Cheating for the Cause: The Effects of Performance-Based Pay on Socially-Oriented Misreporting
43 Pages Posted: 6 Aug 2018 Last revised: 14 Jun 2019
Date Written: June 12, 2019
Two potential motivations underlie performance misreporting in organizations advancing a social mission: self-interest and social benefits. Prior studies, focusing on misreporting motivated by self-interest, suggest that performance-based pay incentivizes misreporting. In contrast, we predict that performance-based pay will decrease misreporting intended to benefit a social mission. In two experiments in which participants are motivated to misreport for the benefit of a social mission, participants have a lower propensity to misreport when they receive performance-based pay and derive a personal benefit from misreporting than when they receive fixed pay and do not derive a personal benefit from misreporting. Mediation results suggest that performance-based pay decreases socially-oriented misreporting by (1) reducing the benefit of misreporting to one’s self-concept of benevolence and (2) increasing the cost of misreporting to one’s self-concept of honesty. Our results have important implications for compensation designs at and audits of nonprofit organizations that advance an important social mission.
Keywords: Nonprofit organizations; Performance-based pay; Misreporting; Socially-oriented misreporting; Framed Field Experiment
JEL Classification: C93; J33; L31; M4; M52
Suggested Citation: Suggested Citation