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Home / News & IndustryManaged Care Insight and Analysis
Updated: July 26, 2010
Study Says: P4P Promotes Cheating Instead
Of Productivity

With a clear industry move to aligning payment with employees’ produced work, a recent study uncovered increased production may be just the employee cheating.

Pay-for-performance (P4P), a policy instituted to promote correct, effective work by linking payment with performance, or instituting a bonus system base on employees’ work abilities, began in hospitals, but has begun to leak into the corporate world.

"The dark side of behavior can be affected by pay-for-performance schemes," said Fei Song, co-author of the study and business professor at Ryerson’s Ted Rogers School of Management.

"Faced with certain types of incentives, some people are tempted to make up or misrepresent their performance numbers, which can cause companies to lose revenue," Song said.

The study, conducted by Ryerson University and University of Guelph, applied three different P4P models to determine possible employee behavior.

The tested models were:

  • linear piece-rate system, where employees receive a bonus for each unit they produce or sell;
  • a tournament-based bonus system, where payment is tied to an employee’s performance in relation to that of other works; and
  • a target-based scheme, where employees only receive compensation if they achieve the company’s pre-set goal for sales or performance.

Two-hundred students at the University of Guelph were asked to create as many words as they could from anagrams in one minute. Three groups of students were each awarded based on a P4P model.

The students were then given a chance of redemption, they checked each others’ work, and then were given a chance to correct any errors by the raters.

Through examination of the results, target-based compensation appeared to cause the most cheating; particularly participants were more likely to cheat when they were minimally missing the target.

"We speculate that people feel much worse if they miss a target by only a small margin rather than a large one. The employee knows how close they are to the target. It acts like a big apple, tempting them to cheat in order to get the bonus," said Song.

She suggested companies should practice with caution when implementing P4P policies, especially target-based ones.

"To combat cheating, companies must have effective internal auditing/monitoring systems in place. This will help to control and weed out any misrepresentations, which can occur under any payment scheme," said Song.

The study, "Are You Paying Your Employees To Cheat? An Experimental Investigation," was published in the B.E. Journal of Economic Analysis and Policy.

Address: Ryerson University, 350 Victoria St., Toronto, Ontario Canada; (416) 979-5000, www.ryerson.ca.


  This article was taken from:
Employee Assistance Program Management Letter

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