Employees Might Cheat More for Less

HR & Safety

Awareness of pay differences may increase unethical behavior despite lower gains

It’s a well-known axiom that people are more likely to cheat when the potential rewards are high. But new research by University of Michigan Ross School of Business Professor Scott Rick shows there’s potential for cheating even when the rewards are low.

A series of experiments suggests that dishonesty among low-paid workers increases if they find out others are getting paid more for the same work. Low pay rates alone aren’t enough to trigger cheating, Rick says. It’s the upward comparison that makes it more likely low-paid employees might cheat.

Big Losses for Business

The finding has important implications for managers, since low-stakes cheating creates huge annual losses for businesses. Employee dishonesty, the study notes, can take many forms, “from high-powered executives who engage in insider trading to wage workers who over-report hours. While the latter may superficially appear less troublesome, widespread low-stakes cheating can add up to substantial losses. For example, the phenomenon of ‘inventory shrinkage’ (losses partly attributable to employee dishonesty, such as the misuse of employee discounts) costs retailers billions of dollars annually.”

Rick’s paper, “Cheating More for Less: Upward Social Comparisons Motivate the Poorly Compensated to Cheat,” was coauthored by Leslie K. John of Harvard Business School and George Loewenstein of Carnegie Mellon University.

“We all know that economic gain is an important driver for unethical behavior,” says Rick, assistant professor of marketing. “We wanted to look at psychological motivations that may be at odds with basic cost/benefit reasoning. We know people can become out of sorts about salary differences, especially if they seem unjustified. But nobody had experimentally examined whether that could lead to misbehavior.”

Study Design and Results

Rick and his co-authors ran two experiments to probe that open question. In the first, subjects received either 5 cents or 25 cents for each self-reported correct response on a list of questions. Some participants knew about the different pay rates while others did not.

When pay rates were public, those paid 5 cents per correct answer cheated more often that those paid 25 cents, despite the lower economic incentive. When the pay disparity was kept private, those paid 25 cents cheated slightly more.

Another experiment created two groups: one where low-paid subjects were told there were others in the room earning more, and one where low-paid subjects were told there was a higher pay rate, but that everyone in their session would be paid the same.

Cheating was higher in the group where low-paid subjects were in the same room as higher-paid ones. There was little cheating among the lower-paid subjects when they were told everyone in the room was being paid the same lower rate.

“A low wage, in and of itself, doesn’t stimulate cheating,” Rick says. “However, awareness that others around you are earning more for the same work does encourage cheating. These upward social comparisons matter in a way that standard economic theory would not predict. But the psychology of workplace motivation is much richer than simply what you yourself earn.”

The research also may explain why wealthy people cheat for seemingly trivial gains. When the wealthy can easily compare themselves to similar individuals who earn even more, they also may be more prone to cheating.

Possible Solutions

Rick says companies should manage differences in wages for similar work or, when possible, try to keep the information private.

“It’s hard to say what the optimal balance is, because flat salaries will make it difficult to attract and retain the very best employees. But there are ways to compensate people privately, which don’t show up in a base salary, such as incentive bonuses,” says Rick.

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