Give & Take: Incentive Framing in Compensation Contracts the Authors Gratefully Acknowledge Helpful Comments and Suggestions Received from Give & Take: Incentive Framing in Compensation Contracts Give & Take: Incentive Framing in Compensation Contracts

This research examined how framing a compensation contract potentially affects fraudulent behavior in organizations: specifically, the misrepresentation of performance and misappropriation of assets. We also explored how priming ethical concerns affects these behaviors. The relationship between fraudulent behavior and performance-contingent pay is important, especially in view of the dramatic increases in the use of contingent pay in recent years. Evidence of the scope of this problem is provided by both academic and practitioner literatures, which have documented examples of accounting manipulations. Using Prospect Theory, we tested our hypotheses in a 3×2 between-subjects experiment. We found that the framing of compensation matters: Participants with performance-contingent pay engaged in greater fraudulent behavior, and those facing penalties engage in more fraud than those facing bonuses. We found qualified support for the role of ethical primes in mitigating fraudulent behavior. Ethical priming limited the misappropriation of assets, but not the fraudulent misrepresentation of performance.