Management Accounting Section Midyear Meeting

The Effect of Charitable Prosocial Contracts versus Cash Contracts on Employee Effort and Misreporting

• In Event: Informal Control and Contract Framing (Experimental)

Abstract

Firms have recently begun offering employees prosocial contracts in which employees donate money awarded by their firms to a charity. Prior studies examining prosocial versus cash contracts have considered their relative effects on either effort or misreporting of performance but have not considered settings where employees can increase performance through both effort and misreporting. We conduct two studies using participants from Mechanical Turk (MTurk) to contribute to this literature. In Study 1, participants make a costly effort choice but cannot misreport their performance, whereas in Study 2 participants make a costly effort choice but can costlessly misreport their performance. Study 1 indicates that MTurk participants exert more effort (vis-à-vis fixed contracts) for variable cash than variable prosocial contracts. This result contrasts with prior research in this space that use student participants and find variable prosocial contracts motivate more effort than variable cash contracts. When individuals have the opportunity to misreport performance, recent studies suggest that the benevolent nature of prosocial contracts leads to more misreporting for variable prosocial contracts than variable cash contracts. However, Study 2 finds that both effort and misreporting is higher (vis-à-vis fixed contracts) for variable cash than variable prosocial contracts. In supplemental analyses, we find evidence that participants substitute misreporting for effort when incentivized by variable cash but not variable prosocial contracts; yet, despite this substitution effect, our results indicate that variable cash contracts are still more cost-efficient for firms than variable prosocial contracts.

Authors

• Joseph Johnson, University of Central Florida

• Khim Kelly, University of Central Florida

• Yu Tian, University of Central Florida