Every member of an organization, in essence, establishes a tacit (unacknowledged, often unconscious) contract between himself or herself and the organization that the employee has joined. This contract typically has to do with the rewards that the employee expects from the organization and the resources, services and attitudes that the employee will provide the organization in return. The rewards that an employee expects range from seemingly rational and publicly acknowledged expectations regarding salary, benefits and job security to often unacknowledged expectations regarding career advancement, public recognition and meaningful work, and even more highly irrational expectations concerning enhanced self-worth, personal security and friendship. Employees also tacitly expect to provide a variety of services and display certain attitudes. Some of these services and attitudes are publicly established, such as working a solid, eight-hour day. Others are less public, such as the employee’s willingness to overlook the incompetence of managers, or their willingness to work overtime without complaining. At a particularly deep level, the employee may be selling his or her soul to the company in exchange for personal self-esteem.

Usually the psychological contract is unacknowledged and non-discussable within organizations. Everyone knows that they exist, but never talks about them—in part because they are very personal and because they are often unrealistic or unfair to either the employee or the organization. Schein suggests that much of the discontent inside many organizations can be traced to the breaking of psychological contracts between the employees and the organization. Governmental agencies, for instance, that have a long history of stable employment, may attract psychological contracts in which employees expect to have lifelong employment in exchange for faithful service and a passive acceptance of authority and even the ineffectiveness of governmental administration. Similarly, mental health workers at a financially strapped human service agency expect to suffer quietly and with dignity in exchange for the waiver of any genuine accountability for the services they provide.