Focus on Research

September 7, 2012 12:28 pm

Something for the weekend

Insurance bodies and tax collection agencies should pay attention to the latest research into honesty by academics in North America.

If you want individuals to fill in their tax returns and insurance claims honestly you should ask them to sign their forms at the very beginning, before they complete any part of the form at all, say a group of academics.

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Focus on Research

Signing your name at the start they say tends to activate an individual’s moral code, meaning that they are less inclined to fill in the form dishonestly.

Their suggestion has been borne out by three separate experiments. In one, more than 13,000 US car insurance policies relating to 20,000 vehicles were studied. The researchers discovered that when the policy had a signature at the beginning, the policies on average revealed a 2,428 miles higher usage, compared with those forms which had a signature at the end. The paper’s authors believe that this could translate into at least a $48 differential between the two group’s of customers’ annual insurance premium.

The writers concede that for those people who have no intention of filling in their forms honestly, where the signature is placed will make no difference. But if their self awareness is triggered – by signing the form at the beginning – before they have an opportunity to lie, many individuals are less likely to do so.

The paper, “Signing at the beginning makes ethics salient and decreases dishonest self-reports in comparison to signing at the end,” was written by Nina Mazar, assistant professor of marketing at the University of Toronto Rotman School of Management with Lisa Shu a visiting professor of management and organisations at the Kellogg School of Management, Francesca Gino, an associate professor of business administration and Max Bazerman, a professor of business administration, both at Harvard Business School and Dan Ariely, a professor of behavioural economics at the Fuqua School of Business.

The paper is published in the Proceedings of the National Academy of Sciences of the United States of America.

What is the best way to boost a company’s performance? If you are hoping that a performance-based bonus might act as an incentive for your executives, you need to design your compensation package very carefully.

Daniel Han Ming Chgn, an assistant professor of management at Ceibs has examined when incentive compensation works and when it does not. With researchers Matthew Rodgers of Fisher College of Business at the Ohio State University, Eric Shih of SKK Graduate School of Business at Sungkyunkwan University and Xiao-Bing Song at the School of Business Management at Dalian University of Technology, he invited 216 managers to take part in a management simulation. The participants were asked to improve the performance of their fictional company, manipulating both executives’ compensation schemes and the company’s performance.

The academics’ results show that for a successful company turnaround, compensation packages need to be designed to complement the existing executives at the company. Alternatively, executives need to be hired who match the existing compensation package.

Incentive compensation only appears to work say the researchers when “there is a fit between an executive’s self confidence and their company’s performance”. When faced with declining company performance, self-confident executives will respond to incentive compensation “with greater perseverance, competitive strategy focus, ethical behaviour and strategic risk taking” compared with those executives with lower self confidence.

Moreover they say that those executives with little self confidence do not feel that they have sufficient ability to turn the company around and when presented with incentive compensation have a desire to give up. Incentive compensation packages they add do little to motivate executives with low self-confidence, or those at companies that are growing.

The results are published in the Strategic Management Journal.

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