Study shows incentives can lead employees to cheat or lie at work
In 2020, Wells Fargo paid $3 billion to settle claims that employees had committed widespread consumer abuses, including opening millions of unauthorized or outright bogus accounts, forging signatures, and moving money from real accounts to fake ones.
Regulators zeroed in on Wells Fargo’s incentive system, intended to juice sales. Employees “secretly opened unauthorized accounts to hit sales targets and receive bonuses,” according to the director of the Consumer Financial Protection Bureau.
The scandal highlights how workplace incentives “can be a cure as well as a poison,” according to TaeYoun Park, lead author on research published in the Academy of Management Annals that explores how incentive programs can unintentionally encourage bad behavior at work.
Mr. Park, director of research at Cornell University’s Institute for Compensation Studies, along with researchers from Vanderbilt University and Hongik University, examined more than 360 articles and studies examining the relationship between incentive programs and ethics across a range of industries, including health care, for-profit business and education.
Incentives are based on the controversial assumption that external rewards and punishments are the primary motivators of people’s actions. Leaders usually deploy incentives with the aim of boosting their organization’s performance, but the focus on rewards can “open you up to overlooking other important values,” Mr. Park said.
In the case of Wells Fargo, at the time of the settlement, the company’s chief executive Charles Scharf decried the conduct “and the past culture that gave rise to it” as “reprehensible and wholly inconsistent with the values on which Wells Fargo was built.”
The prevalence of workplace incentives is rooted in behaviorist theory, which was derived from work with laboratory animals, as human behavior expert Alfie Kohn wrote in the Harvard Business Review in 1993.
Incentive programs — like piecework pay for factory workers, stock options for top executives and commissions for salespeople — don’t tend to produce lasting changes in people’s behavior, Mr. Kohn argued.
“Do this and you’ll get that is part of the fabric of American life,” Mr. Kohn wrote. Rewards, however, “typically undermine the very processes they are intended to enhance.”
The research reviewed by Mr. Park and his colleagues backs this up.
In health care, for example, doctors who were rewarded for achieving goals such as better patient outcomes got higher bonuses by selectively admitting healthier patients, Mr. Park said. In education, the frequency of cheating on standardized tests by teachers or administrators was higher when teachers were rewarded for classes that performed better, according to data from Chicago public schools. In for-profit business, chief financial officers were more likely to withhold negative information about their firms if their bonuses were tied to the company’s financial targets.
The consequences of incentives have a lot to do with how they’re set up, Mr. Park said. People aren’t very motivated to cheat to hit goals that are too easy or entirely out of reach. But with incentives that are challenging but achievable “people tend to focus on the goal over the value of what they’re doing,” Mr.Park said.
He pointed to a program at Sears decades ago that rewarded auto service employees for strict sales quotas. The company discontinued the commissions in 1992 after allegations came out that employees were defrauding customers, overcharging and billing for unneeded repairs.