Work performance is often difficult to assess thus leaving room for manipulation of commonly-used metrics. We created a laboratory workplace in which we can precisely assess both work performance along with manipulation activities. Using two independent experiments we show that, whenever pay for performance is used, manipulation is pervasive leading to both a waste of organizational resources and a weakening of incentives. By contrast, paying organizational members equally effectively deters manipulation attempts leading to higher organizational production.
h i g h l i g h t s • Modified ultimatum game with performed good deed towards third party by proposer. • We show that previous good deeds make responders more tolerant to unfair proposals. • Individuals are not only influenced by payoffs or equity issues, but also by past deeds.
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