Cheating for the Cause: The Effects of Performance-Based Pay on Socially-Oriented Misreporting

Abstract

We examine the effect of performance-based pay on misreporting intended to benefit a social mission. We show that performance-based pay decreases people’s propensity to misreport for a social mission in a not-for-profit setting (Experiment 1). We similarly show that in a for-profit setting, performance-based pay also decreases misreporting propensity for a social mission; however, it does not decrease misreporting propensity for a non-social mission (Experiment 2). Finally, using a framed field experiment with participants attending a conference hosted by a real charity, we show that performance-based pay reduces actual misreporting when misreporting leads to more donations for the charity (Experiment 3). These results are consistent with our theory which suggests that, relative to fixed pay, performance-based pay imposes additional costs on misreporting employees’ self-concepts of benevolence and honesty.

Keywords: Social-mission organizations; Not-for-profit organizations; Performance-based pay; Misreporting; Socially-oriented misreporting; Framed Field Experiment

JEL Classification: C93; J33; L31; M4; M52