Skip to main content
SpringerLink
Log in

On the Psychology of Financial Compensations to Restore Fairness Transgressions: When Intentions Determine Value

  • Published:
Journal of Business Ethics Aims and scope Submit manuscript

Abstract

An important challenge for actors in economic exchange relations concerns dealing with the aftermath of unethical behavior and the violation of trust that such transgressions entail. As transgressions in these relations often result in financial harm for one party, a common restorative approach consists of the transgressor paying a financial compensation to the victim; either voluntarily, or following coercion by a third party (cf. litigation). In the present article, we studied the impact of financial compensations on victims’ trust towards the transgressor and examined whether the size of the compensation is relevant to this process. In contrast to outcome-based models in game theory, we predicted that whether larger compensations foster more trust, depends on whether the compensation is provided voluntarily or not. Experimental data from a trust game supported our hypothesis by showing that larger compensations only lead to more trust when the transgressor provided the compensation voluntarily, whereas compensation size had no effect when the transgressor was forced by a third party.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Berg, J., J. Dickhaut and K. McCabe: 1995, ‘Trust, Reciprocity, and Social History’. Games and Economic Behavior 10(1), 122-142.

    Article  Google Scholar 

  • Bies, R. J. and T. M. Tripp: 1996, ‘Beyond Distrust: ‘Getting Even’ and the Need for Revenge’, in R. M. Kramer and T. Tyler (eds.), Trust in Organizations (Sage, Newbury Park, CA), pp. 246-260.

    Google Scholar 

  • Boles, T. L., R. T. A. Croson and J. K. Murnighan: 2000, ‘Deception and Retribution in Repeated Ultimatum Bargaining’, Organizational Behavior and Human Decision Processes 83(2), 235-259.

    Article  Google Scholar 

  • Bolton, G. and A. Ockenfels: 2000, ‘ERC: a Theory of Equity, Reciprocity, and Competition’, American Economic Review 90(1), 166-193.

    Article  Google Scholar 

  • Boon, S. D. and J. G. Holmes: 1991, ‘The Dynamics of Interpersonal Trust: Resolving Uncertainty in the Face of Risk’, in R. A. Hinde and J. Groebel (eds.), Cooperation and Prosocial Behavior (Cambridge University Press, New York), pp. 167-82.

    Google Scholar 

  • Boshoff, C.: 1997. ‘An Experimental Study of Service Recovery Options’, International Journal of Service Industry Management 8(2), 110-130.

    Article  Google Scholar 

  • Bottom, W. P., K. Gibson, S. E. Daniels and J. K. Murnighan: 2002, ‘When Talk is not Cheap: Substantive Penance and Expressions of Intent in Rebuilding Cooperation’, Organization Science 13(5), 497-513.

    Article  Google Scholar 

  • Davidow, M.: 2003, ‘Organizational Responses to Customer Complaints: What Works and What Doesn’t’, Journal of Service Research 5(3), 225-250.

    Article  Google Scholar 

  • De Cremer, D.: 2010, ‘To Pay or to Apologize? On the Psychology of Dealing with Unfair Offers in a Dictator Game’, Journal of Economic Psychology 31(6), 843–848.

    Google Scholar 

  • De Cremer, D., M. Snyder and S. Dewitte: 2001, ‘The less I Trust, the Less I Contribute (or Not?): Effects of Trust, Accountability, and Self Monitoring in Social Dilemmas’, European Journal of Social Psychology 31(1), 91-107.

    Google Scholar 

  • De Cremer, D. and D. Van Knippenberg: 2002, ‘How Do Leaders Promote Cooperation? The Effects of Charisma and Procedural Fairness’, Journal of Applied Psychology 87(5), 858-866.

    Article  Google Scholar 

  • De Cremer, D. and D. Van Knippenberg: 2004, ‘Leader Self-Sacrifice and Leadership Effectiveness: The Moderating Role of Leader Self-Confidence’, Organizational Behavior and Human Decision Processes 95(2), 140-155.

    Article  Google Scholar 

  • Desmet, P. T. M., D. De Cremer and E. Van Dijk: 2011, ‘In Money We Trust? Financial Compensations as a Means to Repair Trust in the Aftermath of Distributive Harm’, Organizational Behavior and Human Decision Processes 114(2), 75–86.

  • Desmet, P. T. M., D. De Cremer and E. Van Dijk: in press, ‘Trust Recovery Following Voluntary or Forced Financial Compensations in the Trust Game: The Role of Trait Forgiveness’, Personality and Individual Differences

  • Deutsch, M.: 1960, ‘Trust, Trustworthiness and the F-Scale’, Journal of Abnormal and Social Psychology 61(1), 138-140.

    Article  Google Scholar 

  • Dirks, K. T., R. J. Lewicki and A. Zaheer: 2009, ‘Repairing Relationships Within and Between Organizations ‘Building Conceptual Foundations’, Academy of Management Review 34(1), 68-84.

    Article  Google Scholar 

  • Falk, A. and U. Fischbacher: 2006, ‘A Theory of Reciprocity’, Games and Economic Behavior 54(2), 293-315.

    Article  Google Scholar 

  • Fehr, E and K.M. Schmidt: 1999, ‘A Theory of Fairness, Competition and Cooperation’, Quarterly Journal of Economics, 114(3), 817-868.

    Article  Google Scholar 

  • Gillespie, N. and G. Dietz: 2009, ‘Trust Repair after an Organization-Level Failure’, Academy of Management Review 34(1), 127-145.

    Article  Google Scholar 

  • Gilly, M. C. and R.W. Hansen: 1985, ‘Consumer Complaint Handling as a Strategic Marketing Tool’, Journal of Consumer Marketing 2(4), 5-16.

    Article  Google Scholar 

  • Goranson, R. and L. Berkowitz: 1966, ‘Reciprocity and Responsibility Reactions to Prior Help’, Journal of Personality and Social Psychology 3(2), 227-232.

    Article  Google Scholar 

  • Granovetter, M.: 1985. ‘Economic action and social structure: the problem of embeddedness’, American Journal of Sociology 91(3), 481-510.

    Article  Google Scholar 

  • Greenberg, J.: 1982, ‘Approaching Equity and Avoiding Inequity in Groups and Organizations’, in J. Greenberg and R. L. Cohen (eds.), Equity and Justice in Social Behavior (Academic Press, New York), pp. 389-435.

    Google Scholar 

  • Greenberg, M. and D. Frisch: 1972, ‘Effect of Intentionality on Willingness to Reciprocate a Favor’, Journal of Experimental Social Psychology 8(2), 99-111.

    Article  Google Scholar 

  • Heider, F.: 1958, The Psychology of Interpersonal Relations (Wiley, New York).

    Book  Google Scholar 

  • Jones, E. and K. Davis: 1965, ‘A Theory of Correspondent Inferences: From Acts to Dispositions’, in L. Berkowitz (ed.), Advances in Experimental Social Psychology, Vol. 2 (Academic Press, New York), pp. 219-266.

    Google Scholar 

  • Jones, G. R. and J. M. George: 1998, ‘The Experience and Evolution of Trust: Implications for Cooperation and Teamwork’, Academy of Management Review 23(3), 531-546.

    Google Scholar 

  • Kim, P. H., D. L. Ferrin, C. D. Cooper and K. T. Dirks: 2004, ‘Removing the Shadow of Suspicion: The Effects of Apology Versus Denial for Repairing Competence-Versus Integrity-Based Trust Violations’, Journal of Applied Psychology 89(1), 104-118.

    Article  Google Scholar 

  • Kramer, R. M.: 1994, ‘The Sinister Attribution Error: Paranoid Cognition and Collective Distrust in Organizations’, Motivation & Emotion 18(2), 199-230.

    Article  Google Scholar 

  • Kramer, R. M., P. Pommerenke and E. Newton: 1993, ‘The social context of negotiation: Effects of social identity and interpersonal accountability on negotiator decision making’, Journal of Conflict Resolution 37(4), 633-654.

    Article  Google Scholar 

  • Lewicki, R. J. and B. B. Bunker: 1995, ‘Trust in Relationships: A Model of Trust Development and Decline’, in B. B Bunker and J. Z. Rubin (eds.), Conflict, Cooperation and Justice (Jossey-Bass, San Francisco), pp. 133-173.

    Google Scholar 

  • Lewicki, R. J., D. J. McAllister and R. J. Bies: 1998, ‘Trust and Distrust: New Relationships and Realities’, Academy of Management Review 23(3), 438-458.

    Google Scholar 

  • Lewicki, R. J., C. Wiethoff and E. C. Tomlinson: 2005, ‘What is the Role of Trust in Organizational Justice’, in J. Greenberg and J. Colquitt (eds.), Handbook of Organizational Justice (Lawrence Erlbaum, Mahwah, NJ), pp. 247-270.

    Google Scholar 

  • Lount, R. B., Jr., C. B. Zhong, N. Sivanathan and J. K. Murnighan: 2008, ‘Getting Off on the Wrong Foot: The Timing of a Breach and the Restoration of Trust’, Personality and Social Psychology Bulletin 34(12), 1601-1612.

    Article  Google Scholar 

  • Mayer, R. C., J. H. Davis and F. D. Schoorman: 1995, ‘An Integrative Model of Organizational Trust’, Academy of Management Review 20(3), 709-734.

    Google Scholar 

  • McCabe, K. A., M. L. Rigdon and V. L. Smith: 2003, ‘Positive Reciprocity and Intentions in Trust Games’, Journal of Economic Behavior & Organization 52(2), 267-275.

    Article  Google Scholar 

  • McKnight, D. H., L. L. Cummings and N. L. Chervany: 1998, ‘Initial Trust Formation in New Organizational Relationships’, Academy of Management Review 23(3), 473-490.

    Google Scholar 

  • Mellinger, G. D.: 1956, ‘Interpersonal Trust as a Factor in Communication’, Journal of Abnormal Psychology 52(3), 304-309.

    Article  Google Scholar 

  • Messick, D. M.: 1993, ‘Equality as a Decision Heuristic’, in B. A. Mellers and J. Baron (eds.), Psychological Perspectives on Justice (Cambridge University Press, New York), pp. 11-31.

    Chapter  Google Scholar 

  • Meyerson D., K. E. Weick and R. M. Kramer: 1996, ‘Swift Trust and Temporary Groups’, in R. M. Kramer and T. R. Tyler (eds.), Trust in Organizations: Frontiers of Theory and Research (Sage, Thousand Oaks, CA), pp. 246-260.

    Google Scholar 

  • Nakayachi, K. and M. Watabe: 2005, ‘Restoring Trustworthiness after Adverse Events: The Signaling Effects of Voluntary “Hostage Posting” on Trust’, Organizational Behavior and Human Decision Processes 97(1), 1-17.

    Article  Google Scholar 

  • O’Connor, K. and P. Carnevale: 1997, ‘A Nasty but Effective Negotiation Strategy: Misrepresentation of a Common-value Issue’, Personality and Social Psychology Bulletin 23(5), 504-519.

    Article  Google Scholar 

  • Ohtsubo, Y. and E. Watanabe: 2009, ‘Do Sincere Apologies Need to Be Costly? Test of a Costly Signaling Model of Apology’, Evolution and Human Behavior 30(2), 114-123.

    Article  Google Scholar 

  • Parks, C. D., R. F. Henager and S. D. Scamahorn: 1996, ‘Trust and Reactions to Messages of Intent in Social Dilemmas’, Journal of Conflict Resolution 40(1), 134-51.

    Article  Google Scholar 

  • Rabin, M.: 1993, ‘Incorporating Fairness into Game Theory and Economics’, American Economic Review 83(5), 1281-1302.

    Google Scholar 

  • Rabin, M.: 1998, ‘Psychology and Economics’, Journal of Economic Literature 36(1), 11-46.

    Google Scholar 

  • Reis, H. T. and J. Gruzen: 1976. ‘On mediating equity, equality, and self-interest: The role of self-presentation in social exchange’, Journal of Experimental Social Psychology 12(5), 487-503.

    Article  Google Scholar 

  • Ren, H. and B. Gray: 2009, ‘Repairing Relationship Conflict: How Violation Types and Culture Influence the Effectiveness of Restoration Rituals’, Academy of Management Review 34(1), 105-126.

    Article  Google Scholar 

  • Robinson, S. L. and D. M. Rousseau: 1994, ‘Violating the Psychological Contract: Not the Exception but the Norm’, Journal of Organizational Behavior 15(3), 245-259.

    Article  Google Scholar 

  • Rousseau, D., S. Sitkin, R. Burt and C. Camerer: 1998, ‘Not So Different after All: A Cross-Discipline View of Trust’, Academy of Management Review 23(3), 393-404.

    Article  Google Scholar 

  • Schweitzer, M., J. Hershey and E. Bradlow: 2006, ‘Promises and Lies: Restoring Violated Trust’, Organizational Behavior and Human Decision Processes 101(1), 1-19.

    Article  Google Scholar 

  • Sheppard, B. H. and D. M. Sherman: 1998, ‘The Grammars of Trust: a Model and General Implications’, Academy of Management Review 23(3), 422-437.

    Google Scholar 

  • Stouten, J., D. De Cremer and E. van Dijk: 2005: ‘All is well that ends well, at least for proselfs: Emotional reactions to equality violations as a function of social value orientation’, European Journal of Social Psychology 35(6), 767-783.

    Article  Google Scholar 

  • Tomlinson, E. C., B. R. Dineen and R. J. Lewicki: 2004, ‘The Road to Reconciliation: Antecedents of Victim Willingness to Reconcile Following a Broken Promise’, Journal of Management 30(2), 165-187.

    Article  Google Scholar 

  • Uzzi, B.: 1996, ‘The sources and consequences of embeddedness for the economic performance of organizations: the network effect’, American Sociological review 61(4), 674-698.

    Article  Google Scholar 

  • Uzzi, B.: 1997, ‘Social structure and competition in interfirm networks: The paradox of embeddedness’, Administrative Science Quarterly 42(1), 35-67.

    Article  Google Scholar 

  • Webster, C. and D. S. Sundaram: 1998, ‘Service Consumption Criticality in Failure Recovery’, Journal of Business Research 41(2), 153-159.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Rotterdam Institute of Law and Economics (RILE), Erasmus School of Law, Erasmus University, P.O. Box 1738, 3000 DR, Rotterdam, The Netherlands

    Pieter T. M. Desmet

  2. Rotterdam School of Management, Erasmus University, Rotterdam, The Netherlands

    David De Cremer

  3. London Business School, London, U.K.

    David De Cremer

  4. Leiden University, Leiden, The Netherlands

    Eric van Dijk

  5. Department of Business-Society Management, Rotterdam School of Management, Erasmus Centre of Behavioural Ethics, Erasmus University Rotterdam, P.O. Box 1738, 3000 DR, Rotterdam, The Netherlands

    David De Cremer

Authors
  1. Pieter T. M. Desmet
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. David De Cremer
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Eric van Dijk
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to David De Cremer.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Desmet, P.T.M., De Cremer, D. & van Dijk, E. On the Psychology of Financial Compensations to Restore Fairness Transgressions: When Intentions Determine Value. J Bus Ethics 95 (Suppl 1), 105–115 (2010). https://doi.org/10.1007/s10551-011-0791-3

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10551-011-0791-3

Key words

Search

Navigation