We experimentally examine how nonprofit pay levels affect nonprofit managers' misreporting and how different types of penalties deter such behavior. Absent any penalties for misreporting, we find similar levels of, but different mechanisms for, misreporting by managers who select into lower- versus higher-paying nonprofits. Specifically, lower-paying nonprofits attract mission-focused managers who misreport to advance their nonprofit's mission and justify doing so by their personal sacrifice of wealth, whereas higher-paying nonprofits attract a majority of self-focused managers who justify misreporting by focusing on their personal outcomes. Because managers who select into their nonprofit at different pay levels have different motivation and justification for misreporting, we predict and find that penalizing the nonprofit is more effective in deterring misreporting in lower-paying nonprofits, while penalizing the manager is more effective in higher-paying nonprofits. Our study contributes to theory on the behavioral drivers of nonprofit misreporting and informs practice of ways to deter it.

To address the empirical phenomenon that organizations often reward time on the job as an end in itself, we design an experiment in which participants solve anagram puzzles, manipulating whether a compensation pool generated from the output of paired workers is allocated based on the individual inputs of relative time spent or on the individual outputs of puzzles solved. Relative to an output-based allocation, we find that an input-based allocation leads participants to spend more time on the task. However, when paired participants have widely different abilities, an input-based allocation also leads to less effort intensity, defined as puzzles solved per unit of time spent. We attribute these findings to fairness considerations, an interpretation we corroborate in a second experiment with purely individual incentives that finds the same effort duration advantage of input-based pay, but no offsetting disadvantage in effort intensity.