High Compensation and Unethical Reciprocity
Although many companies report that they base their compensation exclusively on market pricing, wage variations are substantive in the labor market. We investigated how pay variations may affect employees’ ethical behavior beyond wage-effort exchanges.
Although high compensation can reduce workplace deviance, we suggest that it may inadvertently create a new ethical problem. Specifically, when employees are willing to go the extra mile to reciprocate employers’ high compensation, they may feel obligated to actively promote their employers’ economic outcomes above and beyond their normal duties or ethical boundaries. As a result, highly paid employees may be biased in their ethical judgments and decision-making, making them more likely to engage in unethical reciprocity that benefits their employers or managers but harms innocent others.
To identify causal relationships more clearly, we first combined different empirical approaches from behavioral economics and social psychology to test our hypotheses in experimental labor markets. Specifically, the first two complementary studies used behavioral economic games to tightly control for exogenous variables and to precisely assess employees’ unethical reciprocity in the lab. These two experimental studies based on behavioral games showed that even after employees had reciprocated their managers’ wage offers with commensurate work efforts, managers’ previous compensation decisions still had potent effects on employees’ subsequent ethical behaviors.
Specifically, Study 1 showed that high wages led employees to engage in unethical reciprocity to benefit their managers at the expense of honesty. Study 2 replicated Study 1’s results using different designs and behavioral games. Its results consistently showed that highly paid employees were more likely to act dishonestly to increase their managers’ interests. Finally, Study 3 complemented the first two experimental studies with some initial field evidence by testing whether high salaries were positively related to the likelihood of police officers conducting illegal searches and seizures and making false arrests.
Compensation policies and practices are critical for organizational effectiveness. Our findings extend our understanding of positive reciprocity in employment relationships by offering insights into how high compensation may motivate employees to engage in unethical reciprocity to benefit their employer at the expense of others.
Because employees’ reciprocity often goes beyond wage-effort exchange in organizations, unethical reciprocity may readily spill over to employees’ handling of other fiduciary duties. Undoubtedly, how to manage compensation systems without inducing unintended unethical behaviors in other aspects of employment relationships remains an important topic for future research. Thus, how to improve pay satisfaction without encouraging unethical reciprocity remains an important question for organizations and leaders.
To learn more, see the full article:
Wang, L., Song, F., & Zhong, C. B. (2021). High Compensation and Unethical Reciprocity. (external link, opens in new window) Journal of Management, DOI: 10.1177/01492063211040557.