Originally posted on The Horizons Tracker.
The end of year is commonly a time when we reflect on the year just gone, with awards often given to those who have performed especially well. A recent study1 from Virgina Tech provides a warning however, that such behaviors are not without risk.
The study suggests that whilst incentives and rewards can help to motivate employees and subsequently increase their performance, they can also encourage people to take unethical actions in order to reach those goals.
“Goal fixation can have a profound impact on employee behavior, and the damaging effects appear to be growing stronger in today’s competitive business landscape,” the researchers explain.
Pay and motivation
The intersection between pay and motivation has been well studied in recent years, with most modern thinking highlighting that intrinsic motivation tends to be much more powerful and enduring than the extrinsic kind triggered by pay.
Perhaps even more worryingly, this study also suggests that financial rewards can trigger unethical behavior as people bend rules in order to hit the targets set for them.
“These unintended negative consequences can lead to dishonesty, unethical behavior, increased risk-taking, escalation of commitment, and depletion of self-control,” the authors say.
These unethical behaviors include faking or manipulating financial reporting data and time and expense reports. Thankfully, research suggests that there is a way for rewards and bonuses to trigger the right kind of behaviors, but those bonuses have to be ‘pro-social’.
The study saw participants asked to complete a simple task from the comfort of their own home. They were given no direct supervision in their task, so could largely perform when and where they wanted.
Their compensation consisted of a fixed wage, together with a bonus that was performance related. This bonus was altered for various participants, so that some would receive more, some would receive less. The aim was to observe the response this direct financial incentive had on performance.
A second experiment then introduced a degree of philanthropy to the mix. This time, participants were offered the chance to donate a chunk of their bonus to a charity of their choice.
In some instances the donation was a fixed sum, whilst in others it was related to the performance of each participant. A final alternative was to split the bonus between a donation and keeping it for themselves.
Charity for the win
Perhaps not surprisingly, having a bonus to chase increased performance amongst participants. Interestingly however, when that bonus was in the form of a charitable donation, the performance rose even faster, with a particularly large boost to performance amongst lower performers.
What’s more, in the group where a charitable donation was optional, it emerged that over half of the participants took this option. Indeed, the performance in this group increased most of all.
It reinforces the findings of the studies into pro-social benefits, revealing that there is often a big jump in performance when our performance related bonuses are spent on people other than ourselves.
With things like bankers bonuses continuing to be regular staples in our news bulletins, maybe this is something for the banks to consider.
Article source: New Study Reveals How Incentives Can Boost Unethical Behavior.
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- Sauer, S. J., Rodgers, M., & Becker, W. J. (2018). The Effects of Goals and Pay Structure on Managerial Reporting Dishonesty. Journal of Accounting, Ethics and Public Policy, 19(3). ↩
- Tonin, M., & Vlassopoulos, M. (2014). Corporate philanthropy and productivity: Evidence from an online real effort experiment. Management Science, 61(8), 1795-1811. ↩