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Are You Paying Your Employees to Cheat? An Experimental Investigation

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Author Info
C. Bram Cadsby () (University of Guelph; Department of Economics)
Fei Song () (Ryerson University)
Francis Tapon () (University of Guelph; Department of Economics)

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Abstract

We compare misrepresentations of performance under a target-based compensation system with those under both a linear piece-rate system and a tournament-based bonus system using a laboratory experiment with salient financial incentives. An anagram game was employed as the experimental task. Results show that productivity, defined as the number of correct words a participant created during the seven experimental rounds, was similar and statistically indistinguishable under the three pay-for-performance schemes. In contrast, whether one considers the number of over-claimed words, the number of work/pay periods in which overclaims occur, or the number of participants making an over-claim at least once, target-based compensation produced significantly more cheating than either of the other two systems. Moreover, consistent with Schweitzer et al. (2004), cheating is more likely under a target-based scheme the closer a participant’s actual production is to the target. The larger amounts of cheating under target-based compensation support Jensen’s (2003) argument that such schemes encourage cheating and should be eliminated in favor of other types of performance pay.

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Publisher Info
Paper provided by University of Guelph, Department of Economics in its series Working Papers with number 0810.

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Length: 28 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:gue:guelph:2008-10

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Related research
Keywords: Misrepresentation; cheating; guilt; experiment; compensation; target; tournament; piece-rate; pay-for-performance.;

Find related papers by JEL classification:
C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
M52 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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    Other versions:
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This page was last updated on 2009-11-17.

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