Article at a glance

• Leaders should not assume that financial incentives alone will shape ethical behaviour, according to new research by Dr Zeyu Qiu

• The personal or moral cost of lying can counterbalance the attraction of greater financial rewards

On a basic level, remuneration is likely to be the main reason most people go to work. The relationship, however, between pay and how people feel and behave is not simple. We know, for example, that the connection between money and happiness or money and effort is complicated. Greater pay does not necessarily lead to happier, more diligent workers.

Pay also shapes behaviours organisations would rather not encourage. Bonuses and commissions often reward reported results rather than actual outcomes, which could provide a financial incentive for employees to be dishonest. On the other hand, businesses might assume that better paid workers are more likely to be honest and follow rules.

But does the promise of more money actually encourage people to lie or be honest, or is this relationship more complicated than it seems? Our research explores this question, starting with a simple dice roll experiment.

Incentive to lie 

We split 589 UK participants into two groups and asked them to roll a die and report their results, offering them payment based on how high a number they rolled. Reported rolls of 1, 2, 3, 4, 5 and 6 were worth, respectively, 0, 2, 4, 6, 8 and 10 points. In one group (the "low-incentive" group) each point was worth 6p. In the other group (the "high-incentive" group) each point was worth 60p. This meant the maximum payouts per roll were 60p and £6 respectively – a tenfold difference.

Participants were given full anonymity, as the experiment was conducted online. Both groups had an incentive to lie, though the high-incentive group obviously stood to gain more from dishonesty, so we might expect this group to lie more often.

Surprisingly, however, we found that both groups were dishonest to almost exactly the same degree, with no statistically significant difference in their reported results. They reported an average of 4.17 (low-incentive) and 4.15 (high-incentive), where an honest average would have been 3.5.

Around a quarter of rolls in each group were reported as sixes, well above the honest rate of one-in-six, and around five per cent of rolls were reported as ones, well below the honest rate. In simple terms, both groups lied, but they lied at the same rate regardless of one group having a much larger financial incentive than the other.

"Greater remuneration does not necessarily lead to happier, more diligent workers."

Values vs. financial reward

Our results suggest that money can serve as a motivation for dishonesty, but equally that there are other factors at play. People may also be guided by their individual values, a sense of what is right and wrong, or their personal identity. The chance to gain more money alone does not necessarily change people’s behaviour.

In a business context, where bonuses and rewards remain the primary tools for influencing employee behaviour, this finding suggests it may be worth looking beyond them. Working to improve an organisation’s culture, for example, or rewarding employees with leadership opportunities and greater trust, could therefore be important alongside financial incentives.

Additionally, a financial reward may incentivise employees to narrowly focus on the target at hand. The Wells Fargo scandal that saw staff open millions of unauthorised accounts, for example, was widely seen as a result of aggressive sales quotas.

"People may also be guided by their individual values, a sense of what is right and wrong."

A more holistic approach to behaviour change, on the other hand, could help bring employees along in pursuing the organisation’s wider goals, making them active, engaged agents in its growth and development. In other words, a bonus can signal what an organisation wants an employee to achieve, but it does not necessarily make them believe in the broader aims behind the target.

Doing the right thing

There’s also a useful distinction here between compliance and commitment. Compliance sees employees do things the right way because of the potential rewards or consequences, but only as far as the rules extend and only while they believe they are being watched. Commitment, however, links again to the idea of wider buy-in, with employees doing things properly and well even when there is no incentive or anyone watching.

There was no way for the participants in our study to be caught lying, and they were aware of that. This suggests that those who told the truth may have done so for intrinsic, personal reasons; a broader commitment to honesty and "doing the right thing".

None of which is to say that businesses should abandon financial incentives entirely, but rather that they may work best as part of a rounded system that also includes clear values, accountability and direction. Money can be a powerful motivator, but it may often not be the deciding one.