Cheating in the workplace: An experimental study of the impact of bonuses and productivity

Gill, David and Prowse, Victoria and Vlassopoulos, Michael (2013): Cheating in the workplace: An experimental study of the impact of bonuses and productivity.

Abstract

We use an online real-effort experiment to investigate how bonus-based pay and worker productivity interact with workplace cheating. Firms often use bonus-based compensation plans, such as group bonuses and firm-wide profit sharing, that induce considerable uncertainty in how much workers are paid. Exposing workers to a compensation scheme based on random bonuses makes them cheat more but has no effect on their productivity. We also find that more productive workers behave more dishonestly. These results are consistent with workers’ cheating behavior responding to the perceived fairness of their employer’s compensation scheme.

• Item Type: MPRA Paper
• Language: English
• Keywords: Bonus, compensation, cheating, dishonesty, lying, employee crime, productivity, slider task, real effort, experiment.
• Subjects: C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C91 - Laboratory, Individual Behavior; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J33 - Compensation Packages ; Payment Methods

References

Abdolmohammadi, M.J. and Baker, C.R. (2007). The relationship between moral reasoning and plagiarism in accounting courses: A replication study. Issues in Accounting Education, 22(1): 45–55

Abeler, J., Becker, A., and Falk, A. (2012). Truth-telling – A representative assessment. Mimeo, University of Oxford

ACFE (2012). Report to the Nations on Occupational Fraud and Abuse: 2012 Global Fraud Study. Association of Certified Fraud Examiners, TX: Austin

Bertrand, M. and Mullainathan, S. (2001). Are CEOs rewarded for luck? The ones without principals are. Quarterly Journal of Economics, 116(3): 901–932

Bhattacherjee, D. (2005). The effects of group incentives in an Indian firm: Evidence from payroll data. Labour, 19(1): 147–173

Bonein, A. and Denant-Boemont, L. (2011). Temptation, commitment and peer pressure: A laboratory experiment. Mimeo, University of Rennes

Bucciol, A. and Piovesan, M. (2011). Luck or cheating? A field experiment on honesty with children. Journal of Economic Psychology, 32(1): 73–78

Burns, N. and Kedia, S. (2006). The impact of performance-based compensation on misreporting. Journal of Financial Economics, 79(1): 35–67

Cadsby, C.B., Song, F., and Tapon, F. (2010). Are you paying your employees to cheat? An experimental investigation. B.E. Journal of Economic Analysis & Policy, 10(1): Article 35

Cettolin, E. and Riedl, A. (2011). Fairness and uncertainty. Mimeo, Maastricht University

Charness, G. and Dufwenberg, M. (2006). Promises and partnership. Econometrica, 74(6): 1579–1601

Charness, G. and Garoupa, N. (2000). Reputation, honesty, and efficiency with insider information: An experiment. Journal of Economics & Management Strategy, 9(3): 425–451

Charness, G. and Levine, D.I. (2007). Intention and stochastic outcomes: An experimental study. Economic Journal, 117(522): 1051–1072

Chen, C.X. and Sandino, T. (forthcoming). Can wages buy honesty? The relationship between relative wages and employee theft. Journal of Accounting Research

Chow, C.W., Hirst, M.K., and Shields, M.D. (1994). Motivating truthful subordinate reporting: An experimental investigation in a two-subordinate context. Contemporary Accounting Research, 10(2): 699–720

Cojoc, D. and Stoian, A. (2012). Dishonesty and charitable behavior. Mimeo, University of Iowa

Conrads, J., Irlenbusch, B., Rilke, R.M., and Walkowitz, G. (2013). Lying and team incentives. Journal of Economic Psychology, 34: 1–7

Core, J.E. and Guay, W.R. (2001). Stock option plans for non-executive employees. Journal of Financial Economics, 61(2): 253–287

Coricelli, G., Joffily, M., Montmarquette, C., and Villeval, M.C. (2010). Cheating, emotions, and rationality: An experiment on tax evasion. Experimental Economics, 13(2): 226–247

Croson, R., Boles, T., and Murnighan, J. (2003). Cheap talk in bargaining experiments: lying and threats in ultimatum games. Journal of Economic Behavior & Organization, 51(2): 143–159

Curry, P.A. and Mongrain, S. (2009). Deterrence in rank-order tournaments. Review of Law & Economics, 5(1): 723–740

Dickens, W.T., Katz, L.F., Lang, K., and Summers, L.H. (1989). Employee crime and the monitoring puzzle. Journal of Labor Economics, 7(3): 331–347

Djawadi, B.M. and Fahr, R. (2012). The impact of tax knowledge and budget spendinginfluence on tax compliance. Mimeo, University of Paderborn

Dreber, A. and Johannesson, M. (2008). Gender differences in deception. Economics Letters, 99(1): 197–199

Eacret, N.D., Lafferty, N.C., and Jhunjhunwala, T. (2011). When is inequality fair? Mimeo, University of Texas at Dallas

Efendi, J., Srivastava, A., and Swanson, E. (2007). Why do corporate managers misstate financial statements? The role of option compensation and other factors. Journal of Financial Economics, 85(3): 667–708

Eisenberger, R. and Shank, D.M. (1985). Personal work ethic and effort training affect cheating. Journal of Personality and Social Psychology, 49(2): 520–528

Eisenkopf, G., Gurtoviy, R., and Utikal, V. (2011). Size matters - when it comes to lies. IAAEG Discussion Paper 02/2011

Erat, S. and Gneezy, U. (2012). White lies. Management Science, 58(4): 723–733

Evans III, J.H., Hannan, R.L., Krishnan, R., and Moser, D.V. (2001). Honesty in managerial reporting. Accounting Review, 76(4): 537–559

Fischbacher, U. and Heusi, F. (2008). Lies in disguise: An experimental study on cheating. TWI Research Paper 40

Fischbacher, U. and Utikal, V. (2011). Disadvantageous lies. TWI Research Paper 71

Gill, D. and Prowse, V. (2011a). Gender differences and dynamics in competition: The role of luck. Department of Economics Discussion Paper 564, University of Oxford

Gill, D. and Prowse, V. (2011b). A novel computerized real effort task based on sliders. IZA Discussion Paper 5801

Gill, D. and Prowse, V. (2012). A structural analysis of disappointment aversion in a real effort competition. American Economic Review, 102(1): 469–503

Gilpatric, S.M. (2011). Cheating in contests. Economic Inquiry, 49(4): 1042–1053

Gino, F., Schweitzer, M.E., Mead, N.L., and Ariely, D. (2011). Unable to resist temptation: How self-control depletion promotes unethical behavior. Organizational Behavior and Human Decision Processes, 115(2): 191–203

Gneezy, U. (2005). Deception: The role of consequences. American Economic Review, 95(1): 384–394

Greenberg, J. (1990). Employee theft as a reaction to underpayment inequity: The hidden cost of pay cuts. Journal of Applied Psychology, 75(5): 561–568

Grover, S.L. (1993). Lying, deceit, and subterfuge: A model of dishonesty in the workplace. Organization Science, 478–495

Gubler, T., Larkin, I.I., and Pierce, L. (2013). The dirty laundry of employee award programs: Evidence from the field. Harvard Business School Working Paper No. 13

Hall, B.J. and Liebman, J.B. (1998). Are CEOs really paid like bureaucrats? Quarterly Journal of Economics, 113(3): 653–691

Hammermann, A., Mohnen, A., and Nieken, P. (2011). Whom to choose as a team mate? A lab experiment about in-group favouritism. IZA Discussion Paper 6286

Hansen, D. (1997). Worker performance and group incentives: A case study. Industrial and Labor Relations Review, 51(1): 37–49

Hao, L. and Houser, D. (2011). Honest lies. ICES Discussion Paper 2011-03, George Mason University

Hetzel, S. (2010). The impact of financial incentives on individual performance: An experimental approach. Diplomarbeit, University of Mannheim

Houser, D., Vetter, S., and Winter, J. (2012). Fairness and cheating. European Economic Review, 56(8): 1645–1655

Jacob, B.A. and Levitt, S.D. (2003). Rotten apples: An investigation of the prevalence and predictors of teacher cheating. Quarterly Journal of Economics, 118(3): 843–877

Jensen, M.C. (2001). Corporate budgeting is broken - let’s fix it. Harvard Business Review, 79(10): 94–101

Jensen, M.C. (2003). Paying people to lie: The truth about the budgeting process. European Financial Management, 9(3): 379–406

Kaur, S., Kremer, M., and Mullainathan, S. (2011). Self-control at work. Mimeo, Harvard University

Knez, M. and Simester, D. (2001). Firm-wide incentives and mutual monitoring at Continental Airlines. Journal of Labor Economics, 19(4): 743–772

Konow, J. (2003). Which is the fairest one of all? A positive analysis of justice theories. Journal of economic literature, 41(4): 1188–1239

Lammers, J., Stapel, D., and Galinsky, A. (2010). Power increases hypocrisy. Psychological Science, 21(5): 737–744

Larkin, I.I. (forthcoming). The cost of high-powered incentives: Employee gaming in enterprise software sales. Journal of Labor Economics

Lazear, E.P. and Rosen, S. (1981). Rank-order tournaments as optimum labor contracts. Journal of Political Economy, 89(5): 841–864

Lewis, A., Bardis, A., Flint, C., Mason, C., Smith, N., Tickle, C., and Zinser, J.(2012). Drawing the line somewhere: An experimental study of moral compromise. Journal of Economic Psychology, 33(4): 718–725

Lundquist, T., Ellingsen, T., Gribbe, E., and Johannesson, M. (2009). The aversion to lying. Journal of Economic Behavior & Organization, 70(1-2): 81–92

Matuszewski, L.J. (2010). Honesty in managerial reporting: Is it affected by perceptions of horizontal equity? Journal of Management Accounting Research, 22(1): 233–250

Mazar, N., Amir, O., and Ariely, D. (2008). The dishonesty of honest people: A theory of self-concept maintenance.

Journal of Marketing Research, 45(6): 633–644 Mead, N.L., Baumeister, R.F., Gino, F., Schweitzer, M.E., and Ariely, D. (2009). Too tired to tell the truth: Self-control resource depletion and dishonesty. Journal of Experimental Social Psychology, 45(3): 594–597

Moers, F. (2005). Discretion and bias in performance evaluation: the impact of diversity and subjectivity. Accounting, Organizations and Society, 30(1): 67–80

Monahan, J. (2012). We’re all Lockeans now: A test of the prevalence of just-desert considerations in a dictator game experiment. M.Phil. Thesis, University of Oxford

Nagin, D.S., Rebitzer, J.B., Sanders, S., and Taylor, L.J. (2002). Monitoring, motivation, and management: The determinants of opportunistic behavior in a field experiment. American Economic Review, 92(4): 850–873

Ordonez, L.D., Schweitzer, M.E., Galinsky, A.D., and Bazerman, M.H. (2009a). Goals gone wild: The systematic side effects of overprescribing goal setting. Academy of Management Perspectives, 23(1): 6–16

Ordonez, L.D., Schweitzer, M.E., Galinsky, A.D., and Bazerman, M.H. (2009b). On good scholarship, goal setting, and scholars gone wild. Academy of Management Perspectives, 23(3): 82–87

Oyer, P. (2004). Why do firms use incentives that have no incentive effects? Journal of Finance, 59(4): 1619–1650

Oyer, P. and Schaefer, S. (2005). Why do some firms give stock options to all employees?: An empirical examination of alternative theories. Journal of �nancial Economics, 76(1): 99–133

Riener, G. and Wiederhold, S. (2011). On social identity, subjective expectations, and the costs of control. Jena Economic Research Paper 2011

Schweitzer, M.E., Ordonez, L., and Douma, B. (2004). Goal setting as a motivator of unethical behavior. Academy of Management Journal, 47(3): 422–432

Schwieren, C. and Weichselbaumer, D. (2010). Does competition enhance performance or cheating? A laboratory experiment. Journal of Economic Psychology, 31(3): 241–253

Shalvi, S., Dana, J., Handgraaf, M.J.J., and De Dreu, C.K.W. (2011). Justified ethicality: Observing desired counterfactuals modifies ethical perceptions and behavior. Organizational Behavior and Human Decision Processes, 115(2): 181–190

Shalvi, S., Eldar, O., and Bereby-Meyer, Y. (forthcoming). Honesty requires time (and lack of justifications). Psychological Science

Suri, S., Goldstein, D.G., and Mason, W.A. (2011). Honesty in an online labor market. Human Computation: Papers from the 2011 AAAI Workshop (WS-11-11)

Trautmann, S.T. (2009). A tractable model of process fairness under risk. Journal of Economic Psychology, 30(5): 803–813

Waller, W.S. and Bishop, R.A. (1990). An experimental study of incentive pay schemes, communication, and intrafirm resource allocation. Accounting Review, 65(4): 812–836

Wang, J.T., Spezio, M., and Camerer, C.F. (2010). Pinocchio’s pupil: Using eyetracking and pupil dilation to understand truth telling and deception in sender-receiver games. American Economic Review, 100(3): 984–1007

Zhang, Y. (2008). The effects of perceived fairness and communication on honesty and collusion in a multi-agent setting. Accounting Review, 83(4): 1125–1146