Says: P4P Promotes Cheating Instead
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
"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
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
"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.