Sunday, October 21, 2012

Tally Tradeoffs in Paying for Honesty

I don’t object to you treating your employees nicely. Organizational psychology research finds take-it-to-the-bank benefits in doing so.
     But what about the other side of the cost-benefits equation? Know why you’re expending resources to be nice. Tally the tradeoffs.
     University of Illinois-Urbana/Champaign and University of Southern California accountancy researchers found that retail employees who were paid more, compared to workers in other stores doing equivalent jobs, were less likely to steal from the employer. It’s a valuable insight, considering the researchers said 35% of retail store employees in the U.S. admit to stealing.
     This might be taken to mean that if you want your people to steal less, you should pay them more. However, the researchers’ paper in last month’s Journal of Accounting Research convinces me there’s more to it:
  • The study’s data were gathered from about 250 convenience store outlets operating in a total of 31 different chains. That’s a large sample, but what’s true for convenience store employees may not hold for other types of retail operations. The title of the paper is “Can Wages Buy Honesty? The Relationship between Relative Wages and Employee Theft.” I like the question mark in the title, yet would have preferred the subtitle to read “A Relationship…” instead of “The Relationship….” 
  • The data were gathered in 2004-2005, before the Great Recession led to documented growth in both employees’ appreciation for their retail jobs and in employee justification for stealing from their employers. What was true eight years ago needs to modified for what’s true in the foreseeable future. 
  • The authors, being professors in schools of accountancy, do know about balance sheets. They estimated the return on investment: About 40% of the extra pay dollars would be balanced by the dollar value of less theft of inventory and cash. This isn’t a wash. You’d still have to make up, from other sources, most of the pay increase amount. Those could be there, such as increases in sales revenues from employees who are paid more. But that wasn’t looked at in this study. 
     My advice: Think of comparatively high pay rates as one way to attract honest employees and as one way to show appreciation for honesty. Use other ways as well. There is a time for a pat on the wallet to supplement a pat on the back. Still, there’s also a point of diminishing returns in using pay to incentivize employees.

Click below for more:
Fight Employee Theft with Expectations
Marry Intentions to Employee Engagement

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