When the Boss is Far Away and There is Shared Pay : The Effect of Monitoring Distance and Compensation Interdependence on Performance Misreporting

This study examines the joint effect that probabilistic audits and compensation interdependence have on misreporting. In an experiment that holds the true detection rate equal, I find participants perceive a probabilistic audit to be more effective (i.e., more likely to detect misreporting) when there is low versus high monitoring distance between a supervisor and employee. I also find low monitoring distance reduces dishonest reporting when compensation interdependence is low. However, high compensation interdependence attenuates the effect of monitoring distance on dishonest reporting. This suggests that, with respect to misreporting, probabilistic audits and compensation interdependence are substitutes rather than complements within a control system