Paving the Way with Good Intentions

The saying sparked Levine, who has spent much of his career studying fairness in setting wages, to think more about how, beyond wage levels themselves, an employer’s intentions in setting a wage might also affect workers.

“It’s not just the fairness of the outcome, but fairness of the process that matters,” explains Levine, the Eugene E. and Catherine M. Trefethen Chair in Business Administration.

To test that premise, Levine conducted a set of experiments with Gary Charness, a UC Santa Barbara economist who has previously collaborated with Levine. Their central question: Do people care about intentions, even when good intentions do not produce good results? They detailed the answer – a resounding yes – in a recent article in The Economic Journal.

“The bottom line for management is clear: There can be high costs to unfairly treating workers,” Levine says. “The good news is that if low compensation or other outcomes are clearly due to forces outside the employers’ control, workers may be much less likely to penalize their employer.”

Levine and Charness conducted two sets of experiments with 244 college students, who were split into groups representing “workers” and “firms.” The pair tested intention’s influence on behavior by creating two different paths that led to the same outcome, or wage, for the workers: The firm gave a low wage (indicating bad intentions) and then good luck led to a wage increase, or the firm gave a high wage (indicating good intentions) and bad luck resulted in a wage decrease.

Levine and Charness then asked workers to choose an effort level: low, medium, or high. The pair compared workers’ choices at different wage levels after good or bad luck intervened – decided by a coin toss – to create either good or poor business conditions.

They found that workers reacted strongly to the firms’ intentions – indicated by how much it tried to pay – and much less to the higher or lower wage actually received after fate intervened to raise or lower workers’ pay. For instance, Levine and Charness found that workers who end up receiving medium wages respond much more positively when they resulted from the firm offering a high wage but bad luck lowered the worker’s pay than when the firm offered a low wage and good luck raised the pay.

“Workers frequently reward and almost never punish firms if they perceive good intentions, even if their own outcomes are not particularly good,” Levine and Charness wrote.

In their experiments, a high wage induced substantially more effort from workers than a low wage. Reward rates, or the percent of workers who rewarded firms with high effort, reached nearly 60% when workers received high wages and worked in good business conditions.

On the other hand, as many as 42% of workers punished firms with low effort when they received low wages and worked in poor business conditions. That percentage fell only slightly, to 40%, when business conditions were good but workers still received low wages.

Of course, there may be some differences between the experiments and the workplace, Levine acknowledges. In the experiments, bad luck, rather than the firm’s actions, led to lower wages. “But people may be less forgiving of good intentions if they feel a firm with good intentions had low levels of effort or skill,” Levine says.

In that situation, merely intending to do good, without actually doing it, might not matter to workers, much as the “road to hell” proverb suggests.

(September 17, 2007)