Restoring trust and renegotiating psychological contracts in the context of strategic change

This paper examines how trust between employees and management is restored after being compromised during change. We apply the psychological contract perspective to show how the loss of trust can be understood as a psychological contract breach, and explore how a renegotiated psychological contract can restore trust. We conducted a longitudinal qualitative case study of an organization undergoing large-scale change related to a post-merger integration. Our findings indicate that the management needs to restore balance and compensate the breaches of the psychological contract to restore trust. Moreover, we introduce a three step approach to trust repair. The first step includes balancing the breached psychological contract by making specific offerings to the harmed party. The second step relates to compensating the breaches of the psychological contract by renegotiating the psychological contract and its transactional terms. Finally, the third step concerns broadening the psychological contract to include relational elements which enable the parties to develop a better relationship. We end our paper by discussing theoretical implications and avenues for future research.