Employment agreements work best when they spell out expectations but also encourage autonomy. | Reuters/Andrea Coma

For years, new hires at Nordstrom famously received a copy of the company’s employee “handbook.” It was a single 5-by-8 card that read, “Rule #1: Use best judgment in all situations. There will be no additional rules.” The successful fashion retailer features regularly on the Fortune 500 list and has been consistently ranked on the magazine’s list of 100 Best Companies to Work For. A mere coincidence?

While Nordstrom’s full set of workplace policies were available in greater detail elsewhere, the story highlights the core findings from a new set of studies published in the Journal of Personality and Social Psychology. The research — conducted by Eileen Chou of the University of Virginia, Nir Halevy of Stanford Graduate School of Business, Adam Galinsky of Columbia University, and the late J. Keith Murnighan of Northwestern University — highlights how subtle changes in the language of employment contracts can have a powerful psychological effect and influence a range of key worker behaviors. In fact, designing a contract to specifically curb an employee’s counterproductive behaviors can, ultimately, exacerbate counterproductive behaviors.

Inclusiveness Can Be Imposing

“There seems to be a societal trend toward over-contracting,” Halevy says, whether it’s when signing up for a new credit card, purchasing a plane ticket, or simply using your mobile phone. A similar trend can be found in many workplaces, Halevy says, where contracts are one of the most common tools used to regulate relationships.

“From management’s perspective, contracts are too often used merely as a way to exercise control over the workforce,” says Halevy, a professor of organizational behavior at Stanford GSB. “But management could also use contracts to motivate employees. Our research explains how employers can achieve both ends with the same tool.”

The researchers performed a series of experiments on an online labor market, where workers completed a variety of jobs after reading and agreeing to simple employment contracts. In several experiments, the researchers manipulated the wording in each work agreement and examined how those changes influenced the workers’ subsequent behaviors.

In one experiment, they used exactly the same clauses across conditions, but manipulated whether the contract was perceived as more specific or less specific than comparable contracts. The manipulations were subtle. Workers assigned to the high-specificity contract received a clause that read, “You should work for exactly 4.5 min on this page. You should spend all of the time concentrating on this task.” The comparable clause provided to employees assigned to the low-specificity contract read, “In total, you should work for around 4.5 min on the data entry task on this page.”

Contracts are too often used merely as a way to exercise control over the workforce. Nir Halevy

Across nine different experiments, the researchers found that workers whose contracts contained more general language spent more time on their tasks, generated more original ideas, and were more likely to cooperate with others. They were also more likely to return for future work with the same employer, underscoring the durable and long-lasting nature of the effect.

But why? The researchers found that the more general contracts increased people’s sense of autonomy over their work. Those findings dovetail with previous psychological research showing that increased autonomy boosts motivation, which leads to a ripple effect of other desirable outcomes.

“Minimal changes to the wording of contracts can have important consequences,” Halevy says. “Especially when it comes to behaviors that are notoriously difficult to include in contracts, such as increasing effort, task persistence, and instilling a stronger sense of autonomy, which leads to higher levels of intrinsic motivation. Reducing the specificity of contractual language can also increase creativity and cooperation.”

The Balancing Act

While the study suggests that making contracts’ language more general helps nurture a range of positive workplace behaviors, Halevy warns against taking this idea to an extreme — or even abandoning contracts altogether.

“There’s a two-word version of our finding that’s completely wrong, which is ‘specificity hurts,’” Halevy says. “Contracting is a complex phenomenon and there are tradeoffs between control and motivation, between how much you’re trying to guard against risk and how much you’re trying to motivate people.”

From an employee’s perspective, contracts provide much-needed guidance, a scaffold that supports the relationship by coordinating expectations. “People want — and need — structure. They want the protection that a contract gives them. Eliminating contracts altogether is not a viable solution.”

To find that sweet spot, Halevy says, it’s important to understand the difference between the types of clauses typically found in contracts. Typically, contracts contain both “control” and “coordination” clauses. “Control clauses tell you what you can and can’t do at work, while coordination clauses help you align expectations,” Halevy says.

In other words, coordination clauses let workers know what employers want, while control clauses tell them how to do it and, quite often, what not to do. An example of a control clause run amok can be found in a 2003 Department of Defense employment contract for pastry bakers. The 26-page document specifies the number of chocolate chips each cookie should contain, but nowhere does it mention that the cookies should taste good.

The key, Halevy says, is to remember that greater specificity can be helpful in coordination clauses by making sure both sides are on the same page, but it can backfire in control clauses by dampening an employee’s feelings of autonomy. “I would encourage managers and employers to distinguish the purpose of each clause in their contract and, depending on that, make an informed decision on how specific or general it should be,” Halevy says.

“The employment contract can be a very powerful tool, and one that can do a lot for you,” he adds. “It’s disproportionately influential because it comes very early in the relationship. Think through how to optimize your contracts to get more of what you want out of your relationships with employees.”