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How to Control for Honesty

The challenge is to identify those who really want to be honest and those who only want to appear to be honest

Internally motivated people perform an act for the inherent satisfaction. Externally motivated people respond more to rewards or punishments and may feel the need to manage their reputation or satisfy a job requirement. Researcher Pamela Murphy (retired), E. Marie Shantz Fellow of Accounting at Smith School of Business, Queen’s University, found that those higher in internal motivation to report honestly were more likely to report honestly than others. But when strict controls, such as a restrictive performance management system, were put in place, people who really wanted to be honest actually went to the dark side. In this video, Murphy discusses how managers can design their controls to encourage honest behaviour.

Video Highlights

0:12     You think fraud is just a minor issue? It’s estimated that, every year, it eats up roughly five percent of total revenue of companies.

0:42     People may have internal or external motivations to report honestly. Those with internal motivations really want to be honest while those with external motivations want to appear to be honest.

1:22     Murphy and her colleagues developed a measure — essentially a 13-question survey — that can help management identify who is internally or externally motivated.

2:34     People who are more internally motivated to report honestly can act negatively if they perceive management controls to be threatening to their autonomy.

3:24     “Managers really need to understand employees’ perceptions of their controls. Managers can think a control is not perceived as too onerous but employees might perceive it completely differently.” Once they have a better understanding of those perceptions, managers can design the right controls, such as performance reviews or employee incentives, for a particular work group.