The social side, like trust, belonging, development and recognition. 

A quick test: if someone asked your team what they feel the organisation owes them and what they owe the organisation, could they answer clearly and consistently?

Why it breaks

A breach in the psychological contract happens when people feel promised conditions were not met, and violation is the emotional spike that can follow. So, failure to meet promises is perceived as a ‘breach’, and the ‘violation’ felt afterwards, often develops into feelings of injustice or betrayal. 

Common triggers for new managers:

• Unstated assumptions: You thought flexible start times were fine, a teammate thought you had quietly scrapped them.

• Shifting priorities without context: Work gets pulled mid-stream, the why is unclear, effort feels wasted.

• Inconsistent boundaries: Exceptions for one person signal unfairness to others.

• Over-promising: Good intentions become broken promises when dependencies or approvals bite.

• Poor recognition: Wins go unnoticed, effort feels taken for granted.

Why care? This large meta-analysis found psychological contract breach is reliably associated with lower job satisfaction, commitment and quiet-quitting. They also found it reduced in-role performance and organisational citizenship, and produced higher turnover intentions.

Five simple resets you can run this week

These are quick and low on admin! Use them to reset expectations and rebuild trust with your team.

1) The two-way expectations reset

• Run a 20-minute 1-to-1 using these prompts:

• What helps you do your best work consistently?

• What do you need from me and the team this quarter?

• How would you like feedback, both praise and course-corrections?

• What do you believe I expect from you, and what do you expect from me?

• What could we clarify about priorities or decision-making?

Close with: “Here is what you can expect from me. Here is what I will ask of you. Let’s review in a month.” This makes the implicit, explicit, which protects the contract. 

2) A one-page team working agreement

Create a short one-pager with your team that covers: core working hours, response-time norms, meeting etiquette, decision rights, how the team will raise issues, and how you’ll recognise wins. Then publish it somewhere the team will see regularly - whether that’s on an intranet, within something like Teams, or literally printed out and up on the wall! It’ll blend transactional and relational elements in a visible way and ideally generate buy-in from the whole team on ways of working. 

3) Decision rights, explained in plain English

Map three buckets: I decide, we decide, I escalate. Share examples so people can spot the pattern. When you make an exception, explain why and whether it is a one-off or a new rule.

4) Recognition that lands

End each week by thanking three people on something specific, naming the behaviour and the impact. It’s a tiny habit that sends a big signal; it strengthens the relational side of the contract and costs nothing to do.

5) Context before change

If priorities shift, explain why, what changes, what stays the same, and what you expect people to stop doing. Providing clarity reduces the chance that people interpret change as broken promises.

Scripts you can copy-paste

Expectation-setting opener

“Thanks for all the work you’ve put in on [task/project]. I would like us to be explicit about what we can expect from each other going forward - here’s what you can expect from me, and what I’ll ask from you. We can check in on how this feels in a month.”

When you cannot meet a request

“I want to be clear upfront, unfortunately I can’t commit to that timeline because of [task/project/situation]. Here’s what I can commit to now, and I’ll update you by Friday if anything changes.”

When you spot a wobble

“I sensed there may have been some frustration after the meeting - if something I did felt off or broke an expectation, I’d like to hear it. Can we have a quick chat about it?”

Working with today’s expectations

Employee expectations have shifted in recent years, as the CIPD highlights, there’s now a more transactional mood and a search for meaning and flexibility. One data point from the study showed: “43% of employees now say they work ‘just for the money’, compared with 36% in 2019.” Now, we’re not debating whether that’s “better or worse than before” but instead, using it as a prompt to make expectations clearer and purpose more tangible! 

Pitfalls to avoid

• Confusing niceness with fairness: Clear and consistent beats vague and friendly.

• Treating everything as confidential: Share as much context as you safely can, and be transparent about what you cannot share yet. 

• Letting small misses slide: Acknowledge and reset quickly before a string of misses turns into perceived breach.  Where this connects to development

If managers are stepping up, the psychological contract is the thread that links everything from feedback to motivation. Our live, two-hour session, Thinking as a Manager,  gives new managers the tools and language to manage it well. Pair it with Conflict Resolution when trust has slipped, and Motivating Others to build a positive relational contract.

FAQs: psychological contract for managers

Is the psychological contract legally binding?

No. It lives in perceptions and day-to-day interactions, not in law. It still drives behaviour and outcomes, so treat it with care. 

How can I tell if the contract is fraying?

Look for signs like withdrawal in meetings, muted updates, rising cynicism, or “I’m not paid to do that” comments. Ask people directly what feels unclear or unfair.

Can I fix a perceived breach?

Often, yes. Acknowledge what happened, apologise without hedging if you got it wrong, restate what you can commit to, and offer a way to make it up to people where sensible. 

What should I do during a restructure?

Over-communicate context, be honest about uncertainty, and give people clear timelines for updates. Protect small certainties like 1-to-1s and recognition. 

How does this relate to motivation?

People are more engaged when they feel promises around growth, fairness and voice are kept. Make sure development, recognition and autonomy are visible and consistent.