News And Events

IN RESPONSE TO RECENT STORIES ABOUT CIRCUIT CITY

The New Psychological Contract: It’s more than a day’s pay for a day’s work

Sometimes you've just got to wonder, "What were they thinking?"

Once known for its customer service, Circuit City slashed its workforce by 3,400 last year by firing employees the retailer determined were paid too much and replacing them with less experienced workers. The company squeezed out $150 million in general expenses but so far this fiscal year, it has lost more than $300 million as customers have rebelled against the lack of expertise in the stores.

Multiple studies have been conducted showing how costly it is to lose experienced employees. For a large company, it is estimated that every 10 senior or key professional employees that leave a company, the firm loses $1 million. That figure is eerily close to Circuit City's reported losses relative to the number of employees it dismissed.

Although the Circuit City example is extreme, it is reflective of how the relationship between employees and employers has been significantly reframed in the last twenty years. Employment has gone from being a marriage of sorts to a one-night stand—convenient and disposable, with no emotional entanglements.

According to Katherine V.W. Stone at the University of California, Los Angeles School of Law, there is an unspoken, unwritten “psychological contract” between workers and companies. Employers expect hard work, honesty, and showing up on time, at a minimum. But there are expectations on the employee side as well, which include respect, fairness, and being valued for doing a good day’s work beyond the money in the paycheck. When one side of the contract is breeched, the other side suffers.

Stone says that a workable new psychological contract recognizes a fluid workplace but offers rewards beyond the paycheck. Instead of employment for life, today’s employers can provide challenging assignments that build marketable skills. Results-oriented project work can be interesting and psychologically rewarding, better-suited for a short-term tenure while providing a valuable take-away for the employee. Recognition, promotion and the opportunity to explore lateral jobs to build skills can meet both employer and employee needs.

The key to growing revenues and shareholder value in the long term is investing in employee development, creating and nurturing an atmosphere where employees learn and feel respected.

Owen Davis, Managing Director of U.S. Operations
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