Voluntary Turnover Triggers: Psychological Contract

Introduction

Companies still continue to struggle with voluntary turnover – especially since the COVID-19 pandemic. Staff-initiated resignations not only disrupt workflows and lose institutional knowledge, but they can also impact client delivery and decimate the employee experience (EX). So more business leaders have shifted their attention to the EX-related impacts of voluntary turnover and its causes (Source: Clark 2023).

Another central concept linked to voluntary turnover is a term regarded as the psychological contract. Defined as “the unwritten, intangible agreement and their employer that describes the informal commitments [and] expectations [of their role]” (Source: Enright 2018), the psychological contract plays a central role in influencing employee outcomes. Ranging from morale to intentions to leave, these EX outcomes can ultimately impact the company’s business outcomes. So it’s critical for business leaders to understand what the psychological contract entails, as well as the toll its infringements (‘breaches’ and ‘violations’) can potentially take on the company’s employee & business outcomes.

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Initial Infringements: Breaches

Overview

The psychological contract includes work-related expectations from the employee’s perspective. But as is the case with any human expectations, some are bound to not be met – which could create an instance referred to as a ‘breach’ of the psychological contract (Source: CIPD 2024). For example, if an employee is led to believe that they will promote within a certain timeframe, but that promotion never materializes, a ‘breach’ to their psychological contract can occur. This ‘breach’ not only catches an employee off-guard, but it can also threaten their sense of trust in the company’s evaluation processes and leadership team (Source: Personio). When left unaddressed, ‘breaches’ of the psychological contract can ultimately lead to ‘violations’.

How to Intervene

Managers should strive to avoid psychological contract ‘breaches’ altogether. This can be accomplished by setting proper expectations from the start of an employee’s tenure – such as by providing realistic job previews and reviewing standardized company processes. Not only is this approach more proactive in nature, but it also fosters more trust and transparency with employees from the beginning.

But if a ‘breach’ ultimately occurs, managers should act swiftly. If there’s an existing relationship of trust between the employee and their manager, then it’ll be easier to discuss any ‘breaches’ of their expectations (Source: Enright 2018). This allows the manager to provide clarification about the circumstance, understand the employee’s sentiment, and discuss options for rectification. So long as timely action is taken by leaders to address any potential ‘breaches’, they can prevent them from festering into irreversible ‘violations’.

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Secondary Infringements: Violations

Overview

Any ‘breaches’ to the psychological contract left unaddressed (or unresolved) can fester into more damaging concepts: ‘violations’. These secondary infringements are more serious in nature than ‘breaches’ – since they can directly influence more damaging employee outcomes (e.g., voluntary turnover). Similar to ‘image violations’, psychological contract ‘violations’ compel employees to “reflect on and reassess their current role within a company” (Source: Clark 2023). From the employee perspective, if their work expectations were not met and leadership didn’t bother addressing their concerns, then they will not see themselves as valuable stakeholders to the company. This in turn can accelerate their intentions to leave, followed by their actual departure from the company.

How to Intervene

Once an employee has made the conscious decision to leave a company, there is not much that can be done to change their mind. Despite companies leveraging traditional retention approaches (e.g., retention bonuses), these reactive tactics cannot guarantee that an employee won’t quit (Source: Clark 2022); the damage to their psychological contract has already been done.

However, if a psychological contract ‘violation’ has occurred, senior leadership should get involved. They should allow these impacted employees to share their grievances (if feasible) and outline what actions could help keep them at the company. Depending on how reasonable their requests may be, leadership can determine which course of action to take – even if it means acknowledging these employees’ inevitable departure. But so long as business leaders make a genuine effort to repair trust with employees, this empathetic approach could help forestall staff departures.

Conclusion

Moreover, the psychological contract is a critical component of the employee experience. Since it encompasses an employee’s ‘unwritten expectations’, business leaders need to properly set correct staff’s expectations from the get-go – to avoid any potential ‘breaches’. And when potential ‘breaches’ do occur, managers should quickly intervene to address/correct the situation as needed. Failure to do so will only lead to psychological contract ‘violations’ – which ultimately trigger the voluntary turnover process. Since this cognitive process is difficult to reverse, it’ll be too late for the company to act – and the employee will most likely resign; such a result is not only detrimental to the employee experience, but it can also threaten long-term profitability.