Episode 120: Anne O’Leary-kelly on Return to Work and Psychological Contracts

April 21 , 2021  |  By Matt Waller

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Anne O'Leary-Kelly, senior associate dean of the Walton College, shares her insight on psychological contracts and the effects the pandemic has had on return to work. In this episode of Be EPIC, we discuss how employee expectations have adjusted in a remote environment and making conscious strides towards fair treatment in the workplace.

Episode Transcript


0:00:08.3 Matt Waller: Hi, I'm Matt Waller, Dean of the Sam M. Walton College of Business. Welcome to Be Epic, the podcast where we explore excellence, professionalism, innovation and collegiality, and what those values mean in business education and your life today. I have with me today Anne O'Leary Kelly, who is a professor in the Department of Management and Senior Associate Dean in the college. And not too long ago, she was telling me about a concept from management and psychology called psychological contract theory, and I had never heard of it, but when she described it, I thought, "Well, that's a really interesting theory," and I started noticing it in a lot of places as I went about my work and one place I noticed it, where it might have an application is in this challenge we all face as leaders of having people come back to work physically. And so this is something if you're a leader and you are struggling with how to get employees back to work, that need to be back to work physically, of course, they're already working, but in some cases, it would be better to have people physically back... There are lots of challenges with it, and I think understanding this theory might help us in terms of how we implement returning to work and really just help us to understand what's going on. So Anne thanks for being willing to talk with us about this, I appreciate it.

0:01:52.3 Anne O'Leary Kelly: Thanks for the opportunity, Matt. I think when you raised the question of would that psychological contract idea apply here on return to work? It was a really great challenge to stop and think about that. I think it's a good example too of how some of our concepts from research, even if they are very theoretical concepts, can maybe not be a roadmap, but certainly be a playbook for approaching some of these challenging problems that we face.

0:02:23.0 Matt Waller: I agree. I know when I was in graduate school the first time and I learned what the theory was, and what theories do, theories describe, explain and predict phenomena. And I had never understood it, I kind of thought, "Well, when people said, 'Well, that's, in theory this would happen, kind of like hypothetically, but you know in our team, we come from different theoretical perspectives, and I've seen many cases where theory that I'm familiar with has applied and you as well, in fact, we had another podcast interview where we talked about identity theory and dealing with students as they lost their identity to some degree, because they weren't in... Everything was so abnormal.

0:03:12.3 Anne O'Leary-Kelly: Yeah.

0:03:13.2 Matt Waller: So Anne, would you mind starting by just explaining what is a psychological contract theory?

0:03:22.5 Anne O'Leary-Kelly: I think the best way to understand psychological contracts is to contrast them with the employment contract. So we all have employment contracts, when we take a job as employees, we have things that are written down, the expectations of what the employee will contribute and what outcomes the employee will receive in exchange from the employer, and those tend to be pretty transactional kinds of terms that are written down, but it helps us know what we can expect from each other, what is this social exchange about, and what are the expectations that should guide us as we go about our work together. So a psychological contract basically recognizes that a lot of the things that we develop expectations around in relation to our work aren't written down in the employment contract. So the psychological contract is all the things around the employment contract that we might develop perceptions about as an employee.

0:04:34.2 Anne O'Leary-Kelly: And a lot of those can be socio-emotional things, so for example, when I work for the Walton College, I expect fair treatment, and I've got my own perceptions of what fair treatment is, I expect professional development in exchange for my work here, I expect some sense of security, those aren't written down, but they're beliefs that I develop about what's implicitly promised to me as part of this relationship. What's been really interesting with PSYCH contracts recently is that there's a lot more discussion about what might be called ideological aspects of a psychological contract. So I may have some values that I expect to see acted out by my organization and begin to think of that as part of what I expect from my employer.

0:05:29.6 Anne O'Leary-Kelly: A good example in the news right now is the pressure that's been put on companies like Delta Airlines around the voting legislation in Georgia. A lot of African-American employees are telling Delta, I expected these values to be enacted and I expect you to act on behalf of these values. And I thought that's what you were as an employer, I thought that's who we were as an organization. So I think there are different aspects or different types of currencies that people might develop psychological contracts around, transactional ones, but the socio-emotional and these ideological are things that people also begin to expect from an employer.

0:06:18.9 Matt Waller: Well, after we talked about this the first time, I looked up some research and I was surprised one, how much work's been done in this field, but two, it was really interesting and it showed how important it is for people who are trying to get employees to come back to work physically to be aware of this because there's a whole bunch of research, empirical studies where they've actually collected data, and they found that when there's a perceived breach of a psychological contract, employees are less engaged. But the other thing is, I found some research, empirical research has also showed that when people feel that the psychological contract is fulfilled, they're more engaged, so all the good things that are associated with engagement come to being... So if in asking people to come back to work physically makes them feel like their psychological contract is bridged, it's gonna cause problems. If they feel like it was fulfilled, they'll even do better. What are some insights you have seen from this research that might inform us about this?

0:07:35.3 Anne O'Leary-Kelly: Well, I think your point's really well taken Matt, that it's critical to understand this isn't just this construct out there that has been developed, it's one that there's no doubt it affects people's engagement, satisfaction, turnover, all of those outcomes that we care about in terms of employees, feeling productive and whole and bringing something to their work. I wanted to make one additional point about this that I think is critical, and that is that the employee may develop these perceptions or expectations, this perceived notion of a promise, and the employer may see it entirely differently. It's not something that's been negotiated. So if we think about what we're facing right now with the Return to Work issue, people have been at home working remotely, that I think is very likely led a lot of people to develop sort of a perceived promise about what's expected of me in terms of my work. We often have equated being present with being accountable. I think a lot of people are sitting in their homes after a year saying, I don't have to be present to be accountable, and they're changing their psychological contract. The employer may not have changed the psychological contract. And so what we're set up for is employers as we develop these Return to Work policies, not thinking about that from the perspective of the employee so much.

0:09:08.9 Anne O'Leary-Kelly: I was struck by that. Recently, I heard that someone in our college had made the statement that, "Well, I'm not getting vaccinated," which means I'm gonna be working at home remotely. So I'm pretty sure it's not how the university is thinking about that, but this person is confident that that's what kind of Return to Work policy has evolved for us. We're set up for a breach of the contract there, and then potentially we have all of those negative consequences.

0:09:41.0 Matt Waller: That's really interesting to think that. The pandemic's causing all kinds of psychological contracts to change in a unilateral manner. And I would imagine it might even be happening with even friend relationships, and I would also think that one thing that is complicated here is that when people are working in an organization and they have... They're coming to work every day. And they're interacting with one another. Their psychological contracts are probably more aligned whereas now everyone's dispersed.

0:10:19.5 Anne O'Leary-Kelly: That is such a critical point. I think that's very insightful of you, Matt, because we've all been hold up alone in so many ways this last year, in ways that we just haven't before, and developing our own senses of what the future will bring for us and having different kinds of experiences. I think the pandemic has led to really negative outcomes for everyone. But I think what we're also discovering is that it has affected some people more in our society than others, so at the same time that we've gone through the pandemic and the losses that come from that we've had some major conversations in our country around the fact that it's affecting the most vulnerable in our society even more, and it's helped to see some of the systemic problems that exist in our society, and then we add into that the George Floyd incident and our greater consciousness about race and then the murders of the Asian women and all of that is really also helping us recognize that we are having different experiences, and I think that's gonna lead also to different expectations around what fair treatment is when we come back.

0:11:48.9 Matt Waller: Yeah, that makes me wonder. People really do have different situations, and some people that will be asking to come back really need to be back more than others, like I think for a university, at least for our college, student-facing staff really need to be here, but maybe people that work in the accounting function don't need to be here as much. So that brings me to a question I'd love to hear your opinion on, is it better to have a blanket approach, like a policy that says, "Here is how everyone's going to be treated," or is it better to have a lot of variety in how people will be treated based on their situations in front of policy perspective.

0:12:39.6 Anne O'Leary-Kelly: I think that depends on how effectively the employer can identify clear and rational criteria for making distinctions. I think it comes down to employers really looking at first of all, are there ways that we can set some criteria that make a lot of sense for us as an organization in distinguishing, and if we can do that, then it makes more sense to develop multiple different options for Return to Work. I think there's another level of question though, and that is, "Okay, let's be aware of how that distinction might play into some of those inequities in our society right now," so if what we find is that all the people who have to be on campus are our female employees, and people who are opted out of that, are our male employees, because we tend to see differences in gender and rank aligning, that's something we wanna stop and think about, what does that mean for us? And what is the signal in that? This is even deeper than just the psychological contract aspect when you frame it in this whole discussion we're having in our society in general, and so I would encourage people to be aware of that, we've seen that conversation taking place around who has to be out on the front lines during the pandemic, and it's mostly people who have lower paying jobs, and that is aligned with racial characteristics and gender.

0:14:15.8 Matt Waller: Anne, is it possible for an organization to create new psychological contracts with employees?

0:14:26.2 Anne O'Leary-Kelly: Yeah, I try to give some thought to what I would recommend from the literature, you asked me that earlier, and let me share a few of those thoughts, and one of them, I think, is that we should be very cautious as leaders and employers, really not to think about this as a Return to Work, 'cause that sounds like we're saying, let's go back to that world that we had before, that world doesn't really exist anymore. So we see that here in our campus, students wanna need different things, and faculty and our staff wanna need different things, people are changed, and those values around who we think we are and our countries are also changing, and we've learned a lot about how we can work effectively in this time.

0:15:16.2 Matt Waller: So I would think then that this will require a lot of communication. So if we say, "Look, we're not going back to "normal", but we are continuing this journey to a different equilibrium. It's almost like a branding kind of exercise, 'cause we're gonna have to come up with a new way to describe what this new thing is.

0:15:39.0 Anne O'Leary-Kelly: Yeah, I think that's right. And then I think we need to think about, in particular, if we have these different approaches for different types of positions, I think we need to think from a PSYCH contract perspective about what's being exchanged in each of those and being as clear as we possibly can about that.

0:15:58.4 Matt Waller: So based on your understanding of the literature, the research and this problem that we face, you think just to summarize a few of the points, we need to position our Return to Work policy as a new psychological contract. We need to come up with language to describe it, we need to have very clear criteria, we need to acknowledge that each approach involves benefits and costs, and we need to be clear about expectations of what each can expect from the other.

0:16:34.4 Anne O'Leary-Kelly: You know, I think another thing to think about is if we do have different arrangements for different people looking at how we can help to create the best deal possible for each group, and that may involve changing up what we do and offer. So let's say that we have some people who must return to work for these valid reasons that we have identified, and we have some folks who don't need to be on location. I think one question might be, is there anything we can do for those folks who must be here on location? On our campus, for example, that would be... Could we get some kind of break in their parking costs that wasn't there before? So again, we're trading off what they're giving and what they're getting, and so thinking about what they're giving that might be a little bit more than the other group. Is there anything we can balance that with in terms of what they're getting then to help them perceive that as a more fair and a brand new arrangement? I think that's important. The other thing I would say, I like your list, but the other thing I would say is that as we are thinking about those criteria for which folks need which type of relationship, the more that we can go to our fundamental values and mission and explaining those, the better that will be.

0:18:00.1 Anne O'Leary-Kelly: So if we say we need certain folks to be on campus, because we are a student-first university, that can speak to people who are here because they value that. A lot of people are here because they believe in the values of what we're doing, and a lot of our staff are here because they believe being connected to a university is something that's important to them and that they can buy into, it's an ideological part of their contract. So I think as we're communicating the criteria and the new contract, I think we wanna go to our values and our mission as much as we can to explain what this new work arrangement or arrangements will look like.

0:18:51.0 Matt Waller: You know, this is so interesting because this really... Again, back to the beginning of our conversation. A good theory describes, explains and predicts phenomena, the phenomena we have, is there's going to be a change in how we work. We need to figure out a way to describe that, but clearly, in talking to you about this, the psychological contracts theory really does help you understand what to consider when you're developing your policy and when you're developing your communication and messaging around this.

0:19:34.6 Anne O'Leary-Kelly: Yeah, I think that's it. I think the messaging is just as critical as everything that brings you up to the new arrangements you're developing. So thinking about the criteria, thinking about the quality issues, all that is part of building out a new approach, but then messaging it is absolutely critical because... Another thing the PSYCH contract literature shows us is that people can accept a broken PSYCH contract if they perceive it was not a deliberate reneging on the contract. So they understand the reason for the change. Yeah, ironically, the pandemic provides an awful good reason for a change in PSYCH contracts, and so I think we need to live into that and use that as part of the communication strategy, like you said, we were this way, the pandemic came and we were different, now we're going to figure out who we are moving into the post-pandemic period. Our values and our mission haven't changed, how we get to those might change.

0:20:45.8 Matt Waller: Well Anne this has been really interesting and timely, so thanks for taking time to really think, 'cause I did ask you to think about how this applies, and I think you really came up with a good answer, and I think this will be helpful to lots of people, so... This is great.

0:21:02.7 Anne O'Leary-Kelly: Well, good, it was fun talking to you about it.


0:21:06.8 Matt Waller: Thanks for listening to today's episode of the Be Epic podcast from the Walton College. You can find us on Google, SoundCloud, iTunes, or look for us wherever you find your podcasts. Be sure to subscribe and rate us, you can find current and past episodes by searching beepic podcast, one word, that's B-E-E-P-I-C podcast. And now be epic.


Matt Waller

Matthew A. Waller is dean emeritus of the Sam M. Walton College of Business and professor of supply chain management. His work as a professor, researcher, and consultant is synergistic, blending academic research with practical insights from industry experience. This continuous cycle of learning and application makes his work more effective, relevant, and impactful.

His goals include contributing to academia through high-quality research and publications, cultivating the next generation of professionals through excellent teaching, and creating value for the organizations he consults by optimizing their strategy and investments.