One of the famous quotes linked to employees and employment, "Employees join companies but leave managers,” is often associated with the start or the end of an employment cycle. However, there is an interesting journey between starting a new job and leaving a company. In between these two points, there is contracting and performance management, which are crucial for organisations to be effective in strategy implementation. The time in between not only defines the employee experience but also play a crucial role in driving an organisation’s strategic objectives. Understanding and optimising this journey can help companies retain talent, foster engagement, and ensure that employees and managers alike contribute effectively to achieving long-term success.
Preamble – The Role of Psychological Contracting in Performance
Psychological Contracting is the unspoken, informal agreement between an employee and employer that significantly influences performance management outcomes. While formal performance management systems are designed to track measurable outputs, they often miss the deeper, emotional commitments and expectations that form the basis of the psychological contract. This contract is where trust, job security, support, and recognition come into play elements that profoundly affect employee satisfaction and engagement.
When the psychological contract is healthy and mutual expectations are met, it strengthens trust and commitment, which directly improves performance. Employees are more likely to exceed expectations, show higher engagement, and contribute positively to achieving organisational objectives. On the contrary, a breach of this contract can lead to disengagement, frustration, and increased turnover, thereby negatively impacting performance. Thus, the psychological contract's vitality is equally important, if not more so, than the formal employment contract in driving effective performance management.
Employment Contracting – How the Formal Ties into Performance
Employment contracts outline the transactional aspects of the job—what tasks are required and what rewards are offered in return. Performance management systems operate within this framework, evaluating employees against their operational targets. However, the mere existence of an employment contract doesn’t guarantee superior performance. Without the complementary psychological contract, employees may fulfil their duties but fall short of exceeding expectations or engaging fully. For performance to truly flourish, employees need to feel that their psychological needs, beyond the basic job requirements are being met.
It is important to highlight that management plays a critical role in influencing performance outcomes. Intrinsic mindset transformation focuses on reshaping the attitudes and behaviours of managers, which in turn influence the psychological contract. When managers exhibit growth mindsets, they create an environment where performance is encouraged, supported, and recognised. This transformation in management thinking shifts the organisational culture towards one that prioritises high performance, innovation, and employee satisfaction. As managers change, so too does the level of employee engagement and output.
Psychological Contracting – The Hidden Driver of Performance
Trust, respect, and hope lie at the heart of the psychological contract and directly correlate with performance outcomes. When employees feel their psychological needs are met—trusting their leaders, feeling respected, and having hope for the future—they are more likely to be engaged, motivated, and productive. Therefore, nurturing a robust psychological contract should be a strategic priority for performance management. It shapes an environment where employees are encouraged to go above and beyond, aligning personal goals with organisational success.
A strong psychological contract nurtures an environment where performance can thrive because employees feel valued and secure, knowing their contributions are recognised and their future is considered. When employees have hope for their future within the organisation, they are more inclined to invest in their work and go above and beyond the call of duty.
Management-Workforce Relationships (MWR) – The Impact on Performance
The quality of Management-Workforce Relationships (MWR) directly impacts employee performance. The term "management-workforce relationship" refers to the dynamic and interactions between an organisation's management team and its employees. In terms of a model or concept, it often encompasses several key elements that influence workplace culture such as communication, trust, empowerment, recognition, conflict resolution, development, and well-being. Effective MWR assessments can pinpoint areas where management behaviours are eroding performance, allowing organisations to intervene before issues escalate.
A well-designed MWR assessment tool evaluates the specific behaviours that influence trust, respect, and hope—key elements of the psychological contract. By measuring these behaviours, organisations can identify gaps that may be hindering performance and implement targeted interventions. These assessments help organisations understand the factors driving or detracting from performance, allowing them to adjust leadership behaviours and organisational practices to foster a high-performance culture.
Food for Thought – Leadership’s Influence on Performance
Managers are responsible for creating the conditions that enable employees to perform at their best. Trust ensures employees feel safe to take risks and innovate; respect ensures they feel valued and motivated to contribute fully; and hope gives them the confidence to commit long-term to their roles. This is supported by the psychological contract between employer and line management.
When managers fail to uphold these values, employee performance suffers, leading to stagnation or even regression. On the other hand, managers who excel in fostering these values unlock higher levels of performance as employees feel supported and inspired to excel. By consciously shaping and nurturing the psychological contract, managers can transform performance management from a mere evaluation process into a dynamic cycle of support, engagement, and growth.
Conclusion
Ultimately, organisations must recognise that performance management is not merely a system of evaluation but a continuous cycle of engagement, support, and growth, fuelled by a strong psychological contract. By nurturing this unspoken agreement, businesses can unlock the true potential of their workforce and achieve sustainable high performance.
Please get in touch via email at claudette.c@africaia.com if you would like to explore any of AIA’s advisory services on Workplace Culture, such as:
- Culture Alignment
- Employee Engagement
- Change Management
- Learning and development initiatives
- Performance Management
- Coaching
Pefromance Management Workplace Psychology Organisations
Claudette Carney
Oct 2024