Psychological Contracts

The psychological contract is, in essence, a mental balance sheet of costs and rewards (Eddleston, Kidder, & Litzky, 2003). In the workplace, it involves expectations concerning what the employee owes to the employer and what the employer owes to the employee (Kidder & Bucholtz, 2002, p. 602). A psychological contract is based on the notion of social exchange (Eddleston, Kidder, & Litzky, 2003). Social exchange "is a deeply rooted behavior in most societies; people form relationships in order to give and receive things" of value (Eddleston, Kidder, & Litzy, 2003, p. 87). These reciprocal expectations are formed in a manner that seeks to maximize rewards and minimize costs.

According to Kidder and Bucholtz (2002), "A psychological contract is composed of an individual’s beliefs about the nature of his or her exchange agreement with another party" p. 602. Psychological contracts are formed, therefore, whenever there is an exchange between people. In the workplace, "employment is a psychological contract in which the employee fulfills his or her responsibilities with the expectation that the employer will reciprocate" (Kidder & Bucholz, 2002, p. 602). Unlike written employment contracts, psychological contracts exist in the minds of the individuals involved—that is, the two parties may have different beliefs about their reciprocal obligations.