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Paying employees to perform better can enhance their productivity but can also entice them to cheat, suggests a new study by researchers at Toronto's Ryerson University and at the University of Guelph in Ontario.
“The dark side of behavior can be affected by pay-for-performance schemes,” said Fei Song, co-author of the study and a business professor at Ryerson’s Ted Rogers School of Management. “Faced with certain types of incentives, some people are tempted to make up or misrepresent their performance numbers, which can cause companies to lose revenue.”
The study compares employee cheating under different pay-for-performance compensation programs. The researchers asked three groups of students to complete a task, offering different financial incentives: a linear piece-rate system (employees receive a bonus for each unit they produce or sell), a tournament-based bonus system (payment is tied to an employee’s performance in relation to that of other workers), and a target-based bonus (employees receive compensation only if they achieve the company’s goal for sales or performance).
Afterwards, the students were asked to check each other’s work and were given a chance to correct any errors made by their rater before submitting their assignment.
The researchers found that students cheated significantly more when the target-based compensation system was used compared to the other two incentive programs. In addition, the closer the participant’s performance was to their goal, the more often they cheated.
“We speculate that people feel much worse if they miss a target by only a small margin rather than a large one,” said Song. “The employee knows how close they are to the target. It acts like a big apple, tempting them to cheat in order to get the bonus.”
How can companies improve pay-for-performance systems to reduce deception in the workplace?
“To combat cheating, companies must have effective internal auditing/monitoring systems in place,” Song said. “This will help to control and weed out any misrepresentation, which can occur under any payment scheme.”
The study, Are You Paying Your Employees to Cheat? An Experimental Investigation, was published in the 2010 issue of the B.E. Journal of Economic Analysis & Policy and supported by a grant from the Social Sciences and Humanities Research Council of Canada.
Stephen Milleris an online editor/manager for SHRM.
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