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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)

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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File URL: http://www.uoguelph.ca/economics/repec/workingpapers/2008/2008-10.pdf
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Bibliographic Info

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

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Length: 28 pages
Date of creation: 2008
Date of revision:
Publication status: Published in The B.E. Journal of Economic Anaysis and Policy (2010), 10, 1 (Contributions), Article 35.
Handle: RePEc:gue:guelph:2008-10

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

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References

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  12. James Alm & Michael McKee, 1998. "Extending the lessons of laboratory experiments on tax compliance to managerial and decision economics," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 19(4-5), pages 259-275.
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Cited by:
  1. Conrads, Julian & Irlenbusch, Bernd & Rilke, Rainer Michael & Walkowitz, Gari, 2013. "Lying and team incentives," Journal of Economic Psychology, Elsevier, vol. 34(C), pages 1-7.
  2. Gill, David & Prowse, Victoria & Vlassopoulos, Michael, 2013. "Cheating in the workplace: An experimental study of the impact of bonuses and productivity," Journal of Economic Behavior & Organization, Elsevier, vol. 96(C), pages 120-134.
  3. Seeun Jung & Kenneth Houngbedji, 2014. "Shirking, Monitoring, and Risk Aversion," PSE Working Papers halshs-00965532, HAL.
  4. Anastasia Danilov & Torsten Biemann & Thorn Kring & Dirk Sliwka, 2012. "The dark side of team incentives: Experimental evidence on advice quality from financial service professionals," Cologne Graduate School Working Paper Series 03-13, Cologne Graduate School in Management, Economics and Social Sciences, revised 18 Dec 2012.
  5. Michèle Belot & Marina Schröder, 2012. "Sloppy Work, Lies and Theft: A Novel Experimental Design to Study Counterproductive Behaviour," FEMM Working Papers 120018, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
  6. Welsh, David T. & Ordóñez, Lisa D., 2014. "The dark side of consecutive high performance goals: Linking goal setting, depletion, and unethical behavior," Organizational Behavior and Human Decision Processes, Elsevier, vol. 123(2), pages 79-89.
  7. Josse Delfgaauw & Robert Dur & Arjan Non & Willem Verbeke, 2010. "Dynamic Incentive Effects of Relative Performance Pay: A Field Experiment," Tinbergen Institute Discussion Papers 10-124/1, Tinbergen Institute, revised 27 Sep 2011.
  8. Conrads, Julian & Irlenbusch, Bernd & Rilke, Rainer Michael & Schielke, Anne & Walkowitz, Gari, 2014. "Honesty in tournaments," Economics Letters, Elsevier, vol. 123(1), pages 90-93.
  9. Josse Delfgaauw & Robert Dur & Arjan Non & Willem Verbeke, 2010. "Dynamic Incentive Effects of Relative Performance Pay: A Field Experiment," Tinbergen Institute Discussion Papers 10-124/1, Tinbergen Institute, revised 27 Sep 2011.

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