High Compensation and Unethical Reciprocity

Abstract

This research extends social exchange theory by investigating unethical reciprocity induced by high compensation in employee–manager exchange relationships. Two experimental studies based on behavioral games showed that even after employees had reciprocated their managers’ wage offers with commensurate work efforts, managers’ previous compensation decisions still had potent effects on employees’ subsequent ethical behaviors. Specifically, Study 1 showed that high wages led employees to engage in unethical reciprocity to benefit their managers at the expense of honesty. In addition, when managers had the possibility of rewarding employees’ unethical reciprocity, only underpaid employees demonstrated more unethical reciprocity, and high-paid employees were not affected by their potential personal payout. Study 2 replicated Study 1’s results using different designs and behavioral games. Its results consistently showed that high-paid employees were more likely to act dishonestly to advance their managers’ interests, irrespective of their own payouts. Finally, Study 3 complemented our experimental results with initial field evidence, suggesting that higher salaries were positively related to the likelihood of police officers engaging in unethical and illegal actions to help their organization. We discuss our results by applying cross-disciplinary insights on exchange models and compensation to organizational studies.