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Are You Paying Your Employees to Cheat? An Experimental Investigation

  • C. Bram Cadsby

    ()

    (University of Guelph; Department of Economics)

  • Fei Song

    ()

    (Ryerson University)

  • Francis Tapon

    ()

    (University of Guelph; Department of Economics)

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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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
Contact details of provider: Postal: Guelph, Ontario, N1G 2W1
Phone: (519) 824-4120 ext. 53898
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Web page: https://www.uoguelph.ca/economics/

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