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

Abstract

ABSTRACTWe 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, although not 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 suggesting that, relative to fixed pay, performance-based pay imposes additional costs on misreporting employees' self-concepts of benevolence and honesty.JEL Classifications: C93; J33; L31; M4; M52.