Incentives can lead employees to cheat or lie at work

The research reviewed by Park and his colleagues backs this up.

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In health care, for example, doctors who were rewarded for achieving goals such as better patient outcomes got higher bonuses by selectively admitting healthier patients, Park said. In education, the frequency of cheating on standardised tests by teachers or administrators was higher when teachers were rewarded for classes that performed better, according to data from Chicago public schools. In a for-profit business, chief financial officers were more likely to withhold negative information about their firms if their bonuses were tied to the company’s financial targets.

The consequences of incentives have a lot to do with how they’re set up, Park said. People aren’t very motivated to cheat to hit goals that are too easy or entirely out of reach. But with incentives that are challenging but achievable “people tend to focus on the goal over the value of what they’re doing,” Park said.

He pointed to a program at Sears decades ago that rewarded auto service employees for strict sales quotas. The company discontinued the commissions in 1992 after allegations came out that employees were defrauding customers, overcharging and billing for unneeded repairs.

In a news conference at the time, then-Sears Chairman Edward A. Brennan said: “It seems to me our incentive compensation programs created a wide opportunity for mistakes to be made,” according to reporting from the Los Angeles Times.

It is harder for workers to justify bad behaviour if they are acting solely on their own behalf, Park said. Team-based incentives, on the other hand, can encourage members to ignore or conceal ethical lapses to avoid disrupting the group. Studies that compared employees in individual incentive systems and team-based ones consistently showed that teams are more likely to falsify data and misrepresent products to juice performance.

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Systems like these can create a workplace culture that pulls employees away from their values, such as the Wells Fargo scandal, according to Christian Busch, director of the global economy program at New York University’s Center for Global Affairs.

“You create this fear among people that if you don’t do ‘x, y and z,’ then you’re out,” Busch said. “Because of this setting, [workers at Wells Fargo] didn’t have a lot of psychological safety so they didn’t feel they could push back.”

Companies often “incentivise one thing and hope for something else,” said Bill Becker, associate professor of management at Virginia Tech. And while many incentives rely on financial rewards, the reality is that “money brings out the worst in people, and it almost never brings out their best,” Becker said.

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Becker worked on a study published in 2018 that found that setting compensation goals led to more examples of dishonest managers getting paid bonuses for hitting certain targets. Such behaviour creates a slippery slope: Dishonesty became increasingly worse once managers had passed a certain threshold, the researchers found.

People are much more motivated by recognition and positive reinforcement than they are by short-term rewards, Becker said.

“What we really want is to be respected and valued,” Becker said. “That’s when we’re really doing our best work, but that takes great leaders who do that on a daily basis.”

Stress and pressure can also entice employees to cut corners to achieve goals, Park said. When workers are “cognitively or emotionally exhausted,” they lose their resources for self-regulation.

“When they lose those, they will just think about the short-term goals in front of them,” Park said. “Then they’re more prone to act in an unethical way.”

Lack of accountability measures can also tempt bad behaviour in incentive programs. When an incentive to lie or cheat is presented without monitoring or penalty, “the likelihood of ethically questionable behaviours such as over-claiming performance increases,” according to the Academy of Management Annals research.

In one experiment at a call centre, workers were told their company was cutting back on audits of their work. In reality, the company continued monitoring and found a sharp spike in workers boosting bonuses by logging fake calls.

Incentives can be useful in some contexts, Park noted, especially when organisations are explicitly trying to encourage ethical behaviour, like whistleblowing.

For example, financial incentives for whistleblowers work best when workers believe that the behaviour will, indeed, be recognised and rewarded, one study found. Another concluded that such incentives are especially helpful when the degree of the misconduct is lower because people already feel stronger motivation to speak up – with or without a reward – when faced with severe ethical breaches.

The Washington Post

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