{cajobportal Insights} Bell Curves and Ethical Dilemmas

Competition, as the clichéd statement says, brings out the best in an individual. The prospect of winning increases an individual’s testosterone and dopamine hormones and thus we become more confident and pro-risk.

But an intended consequence of it is also that one becomes blind to ethical considerations. When there are a few winning slots and stakes for money/advancement/fame are high, it can be a problem. It results in colleagues who have a strong rivalry at work, managers who need to make their numbers for the quarter and even political parties that are campaigning for power.

When performance is relative, it’s the trigger for unintended consequences.

One classic way to create competition is to benchmark players relative to each other, as in the much hated “Bell Curve” in annual appraisals. In such a stacking reward system, typically the top 20% performers are disproportionally rewarded, the mediocre 70% are modestly rewarded – if at all – and the lowest 10% performers are fired.

A research titled “Unethical behaviour under relative performance evaluation: Evidence and remedy” by Konstantina Tzini  and Kriti Jain,  found that performance evaluation schemes based on peer comparison can encourage unethical behaviour.

In one of the studies, 164 MBA students were given a case study based on an ethical dilemma that an investment banker faces. They would need to guesstimate the probability of the banker indulging in unethical behaviour.

The students were randomly assigned to three conditions for how the banker would be paid:

  1. a)Fixed salary with no bonus;
  2. b)Fixed salary with a bonus tied to the banker’s number of trades; and
  3. c)Fixed salary with a bonus tied to the banker’s performance relative to his peers.

Students in the relative performance condition expected the banker to be more likely to behave in an unethical manner.

Another issue covered the aspect of people w.r.t. self-reporting of performance. The sample size was 160 participants in a 10-question IQ quiz. They were asked to self-verify their answers and report their score.

Again, participants were randomly assigned to one of three compensation groups:

  1. a)Fixed participation fee of 10 cents, irrespective of performance;
  2. b)Fixed fee with a bonus based on the number of correct answers they reported; and
  3. c)Fixed fee with a bonus for only the top scorers.

The results were surprising. The groups didn’t differ much in performance, and most participants over reported their scores. But both the incidence and the magnitude of over reporting was highest in the third group, the one in which only top performers received a bonus. Notably, every single person in the group over reported their score.

Thus, competitive pressure and the comparisons encouraged rule breaking. The moment rewards and incentives get tied to performance, the tendency for use of unethical practices increases.

As companies debate on the pros and cons of comparison-based performance management systems, there are often issues like TINA – There is No Alternative. Unless comparisons are relative, you really will not be able to bring out the best performance.

Given that, what can be done to limit possible temptations of ethical breaches that accompany such competitive comparative settings?

What do you think?