When a Bonus Backfires

When monetary rewards are at stake, some employees lie and cheat.
When Bonuses Backfire

FINANCIAL BONUS SCHEMES intended to motivate employees and improve their performance can actually have the opposite effect, according to new research by Brice Corgnet of EM Lyon Business School in France; Ludivine Martin of the Luxembourg Institute of Socio-Economic Research; Peguy Ndodjang of the Université de Perpignan in France; and Angela Sutan of the Burgundy School of Business in France.

The four researchers conducted two experiments in laboratory workplaces in order to assess both workplace performance and employee manipulation activities. A manager was present in one lab and absent in the other.

The researchers found that when monetary rewards were at stake and managers were present, employees tried to give the impression that they were key contributors, even if they weren’t. They were willing to exaggerate their accomplishments, falsify documents, and blatantly manipulate their managers to create favorable impressions of themselves for financial gain. However, when employees worked without managers present and without opportunities to exaggerate their achievements, the pay that they received was more likely to correspond with the work they actually performed. At the same time, the researchers found that organizational output was higher when employees worked under equal-pay rather than performance-related pay systems.

The researchers conclude that companies that want to avoid wasteful performance manipulation activities should weaken incentives and limit managerial discretion. Firms also should implement financially sufficient equal-pay systems that will benefit them in the long term.

“On the Merit of Equal Pay: Performance Manipulation and Incentive Setting” was published in the April 2019 issue of the European Economic Review.