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Can Paying More Reduce Employee Theft?

Posted on 1/21/13 2:00 PM

Employee TheftRecently, members of the LPI team were in attendance to hear Tatiana Sandino, co-author of a recent study on employee theft, discuss whether paying higher wages to associates will decrease the likelihood of them being dishonest.

The interview, conducted by Jim O’Connor, VP of Loss Prevention for Bed, Bath & Beyond and Gus Downing, President of Downing-Downing, Inc., discussed the findings of a study conducted by Clara Chen and Tatiana Sandino in the September 2012 issue of the Journal of Accounting Research ("Can  Wages Buy Honesty? The Relationship between Relative Wages and Employee Theft").

Ms. Sandino presented some very interesting results of their study, which was conducted using convenience store data, both from an industry study as well as individual company sources. Here is a recap of the some key points of their interview.

The Prediction

The authors went into the study predicting that:

  1. Relatively higher wages (similar wages paid to the same level of associates across competing companies) will induce associates to be more positive about their company, reducing the likelihood of them stealing.

  2. High wages increase the costs of being fired, thereby increasing the cost of an associate stealing.

  3. Higher wages will attract more honest associates.

The Findings

In summary, the authors found that although paying higher wages did lower employee theft, the benefit of reducing theft only covered about 39% of the costs involved in the wage increases. Additionally, paying higher wages to associates may alter the social norm of theft, reducing theft in those locations where co-workers are present. Some additional findings included:

  • Cash theft is considered more “personal” and conducted more as a single person act versus inventory theft, which is higher when co-workers are present.

  • The “social norm” is affected by higher wages, when multiple associates are present. It is assumed that the perception of fairness is changed with higher wages and a dishonest associate would not steal because of fear of another co-worker.

  • Inventory loss, particularly in this study with convenience stores, was higher than cash loss. The authors believe that the perception of inventory loss (drinking soda or eating food) is easily rationalized as not being theft amongst social groups, whereas taking cash from the register or deposit is theft.

What does this mean?

Ms. Sandino believes that this study is only the start of future studies and research in this area. Her and her co-author’s conclusions, although showing some very interesting findings, would most certainly benefit from studies looking at additional factors in the retail environment. Some of these factors may include:

  • How do controls (policies, procedures, restrictions) offset the lack of higher wages?

  • Does how an associate is treated play a role in preventing dishonesty instead of higher wages?

  • Will better communication or a better corporate culture reduce the likelihood of employee theft in lieu of higher wages?

Overall, the study begins to present some interesting discussion points. As employee theft continues to be the highest contributor to a company’s overall annual loss, we as members or the retail industry must look at how we can better understand its causes and seek new means of reducing the opportunities for theft to occur.

To find out how you could obtain the complete study, visit the Journal of Accounting Research Website.

Interested in seeing the interview with Ms. Sandino? Be on the lookout for the video interview presentation from The Loss Prevention News Network.

Topics: training and awareness