Psychological Contracts and Strategic Leadership

Abstract

Employment is not simply an economic engagement; it has significant social and psychological implications for both employers and employees. For employees the constellation of assumptions, beliefs, and relational implications with employers constitutes a psychological contract. Employers are conscious of the psychological contract, but are perhaps more acutely aware of the complex organizational and strategic decisions that they have to make. This chapter explores the psychological contract against a framework of strategic management and strategic leadership. It suggests that a dominant strategic preoccupation might be problematic in developing productive and motivating psychological contracts. Unfortunately, weakening the psychological contract can be counter-productive because committed organizational participants are often a critical factor in the organization's strategic success. This chapter examines the tensions between strategic leadership and psychological contracts, suggesting a number of ways in which they might be reconciled through redirected and responsive leadership.