Offering Bonuses Encourages Employees to Cheat, Study Finds
May 18, 2010 - News Release
Offering financial bonuses seems like an effective way to boost productivity, but a new University of Guelph study reveals this tactic may also encourage employees to cheat.
A team of economics and management researchers has found that offering employees bonuses instead of other incentive schemes causes more workers to lie about their productivity.
“Paying people bonuses is the most common compensation scheme in the corporate world because organizations think that offering a lump sum will push employees to excel,” said Prof. Francis Tapon, who worked on the study with Guelph colleague Prof. Bram Cadsby and Prof. Fei Song of Ryerson University. “However, we have found this strategy is actually pushing people to cheat.”
This research has grabbed the attention of media with stories published Monday on the Globe and Mail and CTV websites.
Published recently in the B.E. Journal of Economic Analysis and Policy, the study compared the level of cheating using three compensation systems: bonus, piece rate and tournament.
Under a bonus system, employees are rewarded if they reach a target. Under a piece-rate system, employees are rewarded for each completed task, meaning more productive workers can earn more. In a tournament system, only employees with the highest productivity receive monetary compensation.
Study participants were given seven letters and asked to make as many words as possible in one minute. They underwent seven rounds of the word-scramble task, and different groups were rewarded based on one of the three compensation systems.
After another participant marked their work, individuals were responsible for reporting their final score to the researchers.
“We were basically dangling the carrot in front of them,” said Tapon. “They could choose to report their true score or lie about their score to receive more money.”
Researchers found most cheating occurred in groups compensated under the bonus system that rewarded participants for achieving a target of nine words. The closer these participants were to reaching the target, the more likely they were to exaggerate their scores.
“Under the bonus scheme, participants often came close to the target and may have felt they worked hard and deserved to be paid for their efforts," said Cadsby. "This feeling of entitlement acts as a justification for cheating. They may have also felt less guilt about cheating because they were so close to the target and viewed their cheating as only a small lie.”
The opposite was true for participants compensated under a piece-rate system, which resulted in significantly less cheating.
Cadsby said participants are less likely to cheat under this scheme because they are compensated for each word they create and likely perceive no sense of unfair treatment as they might under a bonus scheme.
Participants may also experience more guilt about cheating under a piece-rate system, he added.
“If guilt and the unhappiness it creates are greater when the lies are bigger, we would expect to see more people lying under the bonus scheme when small lies produce relatively large payoffs compared to piece-rate schemes, where bigger lies are required for that same payoff.”
The group compensated under a tournament system — earning a financial reward for creating enough words to score in the top 15 per cent of their group — showed low levels of cheating similar to those of the piece-rate group.
“People are less likely to cheat in a tournament system than in a bonus system because they don’t know what their competitors have achieved or how much they have cheated,” said Tapon. “Therefore there is less of a guarantee they will be compensated if they do cheat.”
Under a tournament system, participants may also feel more guilt about cheating colleagues and not just an employer, he added.
Ultimately, using a piece-rate system as an incentive scheme is likely to tempt fewer employees to cheat than paying target-based bonuses, he said, but organizations should design an audit system along with any compensation strategy.
“Employees are tempted now more than ever to cheat as companies continue to reduce costs by laying off employees whose job it was to monitor the performance of others,” said Tapon. “Designing an audit system that responds to large self-reports could help constrain cheating, which may still occur even under a piece-rate system.”
For media questions, contact Communications and Public Affairs: Lori Bona Hunt, 519-824-4120, Ext. 53338, or l.hunt@exec.uoguelph.ca, or Deirdre Healey, Ext. 56982 or d.healey@exec.uoguelph.ca.
