In our last column we discussed how different types of employees respond to change. Yet another critical aspect of change management is understanding "psychological contracts."

Psychological contracts are the unstated expectations and obligations that have been forged between you and your employees. They exist in every company and determine how people behave on a daily basis.

Healthy psychological contracts serve as a bill of rights, providing balance between employers and employees, fostering trust and loyalty, and keeping employees engaged and motivated. They revolve around mutual commitment and respectful distance. For example:

1. Employers have the right to make strategic decisions, along with plans to achieve those objectives. At the same time, employees should have the ability to give input over tactics, shape how their assignments are to be executed, and expect the employer will provide adequate resources to accomplish their tasks.

2. Employees have the right to know the bigger picture: why they’re being asked to do a particular assignment. Knowing the big picture provides important context.

3. Employers shouldn't expect employees to give up their personal lives for the company, and employees shouldn’t expect the company to maintain the status quo just for them. Change is inherent, especially for second-stage companies.

4. Employers have the right to expect employees will pursue organizational goals and neither sabotage change initiatives or badmouth the company publically. Employees need to recognize the multiple views and perspectives within a company and act maturely. Differences of opinion should be handled with respect and candid dialogue.

As you begin to implement a change, whether it’s a minor HR policy or major restructuring of your business model, think about the psychological contracts that exist in your company. Are you violating any? How might employees react? Are there any unhealthy agreements that employees have formed that you may need to address on a one-to-one basis? When it comes to organizational change, psychological contracts can either hurt you or help you.

Some aspects of psychological contracts become even more important during periods of change, especially if the change is a difficult one.

Information. Employers may be tempted to pull back on communications because they’re uncertain about the outcome of a change or because they don’t want to worry employees. Yet this is no time to go dark. Any time people are cut off from information, it makes them feel like outsiders. Tell them what's going to happen and why it's happening. Discuss different phases you may go through. Become more visible as a leader; get out and walk around so employees have greater access to you. Tell them what you know -; and what you don’t know. More information sparks a greater sense of control and increases trust.

Case in point: In 2008 John Roggow, president of Marshall Plastic Film in Martin, Mich., had to implement a number of belt-tightening measures to survive the recession, which included pay cuts.

"This wasn’t merely a matter of not giving raises--these were real cuts," Roggow says, noting that paychecks were reduced 3 percent for hourly workers, 5 percent for salaried employees, 7 percent for senior managers and 10 percent for anyone with ownership."Yet we didn’t hear any grumbling, and we didn’t lose any people. Everyone came to work, did their job, and did it well."

Roggow chalks up the solidarity to the company’s open-book practices. "Transparency establishes a high level of trust within an organization, and trust is key to the success of any change," he says. "Our staff knew we wouldn't require the cuts or make changes unless they were truly necessary. We had already reduced staffing to support the reduced level of operation, and everyone understood we were struggling with cash flow, to the point of it being difficult to bring material in on time to meet orders."

Being candid about the manner in which reductions were made was also important, Roggow adds, referring to the tiered pay cuts. The greater the degree of decision-making authority an individual had, the deeper their salary cut, he explains. "This established a feeling that the hardship was being shared by all."

Fairness. Indeed, equity is another important variable in change management. Be aware that people are always comparing what they’re getting, or not getting, for their efforts. They want leaders to be just. As a general rule, I recommend that everyone in the company be involved in the change in some manner. If you’re singling out one department for change then you need to explain why.

Recognition. Let employees know how they're doing during the change. Tell them what's working and who's contributing. People want to be recognized for their work. Establish success markers and celebrate the little victories that both individuals and departments make.

There’s an old saying that people fear change. That's not true. They don't fear change, but they do fear loss that change may bring. This could be loss of authority, status, or work they truly enjoy. Savvy leaders can help by identifying the perceived loss (in some cases, employees may be imagining a loss that simply won't happen) and approaching change as an opportunity to learn something new. In many cases, employees may be reluctant to embrace change, but then find that they actually like their new responsibilities or the altered situation.

In today's economy, change is happening at an extremely fast past; for the second-stage entrepreneur it's a constant companion. Leadership is about readying your company for adaptive change--and keeping your employees motivated throughout the transition.