Are You Paying Your Employees to Cheat? An Experimental Investigation

Charles Cadsby, Fei Song () and Francis Tapon
Additional contact information
Fei Song: Ryerson University

No 810, Working Papers from University of Guelph, Department of Economics and Finance

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.

Keywords: Misrepresentation; cheating; guilt; experiment; compensation; target; tournament; piece-rate; pay-for-performance. (search for similar items in EconPapers)
JEL-codes: C91 J33 M52 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published in The B.E. Journal of Economic Anaysis and Policy (2010), 10, 1 (Contributions), Article 35.

Downloads: (external link)
http://www.uoguelph.ca/economics/repec/workingpapers/2008/2008-10.pdf (application/pdf)

Related works:
Journal Article: Are You Paying Your Employees to Cheat? An Experimental Investigation (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gue:guelph:2008-10

Access Statistics for this paper

More papers in Working Papers from University of Guelph, Department of Economics and Finance Contact information at EDIRC.
Bibliographic data for series maintained by Stephen Kosempel ().