Get access

Can Wages Buy Honesty? The Relationship Between Relative Wages and Employee Theft

Authors


  • We thank the editor, an anonymous referee, Paul Adler, Dennis Campbell, Willie Choi, James Detert, Bart Dierynck, David Erkens, Curtis Hall, Ayse Imrohoroglu, Steve Kachelmeier, Robert S. Kaplan, Simon Jonghwan Kim, F. Asis Martinez-Jerez, Ella Mae Matsumura, Ken Merchant, Kevin Murphy, Lamar Pierce, Mina Pizzini, Karen Sedatole, Lloyd Tanlu, Bill Tayler, Kristy Towry, Wim Van der Stede, Greg Waymire, Sally Widener, Michael Williamson, Alicia Yancy, Mark Young, Christopher Yust, and seminar participants at Claremont McKenna College, Emory University, Erasmus University, Harvard Business School, Southern Methodist University, University of Arizona, and University of Texas at Austin, as well as participants at the 2010 Management Accounting Section Meeting, the 2010 Annual Meeting of the American Accounting Association, and the 2011 International Symposium on Management Accounting for their helpful comments. We also thank the National Association of Convenience Stores for access to data. All errors remain our own.

ABSTRACT

In this study, we examine whether, for a sample of retail chains, high levels of employee compensation can deter employee theft, an increasingly common type of fraudulent behavior. Specifically, we examine the extent to which relative wages (i.e., employee wages relative to the wages paid to comparable employees in competing stores) affect employee theft as measured by inventory shrinkage and cash shortage. Using two store-level data sets from the convenience store industry, we find that relative wages are negatively associated with employee theft after we control for each store's employee characteristics, monitoring environment, and socio-economic environment. Moreover, we find that relatively higher wages also promote social norms such that coworkers are less (more) likely to collude to steal inventory from their company when relative wages are higher (lower). Our research contributes to an emerging literature in management control that explores the effect of efficiency wages on employee behavior and social norms.

Ancillary