Book contents
- Frontmatter
- Contents
- List of figures
- List of tables
- List of contributors
- Foreword
- 1 The imbalances and limitations of theory and research on organizational wrongdoing
- 2 On taking the theoretical substance of outcomes seriously: a meta-conversation
- 3 Wrong paths to right: defining morality with or without a clear red line
- 4 From market enablers to market participants: redefining organizational and political-legal arrangements and opportunities for financial wrongdoing,1930s–2000
- 5 Wrongdoing and market development: an examination of the distinct roles of trust and distrust
- 6 Bad apples, bad barrels and bad cellars: a “boundaries” perspective on professional misconduct
- 7 S/he blinded me with science: the sociology of scientific misconduct
- 8 Social networks and organizational wrongdoing in context
- 9 Falling stars: celebrity, infamy, and the fall from (and return to) grace
- 10 Compensation and employee misconduct: the inseparability of productive and counterproductive behavior in firms
- 11 Beware of organizational saints: how a moral self-concept may foster immoral behavior
- 12 “Is it me? Or is it me?” The role of coactivated multiple identities and identifications in promoting or discouraging workplace crimes
- 13 Consequences of organizational misconduct: too much and too little punishment
- 14 Who bears the brunt? A review and research agenda for the consequences of organizational wrongdoing for individuals
- 15 Organizational wrongdoing and media bias
- 16 Ethical learning: releasing the moral unicorn
- Index
- References
10 - Compensation and employee misconduct: the inseparability of productive and counterproductive behavior in firms
Published online by Cambridge University Press: 05 July 2016
Book contents
- Frontmatter
- Contents
- List of figures
- List of tables
- List of contributors
- Foreword
- 1 The imbalances and limitations of theory and research on organizational wrongdoing
- 2 On taking the theoretical substance of outcomes seriously: a meta-conversation
- 3 Wrong paths to right: defining morality with or without a clear red line
- 4 From market enablers to market participants: redefining organizational and political-legal arrangements and opportunities for financial wrongdoing,1930s–2000
- 5 Wrongdoing and market development: an examination of the distinct roles of trust and distrust
- 6 Bad apples, bad barrels and bad cellars: a “boundaries” perspective on professional misconduct
- 7 S/he blinded me with science: the sociology of scientific misconduct
- 8 Social networks and organizational wrongdoing in context
- 9 Falling stars: celebrity, infamy, and the fall from (and return to) grace
- 10 Compensation and employee misconduct: the inseparability of productive and counterproductive behavior in firms
- 11 Beware of organizational saints: how a moral self-concept may foster immoral behavior
- 12 “Is it me? Or is it me?” The role of coactivated multiple identities and identifications in promoting or discouraging workplace crimes
- 13 Consequences of organizational misconduct: too much and too little punishment
- 14 Who bears the brunt? A review and research agenda for the consequences of organizational wrongdoing for individuals
- 15 Organizational wrongdoing and media bias
- 16 Ethical learning: releasing the moral unicorn
- Index
- References
Summary
Incentive systems play a fundamental role in organizations. Financial compensation represents the largest single cost for the average company (Gerhart, Rynes, and Fulmer 2009), and compensation is intimately tied to firm strategy and performance (Larkin, Pierce, and Gino 2012; Nickerson and Zenger 2008). Well-designed compensation systems allow firms to direct employee effort toward productive activities that improve firm performance and survival. Just as importantly, compensation systems can play a key role in attracting and retaining the right types of employees based on heterogeneous ability, motivation levels, and social connections. Although financial and other extrinsic incentives built into compensation systems are powerful tools for improving productivity, they also carry substantial risks. Compensation systems can generate perverse economic incentives as well as psychological and social responses that motivate a wide class of counterproductive behaviors ranging from lack of cooperation to explicitly illegal misconduct.
This chapter focuses on illuminating the holistic implications of multiple classes of compensation systems for employee behavior. We focus on non-executive employees for several reasons. First, an extensive literature in finance, strategy, and management covers executive compensation. Second, the key issues in executive compensation, such as motivating the appropriate level of risk and minimizing high-level corporate fraud, are quite different from the tradeoffs managers face when motivating non-executive employees (Larkin et al. 2012). Finally, the pay of top executives typically accounts for only a few percentage points of total firm compensation costs (Whittlesey 2006).
Incentive systems are fundamentally about motivating employee behavior (Hall 2000). In this chapter, we focus on both productive behaviors and counterproductive misconduct that are motivated by compensation systems. Productive behaviors are defined as those that contribute to the performance and ultimate success of the firm (as measured by profitability for most for-profit firms, but that can include other metrics). Misconduct includes several types of behaviors that are counterproductive to the firm: actions that are explicitly illegal, actions that violate formal organizational rules, actions that may not violate rules but are against the spirit of the rules, and actions that are counter-normative. Fundamentally, employees engage in misconduct because they believe it will increase their utility or happiness; misconduct can generate higher extrinsic rewards, such as pay, promotion, or status, and can also increase psychological well-being.
- Type
- Chapter
- Information
- Organizational WrongdoingKey Perspectives and New Directions, pp. 270 - 304Publisher: Cambridge University PressPrint publication year: 2016
References
2002. “Pay madness at Enron,” Forbes.com. Available from www.forbes.com/2002/03/22/0322enronpay.html.
and
1990. “The fair wage-effort hypothesis and unemployment,” Quarterly Journal of Economics
105(2): 255–283.CrossRefGoogle Scholar
, , and
2002. “Sabotage in the workplace: The role of organizational injustice,” Organizational Behavior and Human Decision Processes
89(1): 947–965.CrossRefGoogle Scholar
and
2009. “The enduring impact of transient emotions on decision making,” Organizational Behavior and Human Decision Processes
109(1): 1–8.Google Scholar
and
2003. “The normalization of corruption in organizations,” Research in Organizational Behavior
25: 1–52.Google Scholar
1992. “Incentive contracts and performance measurement,” Journal of Political Economy
100(3): 598–614.Google Scholar
2000. “The use of performance measures in incentive contracting,” American Economic Review
90(2): 415–420.CrossRefGoogle Scholar
, , and
2005. “Social preferences and the response to incentives: Evidence from personnel data,” with and , Quarterly Journal of Economics
120(3): 917–962.Google Scholar
and
1997. “Paying the piper: An empirical examination of longer-term financial consequences of illegal corporate behavior,” Academy of Management Journal
40(1): 129–151.Google Scholar
2011. “Financial constraints and inflated home prices during the real estate boom,” American Economic Journal: Applied Economics
3(3): 55–87.Google Scholar
, , , and
2013. “Customer-driven misconduct: How competition corrupts business practices,” Management Science
59(8): 1725–1742.CrossRefGoogle Scholar
, , and
2011. “Tournaments without prizes: Evidence from personnel records,” Management Science
57: 1721–1736.Google Scholar
, , and
2010. “Equal pay for unequal work: Limiting sabotage in teams,” Journal of Economics and Management Strategy
19(1): 25–53.CrossRefGoogle Scholar
, , and
2007. “Competitive crowding and risk taking in a tournament: Evidence from NASCAR racing,” Administrative Science Quarterly
52(2): 208–247.CrossRefGoogle Scholar
, , and
2011. “Incentives and problem uncertainty in innovation contests: An empirical analysis,” Management Science
57(5): 843–863.CrossRefGoogle Scholar
, , , and
2008. “Does wage rank affect employees’ well-being?,” Industrial Relations
47(3): 355–389.CrossRefGoogle Scholar
, , and
2005. “Ethical leadership: A social learning perspective for construct development and testing,” Organizational Behavior and Human Decision Processes
97(2): 117–134.CrossRefGoogle Scholar
, , , and
2009. “Cognitive skills affect economic preferences, strategic behavior, and job attachment,” Proceedings of the National Academy of Sciences
106(19): 7745–7750.CrossRefGoogle Scholar
, , , and
2012. “Inequality at work: The effect of peer salaries on job satisfaction,” American Economic Review
102(6): 2981–3003.CrossRefGoogle Scholar
, , and
2010. “Tournaments and office politics: Evidence from a real effort experiment,” American Economic Review
100(1): 504–517.CrossRefGoogle Scholar
and
1978. “Equity theory: The recent literature, methodological considerations, and new directions,” The Academy of Management Review
3(2): 202–210.Google Scholar
, , and
2014a. “Compensation and peer effects in competing sales teams,” Management Science
60(8): 1965–1984.Google Scholar
, , and
2014b. “Learning from peers: Knowledge transfer and sales force productivity growth,” Marketing Science
33(4): 463–484.CrossRefGoogle Scholar
, , and
2013. “The dark side of competition for status,” Management Science
60(1): 38–55.Google Scholar
and
2012. “Can wages buy honesty? The relationship between relative wages and employee theft,” Journal of Accounting Research
50(4): 967–1000.CrossRefGoogle Scholar
, , , and
2013. “Lying and team incentives,” Journal of Economic Psychology
34: 1–7.CrossRefGoogle Scholar
, , and
2011. “Perceived unfairness in CEO compensation and work morale,” Economics Letters
110(1): 45–48.Google Scholar
Dartnell Corporation. 2009. Dartnell's 30th Sales Force Compensation Survey. Chicago: The Dartnell Corporation.
, , and
1999. “A meta-analytic review of experiments examining the effects of extrinsic rewards on intrinsic motivation,” Psychological Bulletin
125: 627–668.Google Scholar
, , and
1998. “Team-based rewards: Current empirical evidence and directions for future research,” Research in Organizational Behavior
20: 141–183.Google Scholar
and
1998. “Incentives for helping on the job: Theory and evidence,” Journal of Labor Economics
16(1): 1–25.Google Scholar
, , and
2013. “Efficiency wages and its mechanisms: Empirical evidence,” Working Paper, Yale University.
, , and
2006. “Fairness perceptions and reservation wages: The behavioral effects of minimum wage laws,” Quarterly Journal of Economics
121(4): 1347–1381.Google Scholar
and
2009. “When the boss feels inadequate power, incompetence, and aggression,” Psychological Science
20(11): 1406–1413.Google Scholar
and
2000. “Fairness and retaliation: The economics of reciprocity,” Journal of Economic Perspectives
14(2): 159–181.Google Scholar
, , and
2011. “Contracts as reference points – Experimental evidence,” American Economic Review
101(2): 493–525.CrossRefGoogle Scholar
, , , and
2002. “A model of (often mixed) stereotype content: Competence and warmth respectively follow from status and competition,” Journal of Personality and Social Psychology
82(6): 878–902.CrossRefGoogle Scholar
and
2014. “Firm-specific human capital, organizational incentives, and agency costs: Evidence from retail banking,” Strategic Management Journal
35(9): 1279–1301.Google Scholar
and
2007. “Rankings, standards, and competition: Task vs. scale comparisons,” Organizational Behavior and Human Decision Processes
102: 95–108.Google Scholar
, , and
2006. “Ranks and rivals: A theory of competition,” Pers. Social Psychology Bulletin
32(7): 970–982.CrossRefGoogle Scholar
, , and
2009. “Pay and performance: Individuals, groups, and executives,” Academy of Management Annals
3(1): 251–315.Google Scholar
, , and
2013. “Cheating in the workplace: An experimental study of the impact of bonuses and productivity,” Journal of Economic Behavior & Organization
96(C): 120–134.CrossRefGoogle Scholar
, , and
2009. “Contagion and differentiation in unethical behavior the effect of one bad apple on the barrel,” Psychological Science
20(3): 393–398.Google Scholar
and
2009. “When misconduct goes unnoticed: The acceptability of gradual erosion in others’ unethical behavior,” Journal of Experimental Social Psychology
45(4): 708–719.CrossRefGoogle Scholar
and
2009a. “Dishonesty in the name of equity,” Psychological Science
20: 1153–1160.CrossRefGoogle Scholar
and
2009b. “The abundance effect: Unethical behavior in the presence of wealth,” Organizational Behavior and Human Decision Processes
109(2): 142–155.CrossRefGoogle Scholar
and
2010a. “Robin Hood under the hood: Wealth-based discrimination in illicit customer help,” Organ Science
21(6): 1176–1194.Google Scholar
and
2010b. “Lying to level the playing field: Why people may dishonestly help or hurt others to create equity,” Journal of Business Ethics
95(1): 89–103.CrossRefGoogle Scholar
2005. “Step-level reasoning and bidding in auctions,” Management Science
51(11): 1633–1642.Google Scholar
, , and
2013. “Measuring lying aversion,” Journal of Economic Behavior & Organization
93: 293–300.CrossRefGoogle Scholar
and
2004. “Gender and competition at a young age,” American Economic Review Papers & Proceedings
94(2): 377–381.CrossRefGoogle Scholar
and
2008. “Overconfidence, CEO selection, and corporate governance,” The Journal of Finance
63(6): 2737–2784.CrossRefGoogle Scholar
and
2011. “Learning unethical practices from a co-worker: The peer effect of Jose Canseco,” Labour Economics
18(3): 338–348.Google Scholar
, , , and
2001. “NCAA study of substance use and abuse habits of college student-athletes,” Clinical Journal of Sport Medicine
11(1): 51–56.CrossRefGoogle Scholar
1990. “Employee theft as a reaction to underpayment inequity: The hidden cost of pay cuts,” Journal of Applied Psychology
75: 561–568.Google Scholar
1993. “Stealing in the name of justice: Informational and interpersonal moderators of theft reactions to underpayment inequity,” Organizational Behavior and Human Decision Processes
54(1): 81–103.CrossRefGoogle Scholar
2012. Chasing Stars: The Myth of Talent and the Portability of Performance. Princeton: Princeton University Press.
, , and
2004. “The risky business of hiring stars,” Harvard Business Review
82(5): 92–101.Google Scholar
, , and
2016. “Motivational spillovers from awards: Crowding out in a multitasking environment,” Organization Science. Forthcoming.
2008. “On sabotage in collective tournaments,” Journal of Mathematical Economics
44(3): 383–393.Google Scholar
2000. “Incentives and controllability: A note and exercise,” Harvard Business School Background Note 801–334.
, , and
2003. “Team incentives and worker heterogeneity: An empirical analysis of the impact of teams on productivity and participation,” Journal of Political Economy
111(3): 465–497.CrossRefGoogle Scholar
, , and
2003. “Motivation of software developers in open source projects: An Internet-based survey of contributors to the Linux kernel,” Research Policy
32: 1159–1177.Google Scholar
, , , and
2001. “Direct and moderating effects of human capital on strategy and performance in professional service firms: A resource-based perspective,” Academy of Management Journal
44: 13–28.Google Scholar
and
2015. “Who's naughty? Who's nice? Experiments on whether pro-social workers are selected out of cutthroat business environments,” Journal of Economic Behavior & Organization
109: 173–187.CrossRefGoogle Scholar
and
1991. “Multitask principal-agent analyses: Incentive contracts, asset ownership, and job design,” Journal of Law, Economics, & Organization
7: 24–52.Google Scholar
, , and
2008. “Skill dispersion and firm productivity: An analysis with employer-employee matched data,” Journal of Labor Economics
26(2): 247–285.CrossRefGoogle Scholar
1991. “Incentives to help in multi-agent situations,” Econometrica: Journal of the Econometric Society
59(3): 611–636.CrossRefGoogle Scholar
2001. “Corporate budgeting is broken, let's fix it,” Harvard Business Review
79(10): 94–101.Google Scholar
, , and
2014. “Cheating more for less: Upward social comparisons motivate the poorly compensated to cheat,” Organizational Behavior and Human Decision Processes
123(2): 101–109.Google Scholar
and
1996. “An experimental examination of the effects of individual and situational factors on unethical behavioral intentions in the workplace,” Journal of Business Ethics
15(5): 511–523.Google Scholar
and
1992. “Peer pressure and partnerships,” Journal of Political Economy
100(4): 801–817.Google Scholar
and
2009. “Bounded ethicality the perils of loss framing,” Psychological Science
20(3): 378–384.Google Scholar
1975. “On the folly of rewarding A, while hoping for B,” Academy of Management Journal
18(4): 769–783.Google Scholar
, , and
2010. “The psychology of rivalry: A relationally dependent analysis of competition,” Academy of Management Journal
53: 943–969.CrossRefGoogle Scholar
and
2015. “Anxious, threatened, and also unethical: How anxiety makes individuals feel threatened and commit unethical acts,” Journal of Applied Psychology
100(2): 360.CrossRefGoogle Scholar
and
2007. “Status, relative pay, and wage growth: Evidence from M&A,” Discussion Papers 07–026, Stanford Institute for Economic Policy Research.
and
1994. “Human resource systems and sustained competitive advantage: A competency-based perspective,” Academy of Management Review
19(4): 699–727.Google Scholar
2011. “Paying $30,000 for a gold star: An empirical investigation into the value of peer recognition to software salespeople,” Working paper, Harvard Business School.
2014. “The cost of high-powered incentives: Employee gaming in enterprise software sales,” Journal of Labor Economics
32(2): 199–227.CrossRefGoogle Scholar
and
2012. “Incentive schemes, sorting and behavioral biases of employees: Experimental evidence,” American Economic Journal: Microeconomics
4(2): 184–214.CrossRefGoogle Scholar
, , and
2012. “The psychological costs of pay-for-performance: Implications for the strategic compensation of employees,” Strategic Management Journal
33: 1194–1214.CrossRefGoogle Scholar
1979. “Why is there mandatory retirement?,” The Journal of Political Economy
87(6): 1261–1284.CrossRefGoogle Scholar
1989. “Pay equality and industrial politics,” Journal of Political Economy
97(3): 561–580.CrossRefGoogle Scholar
2000. “Performance pay and productivity,” American Economic Review
90(5): 1346–1361.CrossRefGoogle Scholar
and
2012. “Personnel economics,” in and (eds.), The Handbook of Organizational Economics. Princeton: Princeton University Press.
and
1981. “Rank-order tournaments as optimum labor contracts,” Journal of Political Economy
89(5): 841–864.CrossRefGoogle Scholar
, , and
2007. “Performance pay and wage inequality,” The Quarterly Journal of Economics
124(1):1–49.CrossRefGoogle Scholar
, , and
2013. “Digital Games and Beyond: What Happens When Players Compete,” Mis Quarterly
37(1): 111–124.Google Scholar
and
2006. “Dishonesty in everyday life and its policy implications,” Journal of Public Policy and Marketing
25(1): 117–126.CrossRefGoogle Scholar
, , and
2005. “Expectations and emotions of Olympic athletes,” Journal of Experimental Social Psychology
41(4): 438–446.CrossRefGoogle Scholar
and
2009. The consequences of mortgage credit expansion: Evidence from the US mortgage default crisis. The Quarterly Journal of Economics
124(4): 1449–1496.CrossRefGoogle Scholar
and
2015. “Approach, ability, aftermath: A psychological process framework of unethical behavior at work,” The Academy of Management Annals
9(1): 235–289.Google Scholar
and
1983. “Prizes and incentives: Towards a general theory of compensation and competition,” The Bell Journal of Economics
14(1): 21–43.Google Scholar
and
2008. “Envy, comparison costs, and the economic theory of the firm,” Strategic Management Journal
29: 1429–1449.Google Scholar
and
2007. “Do women shy away from competition? Do men compete too much?,” The Quarterly Journal of Economics
122(3): 1067–1101.CrossRefGoogle Scholar
and
2012. Incentive life-cycles learning and the division of value in firms. Administrative Science Quarterly
57(2): 305–347.Google Scholar
, , , and
2009. “Goals gone wild: The systematic side effects of overprescribing goal setting,” The Academy of Management Perspectives
23(1): 6–16.Google Scholar
1998. “Fiscal year ends and nonlinear incentive contracts: The effect on business seasonality,” Quarterly Journal of Economics
113(1): 149–185.Google Scholar
and
2000. “Piece rates, fixed wages, and incentive effects: Statistical evidence from payroll records,” International Economic Review
41(1): 59–62.CrossRefGoogle Scholar
2012. Normal Organizational Wrongdoing: A Critical Analysis of Theories of Misconduct in and by Organizations. Oxford: Oxford University Press.
and
2015. “Drugs, sweat, and gears: An organizational analysis of performance-enhancing drug use in the 2010 Tour de France,” Social Forces
94(2): 891–922.Google Scholar
, , and
2015. “Cleaning house: The impact of information technology on employee corruption and productivity,” Management Science
61(10): 2299–2319.Google Scholar
and
2008. “Ethical spillovers in firms: Evidence from vehicle emissions testing,” Management Science
54(11): 1891–1903.Google Scholar
and
2015. “Unethical demand and employee turnover,” Journal of Business Ethics
131(4): 853–869.Google Scholar
1999. “The provision of incentives in firms,” Journal of Economic Literature
37: 7–63.CrossRefGoogle Scholar
1993. “Incorporating fairness into game theory and economics,” The American Economic Review
83(5): 1281–1302.Google Scholar
1952. “Quota restriction and goldbricking in a machine shop,” American Journal of Sociology
57: 427–442.CrossRefGoogle Scholar
and
2010. “Does competition enhance performance or cheating? A laboratory experiment,” Journal of Economic Psychology
31(3): 241–253.Google Scholar
, , , , , and
2015. “The ethics ‘fix’: When formal systems make a difference,”Journal of Business Ethics
131(4): 791–801.CrossRefGoogle Scholar
2010. “Gaming the liver transplant market,” Journal of Law, Economics, & Organization
26(3): 546–568.Google Scholar
1974. “Attitudinal and behavioral consequences of changing a major organizational reward: A natural field experiment,” Journal of Personality and Social Psychology
29(6): 742.CrossRefGoogle Scholar
and
2010. “Cheating and enforcement in asymmetric rank-order tournaments,” Southern Economic Journal
77(1): 1–14.CrossRefGoogle Scholar
and
2003. “Income, money ethic, pay satisfaction, commitment, and unethical behavior: Is the love of money the root of evil for Hong Kong employees?,” Journal of Business Ethics
46(1): 13–30.Google Scholar
and
2008. “13 ethical decision making: Where we've been and where we're going,” The Academy of Management Annals
2(1): 545–607.Google Scholar
2005. “Organizational beliefs and managerial vision,” Journal of Law, Economics, and Organization
21(1): 256–283.Google Scholar
2010. Fair Wages – Strengthening Corporate Social Responsibility. Cheltenham: Edward Elgar Publishing.
, , and
2006. “The psychological consequences of money,” Science
314(5802): 1154–1156.Google Scholar
1924. “The influence of competition on performance: An experimental study,” The Journal of Abnormal Psychology and Social Psychology
19(3): 236.CrossRefGoogle Scholar
2006. “The great overpaid CEO debate,” CNET News, June 1.
2011. “Cheating more when the spoils are split,” Organizational Behavior and Human Decision Processes
115(2): 157–168.CrossRefGoogle Scholar
, , and
2013. “Doing as they would do: How the perceived ethical preferences of third-party beneficiaries impact ethical decision-making,” Organizational Behavior and Human Decision Processes
122: 280–290.Google Scholar
and
2015. “Mad and misleading: Incidental anger promotes deception,” Available at SSRN 2478692.
1992. “Why do employers only reward extreme performance? Examining the relationships among performance, pay, and turnover,” Administrative Science Quarterly
37(2): 198–219.CrossRefGoogle Scholar
1994. “Explaining organizational diseconomies of scale in R&D: Agency problems and the allocation of engineering talent, ideas, and effort by firm size,” Management Science
40(6): 708–729.Google Scholar
- 13
- Cited by