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What binds an associate to a law firm? Mike Emmott considers the role of the psychological contract and what makes a good employer

Good employers have always understood that, in order to be successful, they need to look after their employees. Historically, this has been reflected in employee benefits such as occupational pensions and subsidised canteens. The modern equivalents in professional services are reward packages that can include high salaries, concierge services and a range of ‘cafeteria’ benefits. The aim is to maximise employee satisfaction and help to recruit and retain good people.

Recently, employers have recognised that it is not enough for employees simply to feel satisfied: they also need to be committed to the organisation. There is no single way of securing commitment but research by the Chartered Institute of Personnel & Development shows that an increasing number of managers regard the ‘psychological contract’ as a helpful tool in managing an employment relationship.

So, what is the psychological contract? Essentially, it is the often implicit and informal set of expectations and understandings that an employer and employees have of each other. It is not the formal employment contract, enforceable in law, although this may help to influence employees’ expectations. Seen from the standpoint of employees, the psychological contract is what they believe they are entitled to expect from their employer, including promises they believe the employer has made.

The psychological contract is not about pay and conditions but about the intangible elements of workplace relationships. The evidence shows that it is these intangible issues – specifically, the way in which people are managed – rather than the reward package that has the most direct influence on the bottom line. This is often a hard message for managers to take on board, not least since it means they cannot buy their way out of trouble by improving rewards.

But what does a positive psychological contract look and feel like? The answer – according to David Guest, professor of organisational psychology at King’s College, London – is an employment relationship where employees believe their employer is delivering on its promises; that they are being treated fairly; and that workplace relations are based on mutual trust.

Historically, the psychological contract has been seen as a deal offering employees job security in return for which they offer commitment to their employer. Some people have questioned whether employers today are able to offer job security, and whether this has limited the degree of commitment employees are willing to offer in return.

Research confirms that a majority of employees still feel secure in their job and continue to show loyalty to their employer. Where there are high levels of employee turnover, it is generally an indicator that something is wrong.

But employers need to recognise that employees today expect a lot more than just job security. They also want:

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