Leadership and Levinson’s psychological contract

Back in 2019 we coined the term ‘self-centrism’ to capture changing dynamics in consumer attitudes. The modern consumer wanted to be involved in five core areas of their buying relationship with retailers: access, product, price, service, and experience.

Now we have started to see a similar concept emerge in the workplace. The ‘self-centric’ employee wants to determine their relationship with their employer on their terms. This is something my mentor, the late, great Harry Levinson termed ‘the psychological contract’. The covenant that exists between employer and employee. It is now being recast with different generations having different, and often irreconcilable, expectations for their employer and its leadership.

While some industries are more restricted in how they can meet employee expectations with regard to working from home, there are common threads appearing. Similarly, the expectations of different generations vary but, almost universally, employees increasingly want an affinity with their employer and its leadership.

The psychological contract between employer and employee is being re-negotiated, if not entirely rewritten. Never has the employee needed so much from the employer, and simultaneously had so much leverage. This puts organizations on the back foot, even feeling like “the tail is wagging the dog.”  Well, get used to it, THIS is the New Normal!

Employee self-centrism extends beyond how, when and where work will be done but also into the more complex world of shared beliefs and values. It is at the heart of Levinson’s psychological contract – heart / mind AND compensation!

What is especially challenging for leaders is that employee expectations differ wildly across these dimensions. The demands of younger generations (which now account for 48% of the US workforce) need to be balanced against the expectations of longer serving generations. Indexing too heavily on the needs of one risks alienating others.

Intergenerational leadership is a complicated exercise in achieving institutional harmony. Those unable to achieve will be engaged in a seemingly endless game of organizational ‘whack-a-mole’ in terms of employee engagement and attitudes.

There are some shared expectations though. The psychological contract for most ‘self-centric’ workers includes:

• a diverse, inclusive and representative workplace (in the Boardroom and corner offices, too),
• an organization that is positively contributing to society,
• values that clearly guide how people are paid, promoted, celebrated and, when needed, dismissed equitably, and
• individual leaders who are respected role models for the values of the firm.

Leaders who try to give everyone what they want will fail. That is NOT the solution. We need new guidelines on leadership that make the psychological contract viable and resilient in the new world we are living in. And for leaders, now under near constant scrutiny from multiple, diverse, and diffuse stakeholders, rhetoric is not enough. Employees expect action on the issues that matter to them. Whether this is taking a stand on the environmental and social issues affecting the world in which we live or regulating behavior within the business, the maxim ‘the standard you walk past is the standard you become’ is now more apt for the transformational leader than ever before.