Journal of Managerial Psychology

Assessing ethical behavior: the impact of outcomes on judgment bias

Robert L. Cardy T.T. Selvarajan
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Robert L. Cardy T.T. Selvarajan, (2006),"Assessing ethical behavior: the impact of outcomes on judgment
bias", Journal of Managerial Psychology, Vol. 21 Iss 1 pp. 52 - 72
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JMP
21,1 Assessing ethical behavior:
the impact of outcomes on
judgment bias
52
Robert L. Cardy
Department of Management, W.P. Carey College of Business,
Received April 2005
Revised October 2005 Arizona State University, Tempe, Arizona, USA, and
Revised November 2005 T.T. Selvarajan
Accepted November 2005
University of Houston-Victoria, School of Business, Sugar Land, Texas, USA
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Abstract
Purpose – The objective of this empirical study is to apply the methodology commonly used to
performance appraisal and examine if outcomes achieved by ratees bias rater’s judgment of ratee
ethical behavior.
Design/methodology/approach – Two studies were conducted: in study 1 the participants were
undergraduate business students and in study 2, the participants were MBA students but who were
also full time employees. In both these studies, participants read the vignettes and rated the ratee
performance using behavior observation scale.
Findings – Both the studies found support for the main hypothesis that outcomes achieved by the
ratees influenced judgment of ethical behavior. The hypothesis that ethical beliefs of raters will
moderate the biasing influence of outcomes on ethical judgment bias was not supported.
Research limitations/implications – If outcomes achieved by employees influence judgment of
ethical behavior, future research has to examine how the biasing influence of outcomes on ethical
judgments can be mitigated or eliminated.
Practical implications – If managers are influence by outcomes achieved by their employees in
judging the ethical behavior, it can lead to “success breeds acceptance” culture. If organizations place
undue emphasis on outcomes at the cost of ethical standards, unethical behavior of individuals could
be condoned or justified which would lead to worsening of ethical climate in these organizations.
Originality/value – This study demonstrated that outcomes achieved by employees biases
judgment of their ethical behavior and this finding has important implications for designing effective
appraisal systems for assessing ethical behavior of employees.
Keywords Ethics, Performance appraisal
Paper type Research paper

Ethics at the organizational and individual levels has been of considerable interest to
researchers over the past four decades (e.g. Baumhart, 1961; Brenner and Molander,
1977) and has been asserted to be an important problem facing American companies
today (Baehr et al., 1993). The issue of ethics has recently become the focus of media
attention in the wake of corporate scandals created by the actions of executives in
companies such as Enron, WorldCom, Global Crossing, and Arthur Anderson. In
Journal of Managerial Psychology addition to being a current issue in the media domain, unethical behavior in
Vol. 21 No. 1, 2006
pp. 52-72 organizations has also been identified as a relevant social issue demanding the
q Emerald Group Publishing Limited
0268-3946
attention of researchers (Trevino and Youngblood, 1990). Ethical decision making and
DOI 10.1108/02683940610643215 behavior has become a focus of interest in areas such as accounting (e.g. Brief et al.,
 1996), marketing (Akaah and Lund, 1994), and management (Gatewood and Carroll, Assessing ethical
1991). behavior
Most of the research in the ethical domain has not directly addressed ethical
performance and its measurement. Rather, research has either been prescriptive or
focused on surveys regarding perceptions or opinions of ethical performance. Further,
theoretical work has consisted of the development of models of the determinants of
ethical behavior (e.g. Trevino, 1986). In general, these models all propose that personal 53
and organizational variables influence ethical behavior (Akaah and Lund, 1994).
Understanding the psychological and situational determinants of ethical performance
is important, but, as suggested by Gatewood and Carroll (1991) in their conceptual
consideration of the assessment of ethical performance, accurate measurement of
ethical behavior is important as well.
Explicit incorporation of ethical behavior into performance appraisal has been
recently recommended by researchers (Buckley, 2001; Weaver, 2001; Weaver and
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Trevino, 1999). Their argument is that inclusion of ethical dimensions into regular
performance appraisal systems integrates ethics expectations into employees’ formal
role identities and makes ethical behavior at work relevant and rewarding for
employees. However, the extent to which ethical performance judgments might be
subject to systematic biases has not yet been empirically addressed. The purpose of the
present study is to provide an initial exploratory examination of possible influences on
the accuracy of judgments of the ethics of performance.
Unethical behavior among organizational members can take a variety of forms,
ranging from convenient disregard of company policies to breaking civil or criminal
law. Some instances of unethical behavior may result in objective evidence that
unethical behavior occurred. However, ethical behavior is often seen as a social reality
(Payne and Giacalone, 1990) rather than as an objective fact. Thus, just as with the
assessment of job performance (Cardy and Dobbins, 1994), determination of the level of
ethical performance requires subjective judgment. Performance ratings based on
subjective judgment raise concerns regarding their accuracy. Certainly, facets such as
user acceptance and satisfaction are important criteria for assessing appraisal
effectiveness, but accuracy continues to be a critical criterion of appraisal effectiveness
(Jelley and Goffin, 2001; Uggerslev and Sulsky, 2002; Borman et al., 2001; Viswesvaran
et al., 2002; Cardy and Dobbins, 1994). Recently, in a study of 360 degree feedback,
(Brett and Atwater, 2002) found that less favorable ratings were related to the belief
that ratings were less accurate. Further, as observed by Weaver (2001), accurate
appraisal of ethical behavior is important from a fairness/justice perspective. Given the
importance of accurate judgment of the ethical performance in organizations,
investigation of influences on the accuracy of these judgments is needed. The objective
of this study is to apply the methodology commonly used in the appraisal literature in
an empirical examination of selected possible influences on the ethical judgment
process.
Performance appraisal is a rater decision making process which is subject to biases
due to cognitive limitations of the rater (Cardy and Dobbins, 1994). Since biases
degrade decision outcomes (Doerr and Mitchell, 1998), a fundamental issue of interest
would be to determine the nature of rater biases in the ethical judgment process. The
performance appraisal literature suggests that performance judgments can be biased
by outcomes achieved by the ratee, characteristics of the rater, and trait inferences
 JMP made by the rater (e.g. Cardy et al., 1991; Krzystofiak et al., 1988) Thus, an interesting
21,1 research question would be to determine if outcomes (success or failure in job
performance) bias judgments of ethical behavior. In other words, a central question of
importance is, “Does success breed acceptance”? The issue of outcomes affecting
ratings is all the more important in appraising ethical performance since it is an
important facet of the “means versus ends” dilemma in judging ethical behavior
54 (Brady, 1990). Research suggests that outcomes influence performance ratings (DeNisi
and Stevens, 1981; Cardy et al., 1991). Likewise, an outcome schema may also have an
influence on evaluating the ethical nature of a performer’s behaviors. From a schematic
perspective (e.g. Neisser, 1967), a worker who achieves excellent work outcomes may
be placed in a successful-performance cognitive category by the rater. Unethical
behavior that the worker engaged in may be ignored, discounted or reinterpreted to be
consistent with the schema of a high performer. In other words, people may tend to rate
the ethical nature of a successful employee more favorably than that of an unsuccessful
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employee. The above discussion leads to the following hypothesis:

H1a. Outcomes (success/failure) will bias the ethical judgment of raters such that
the ethical nature of successful ratees will be judged with more positive bias
than that of unsuccessful ratees.
The level of ethical behavior may also influence the accuracy of ethical judgments. The
accuracy of observational judgments of performance has been found to be influenced
by the level of ratee performance (Gordon, 1970). Specifically, high performers have
been found to be rated more accurately than low performers. While the underlying
basis for this effect is unclear, it appears that we may give low performers the “benefit
of doubt” (Krzystofiak and Cardy, 1987) and report the occurrence of effective
behaviors even though they did not occur. While an exploratory notion, it is possible
that a similar phenomenon occurs with ethical performance. The following exploratory
hypothesis is offered:
H1b. Ethical judgments will be more accurate (i.e. less biased) for ethical than for
unethical ratees.
Characteristics of raters have been recognized and researched as potential influences
on performance ratings (Cardy and Dobbins, 1994). For example, intelligence, schemas
for ratings scales, schemas for workers, and rater personality have influenced
performance rating accuracy. To the extent that rater characteristics influence
judgments of performance, the evaluations can indicate more about the rater than the
ratee. While ratee performance is typically found to be a dominant influence on
performance ratings, many studies have found that rater characteristics also have
significant effects on performance judgments (Cardy and Dobbins, 1994).
Rater characteristics, such as personality and ability, have been recognized in the
appraisal literature as potentially important influences on ratings (e.g. Lee, 1988; Cardy
and Kehoe, 1984). In addition to a direct influence, rater characteristics have been
suggested to moderate the effect of external factors on ratings (e.g. Landy and Farr,
1980; Daniel et al., 1997). Likewise, external influences on ethical judgments may be
moderated by rater differences, particularly in regard to ethical beliefs. Raters may
differ in their internal standards for identifying behavior as ethical/unethical based on
their personal beliefs about ethics. The strength of these beliefs may moderate the
 relationship between outcomes and judgment bias. It is quite possible that the Assessing ethical
judgments of raters with strong ethical beliefs may be less biased by ratee outcomes. In behavior
other words, individual differences in ethical beliefs of raters can be considered as an
individual dispositional influence that may affect the relationship between ethical
behavior and ethical judgments. Thus:
H2. Individual differences in ethical beliefs will moderate the effect of outcomes on
the accuracy of ethical performance judgments. 55
Though trait judgments have fallen into disfavor in appraisal (e.g. Bernardin and
Beatty, 1984), research has shown that raters make trait inferences even when only
behavioral information is available (Krzystofiak et al., 1988; Cardy et al., 1991). Traits
are considered cognitively superordinate to behaviors (Hoffman et al., 1981) and
inferences concerning personality traits guide further information processing such as
additional encoding of behaviors and their recall and evaluation (Krzystofiak et al.,
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1988).
In the present study, we are interested to see if the trait judgments raters make
about their ratees influence judgments of ethical behavior of ratees even when the
raters are presented no information about the ratee’s personality or demographic
factors such as race and gender. For example, when raters are only presented
information about success, raters could make inferences on ratee personality (e.g.
conscientiousness) and this inference could influence the rater’s ethical judgment of
ratees. Thus, it may be expected that raters make ratee trait inferences from the
performance of ratees, and these trait inferences may have an independent effect on
ethical judgments. This expectation leads to the following hypothesis:
H3. Trait inferences will have an influence on ethical judgments that cannot be
accounted for by outcomes.
We conducted two studies to test the hypotheses in this research. Study 1 was
conducted with undergraduate students and we tested all the three hypotheses in this
study. Study 2 was conducted with full time employees who were also MBA students.
The purpose of study 2 was to test if the results of the study 1 (H1 and H2) were
generalizable across a sample of raters with real world working experience. In addition,
as explained in the section on study 2, the research design was slightly modified to
make the stimulus materials more realistic.

Study 1
Method
Sample and materials. A total of 132 (77 male and 55 female) students enrolled in a
junior level management course at a large south-western university participated in the
study for extra credit. Mean age for the sample was 24.1 years.
The basic experimental material for this study consisted of written vignettes
describing the behavior of four fictitious salesperson ratees. Each vignette contained
ten critical incidents describing a salesperson’s ethical behavior. The critical incidents
represented five of the six dimensions (two incidents for each dimension) of ethical
behavior. The six dimensions of ethical behavior (personal use, bribery, deception,
padding expense accounts, passing blame and falsification) were based on the research
by Newstrom and Ruch (1975) and Akaah and Lund (1994). For each ratee vignette, no
 JMP information was provided on one of the six ethical dimensions (there were two lure
21,1 items representing this dimension) since items from this dimension served as “lure”
items on the behavioral observation scale. Lure items consist of descriptions not
included in the vignette but included as part of the behavioral observation scale. In a
signal detection framework (Lord, 1985), lure items are required for calculation of
judgment accuracy. Lure items are useful to determine if the raters make judgment
56 based on actual memory of behaviors of ratees or scheme for the ratee.
Ethical behavior was manipulated by providing ethical or unethical incidents for
each of the four ratees. The “ethical” ratees had ethical incidents and “unethical” ratees
had unethical incidents for all the dimensions of ethical performance. A list of ethical
and unethical behavioral incidents used in this study is presented as an Appendix. The
dimensions of ethical behavior used in this study roughly correspond to the types of
misconduct observed most frequently in organizations. In a National Business Ethics
Survey of 1,500 employees, the Ethics Resource Center (2003) found that the most often
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observed misconducts were lying, withholding needed information, abusive or

intimidative behavior toward employees, and mis-reporting actual hours worked.
Scale development work (Cardy and Selvarajan, 2004) confirmed the dimensionality
and effectiveness of the ethical and unethical incidents. In brief, the development work
generated a six-dimension behavioral scale for assessing ethical judgment using the
Behaviorally Anchored Rating Scale (BARS) procedure outlined by Bernardin and
Beatty (1984). For each of the six dimensions, the authors generated critical incidents
representing ineffective, average, and effective ethical behaviors. This is a variation
from the BARS procedure outlined by Bernardin and Beatty (1984), in which students
were used to generate critical incidents. In this study, due to familiarity with the
domain and efficiency concerns, the authors generated the incidents. Retranslation was
conducted by a group of 47 undergraduate student raters who indicated the dimension
to which each of the critical incidents belonged. Finally, the effectiveness of the items
surviving the retranslation process was evaluated by a separate group of 84 student
raters. Based on the effectiveness levels of items, behaviorally anchored rating scales
were constructed for the six dimensions of ethical behavior. Each scale had
approximately five behavioral anchors spanning the range of each scale. Further
details can be found in Cardy and Selvarajan (2004).
In addition to critical incidents of ethical behavior, the vignettes also contained
summary statements regarding sales performance outcomes. The summary
statements were drawn from the dimensions of sales performance (salesmanship,
product knowledge, and ability to initiate/utilize sales innovations) identified from
research in marketing (Bush et al., 1990; Lucas, 1985). These statements summarized
the salespersons’ outcomes achieved for each of these dimensions. For example, a ratee
with poor outcomes was described as failing to close sales on the salesmanship
dimension. In addition to these summary statements, the overall performance of each
ratee was described as successful or unsuccessful, as appropriate; a successful ratee
was described as a star performer who consistently exceeded all performance targets
and an unsuccessful ratee was described as a dismal performer who never achieved
performance targets.
In summary, ethical behavior was manipulated by providing unethical or ethical
critical incidents for each of the four ratees. Outcomes were manipulated by providing
performance outcome descriptions for the sales performance dimensions and by
 summarizing the level of success or failure in the overall performance description. A Assessing ethical
total of four ratee vignettes were formed by crossing the two levels of ethical behavior behavior
(ethical or unethical) with the two levels of outcomes (success or failure).
Measures. The rating scales included:
. a 12-item behavioral observation scale (BOS);
.
a 50-item bipolar trait rating scale measure of the big five dimensions (Goldberg,
1992);
57
.
one seven-point global ethical rating scale;
.
one seven-point global performance rating scale; and
.
a ten-item seven-point Likert scale for measuring individual differences in ethical
beliefs (Froelich and Kottke, 1991).

A Latin square design was used to balance the order of the presentation of scales to the
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participants. This eliminates any order effect due to the order of presentation of scales
to the rater.
The behavioral observation scale contained a 12-item checklist on which
participants were asked to print Y (yes) or N (no) depending on whether the sales
person had exhibited the specific behavior. Ten of these items represented the ten
critical incidents provided in the vignette. Two items served as “lures” to calculate
false alarm rates. This scale is used for calculating the dependent measure “bias”.
The trait scale was used to measure rater trait inferences regarding ratee behaviors.
The 50-item bipolar scale was developed by Goldberg (1990, 1992) to measure the big
five personality traits. This scale was used since it is shorter than other instruments
(e.g. NEO-PI or Hogan Personality Inventory) and exhibits consistent reliability.
Internal consistency estimates of reliability have ranged from 0.85 to 0.93 and
extensive factor analyses support the construct validity of the scale (Goldberg, 1990,
1992). The alpha reliabilities for the five factors in this study ranged from 0.86 to 0.92.
For measuring individual differences in ethical perception, the ten-item scale
developed by Froelich and Kottke (1991) was used. The scale has been shown to have a
factor structure with two factors (“company support” and “lie to protect the company”).
Froelich and Kottke (1991) reported an alpha coefficient of 0.89 for this scale. The alpha
reliability for the two factors were 0.86 and 0.89. Finally, two global rating scales were
used as manipulation checks for the ethical and outcome manipulations.
Dependent measure. Measuring rating accuracy invariably requires the use of a
laboratory approach so that “true” ratee performance can be determined. The estimates
of “true” ratee performance serve as the standards against which ratings can be
compared. The process of “true” score estimation was developed by Borman (1977),
and further details of the approach can be found in his work. Accuracy can be assessed
for evaluative or observational judgments, with observational rating accuracy
typically being assessed using measures based on signal detection theory (e.g. Lord,
1985). Observational ratings are the judgments of the raters as to whether a ratee
behavior occurred. Signal detection measures utilize hit rates and false alarm rates as a
means of indicating the accuracy of rater judgments. The observational accuracy
construct is interesting since it indicates whether the actual observations reported by
the rater are veridical, not just whether evaluations about the quality of performance
are shifted in an upward or downward fashion.
 JMP The signal detection measure of “bias” was used as the dependent measure for this
21,1 study. Signal detection measures have been used extensively in determining judgment
accuracy (e.g. Landy and Farr, 1980; Lord, 1985; Snodgrass and Corwin, 1988; Sulsky
and Day, 1992). While several sensitivity indices based on signal detection theories are
available, the bias index introduced by Snodgrass and Corwin (1988) is most relevant
for this study since the concern is with directional error. That is, we are interested in
58 knowing whether the rater tended to err toward judging the ratee as ethical or
unethical.
Sulsky and Day (1992, p. 502) define bias as “the probability of saying ‘yes’ to an
item when faced with a recognition task under conditions of uncertainty”. That is, bias
is a function of the probability of saying “yes” to lure items (items not presented in
ratee description vignette but appear in behavioral observation scale) Bias refers to a
subject’s tendency to over or underattribute behaviors to the target person. In other
words, bias is a measure of the leniency-stringency of decision criteria. For example,
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raters who use an overall positive schema to categorize ratee performance may exhibit
more leniency on a recognition task for prototypical behaviors, and raters who do not
use an overly positive schema for performance will exhibit less leniency or more
stringency in identifying prototypical behaviors. A high bias score indicates a lenient
criterion and a low bias score indicates a stringent decision criterion (Lord, 1985). The
numerical limits for bias are 0 to þ1 with scores above 0.5 indicating a more liberal
bias and scores below 0.5 indicating a conservative bias (Borman and Hallam, 1991). In
the present case, a liberal bias would be reflected in identifying more ethical behaviors
as characteristic of the ratee than would be warranted by the ratee’s actual behavior; a
conservative bias would be reflected in identifying fewer ethical behaviors as
characteristic of the ratee than would be warranted by the ratee’s actual behavior. Bias
is measured by using the following formula recommended by Snodgrass and Corwin
(1988):

Bias ¼ false 2 alarm rate=½1 2 ðhit rate 2 false alarm rateÞ
:

Higher scores on this index are associated with more lenient decision criteria. A hit rate
is the proportion of items correctly identified as observed, and a false alarm rate is the
proportion of items incorrectly identified as observed. Since bias is undefined for hit
rates of 1.0 and corresponding false-alarm rates of 0, the following corrections
recommended by Snodgrass and Corwin (1988) were used.

HR’ ¼ ½hit 2 rates þ 0:5
=½no: of relevant items þ 1

FAR’ ¼ ½false 2 alarm rates þ 0:5
=½no: of relevant items þ 1

Snodgrass and Corwin (1988) recommend the routine use of this correction in analyses
using signal detection theory.
Procedure. The participants were randomly assigned to one of the four experimental
conditions (i.e. success, unethical; success, ethical; failure, unethical; failure, ethical).
The packet of materials given to the participants included one ratee vignette, one set of
rating forms, the ethical belief scale, and a demographics data form. Participants were
instructed to read each vignette carefully and fill out the various rating forms.
 Participants were specifically asked not to look back at the description of the Assessing ethical
salesperson while they were filling out the rating forms. behavior
Analysis. The data included manipulated behaviors and outcomes, trait ratings, the
bias measure, and overall ratings. This data was available for 132 participants (33
participants for each of the four manipulation conditions).
To test hypotheses H1a and H1b, a 2 £ 2 factorial ANOVA (two levels of ethics £
two levels of outcomes) was run with bias as the dependent measure. For H2, a 59
hierarchical regression analysis (Baron and Kenny, 1986) was used to determine the
moderating effect of ethical beliefs. The outcome variable was entered into the
regression equation in the first step, and belief variables were entered in the second
step. In the third step, the interaction term (belief £ outcomes) was entered. A
moderation effect is confirmed if the R-squared change attributed to the interaction
term is significant. Before doing the regression, a factor analysis of the beliefs scale
was performed to determine its factor structure.
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The third hypothesis regarding the influence of trait inferences was tested by
running a series of regression analyses. Before doing the regression, a factor analysis
of the big five trait scale was performed. In the regression model, the outcome
manipulation was entered into the equation first. At the second step, the first trait
factor was introduced. The increase in the squared multiple correlation that results
from the introduction of this factor represents the unique addition attributable to this
factor. This process was repeated for all of the trait factors.

Results
Analysis of the manipulation checks revealed that both the outcome and the ethical
manipulations were effective (Fð1; 131Þ ¼ 197; p , 0:01 and Fð1; 131Þ ¼ 322; p , 0:01,
respectively). The means and standard deviations of the bias measure for the four
experimental conditions are presented in Table I.
H1a, that outcomes will bias ethical behavior judgments, was tested using analysis
of variance. The results of the ANOVA showed significant main effect for the influence
of ethics (Fð1; 128Þ ¼ 40:24; p , 0:01) and no significant interaction between the ethics
and outcome effects. As can be seen from Table I, the mean judgment bias scores were
higher when the ratee exhibited successful outcomes with a mean bias score in the
success condition of 0.839 and a mean bias score in the failure condition of 0.687. Thus,
H1a was supported. The mean judgment bias scores in the ethical and unethical
behavior conditions were 0.842 and 0.684, respectively. Thus, H1b, that ethical

Factor M SD n

Outcome: success
Unethical 0.749 0.118 33
Ethical 0.929 0.047 33
Outcome: failure
Unethical 0.619 0.23 33 Table I.
Ethical 0.756 0.117 33 Cell means and standard
deviation for outcome
Note: Higher score indicates more bias and ethical manipulations
 JMP behavior judgments would be more accurate for ethical than for unethical ratees, was
21,1 not supported.
Before running the hierarchical regression analysis, a factor analysis was
performed to determine the factor structure of the ethical beliefs scale. Using principal
components factor analysis, a two-factor solution was obtained. Varimax rotation of
the two factors showed that the first six items loaded on factor 1 and the last four items
60 loaded on factor 2. This pattern is similar to the results obtained by Froelich and
Kottke (1991). The two factors accounted for 46.3 percent and 12.4 percent of the
variance respectively.
H2 predicted that ethical beliefs would moderate the effect of outcomes on the
accuracy of ethical behavior judgments. The results of the hierarchical regression in
regard to H2 are shown in Table II. Outcomes alone accounted for 17.8 percent of the
variance in the bias measure. The factor COSUP (company support) was not significant
and accounted for only a 1 percent increment in variance. The increase in R-squared
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due to the inclusion of the interaction factor (outcome x COSUP) was 0.001 and was not
significant. Likewise, the influence due to the factor LIE_PROTECT (lie to protect the
company) was not significant and accounted for only a 0.3 percent increase in variance.
The R-squared change due to the inclusion of the interaction factor (outcome £
LIE_PROTECT) was zero.
H3 predicted trait inferences to have an influence on the accuracy of ethical
behavior judgments over and above the influence due to performance outcomes. Before
running the regression analysis, a factor analysis of the trait scale was conducted. A
six-factor solution was found but the sixth factor had an eigen value of 1.01 and
accounted for only 2 percent of variance in the trait construct. Thus, the theoretically
meaningful five-factor solution was used with a principal components analysis.
Varimax rotation of the factors showed that 44 out of 50 items loaded high (loading
. 0.5) on only one of the five factors and six items loaded high (loading . 0.5) on more
than one factor. These six items (five items representing conscientiousness and one
item representing intellect) were excluded from further analysis. Average scores for the
remaining items were computed for each of the five trait dimensions.
Table III shows the regression analysis results for H3. The trait, pleasantness
accounted for an 11.5 percent increase in variance (p , 0:01), the trait
conscientiousness accounted for an 8.3 percent increase in variance (p , 0:01) and

Steps and variables Beta R-squared change F for R-squared change

Factor: lie to protect the company

1. Outcomes (O) 0.422 0.172 27.92*
2. Lie to protect company (LIE_PROTECT) 2 0.076 0.007 0.87
3. O £ LIE_PROTECT 2 0.096 0.005 0.72
Factor: company support
Table II. 1. Outcome (O) 0.426 0.176 28.89*
Hierarchical regression 2. Company support (COSUP) 2 0.075 0.007 0.88
analysis to test for 3. O £ COSUP 2 0.092 0.005 0.66
moderating effects of
ethical beliefs Note: * p , 0:01
 the trait emotional stability accounted for a 2.6 percent increase in variance (p , 0:03). Assessing ethical
The other traits, extraversion and intellect did not significantly explain variance in the behavior
bias scores.

Discussion
The results confirm H1a that successful ratees would be judged with more positive
bias than unsuccessful ratees. That is, successful ratees were judged as exhibiting 61
more ethical behavior than were unsuccessful ratees. It appears that “success breeds
acceptance” in that ethical behavior judgments were more positively biased when the
ratee achieved successful outcomes than when the ratee was unsuccessful. The pattern
of accuracy measures also indicate that behavioral ethical judgments were as positive
for a worker who was successful but employed unethical behaviors in obtaining the
outcome as for a worker who was not successful but engaged in ethical behaviors (it
can be observed from Table I that the bias scores for the success-unethical condition
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and the failure-ethical condition are almost the same).

For H1b, we found that positive bias was greater for ethical ratees than for unethical
ratees. That is, ethical ratees were judged less accurately than unethical ratees. This
finding contradicts Gordon’s (1970) empirical differential accuracy finding of high
performers being rated more accurately than low performers (in this context, high and
low ethical performance). This contradiction may be because Gordon employed a
unique measure of hit rates and correct rejection rates. Indeed, when Baker and Schuck
(1975) reanalyzed Gordon’s data from a signal detection perspective, they found no
consistent evidence for the differential accuracy phenomenon. The apparent
inconsistency with the differential accuracy phenomenon may be a function of the
accuracy measures employed. However, the present finding seems to be generally
consistent with the underlying explanation for the differential accuracy phenomenon.
Specifically, the differential accuracy phenomenon may be due to the tendency to give
the benefit of doubt (e.g. Krzystofiak and Cardy, 1987) and, if there is uncertainty, to err
toward guessing good rather than guessing bad. In the present case, this tendency may
be exacerbated when confronted with a ratee who exhibits ethical performance. If
raters form an overall positive schema for a ratee who is observed to perform ethically
on some dimensions, this schema would lead the rater to “guess good” when asked
about ethical performance on a dimension that was not observed. This effect would be
expected to be particularly pronounced when a ratee description consists of entirely
ethical or unethical behaviors.

Variables Beta R-squared change F for R-squared change

Outcome 0.422 0.179 28.28*

Emotional stability 0.19 0.035 5.71**
Extraversion 0.157 0.011 1.53
Intellect 0.19 0.018 2.89
Pleasantness 0.35 0.112 19.74*
Conscientiousness 0.39 0.101 17.55*
Table III.
Notes: * p , 0:01; ** p , 0:05. Outcome was entered first in the regression equation. R-squared Hierarchical regression
change for each of the five trait variables indicate incremental change over and above the variance analysis to test for trait
explained by the outcome variable inference effects
 JMP H2 suggested a moderating effect for ethical beliefs in regard to the influence of
21,1 outcomes on bias. This hypothesis was not supported. That is, the strength of ethical
beliefs did not reduce the influence of outcomes on judgment bias. Stronger ethical
beliefs, as measured in this study, did not reduce outcome based judgment bias.
H3 stated that raters may draw trait inferences based on the behaviors of ratees and
that these inferences may bias ethical judgments over and above the outcome
62 influenced bias. There was partial support for the hypothesis. The traits, pleasantness,
emotionality stability and conscientiousness, independently accounted for variance in
bias over and above the variance accounted for by the outcome manipulation. The
confirmation of the trait inference hypothesis is in line with findings of earlier studies
(e.g. Krzystofiak et al., 1988; Cardy et al., 1991). Raters seem to draw trait inferences
even when the only information provided is ratee behavior and outcomes. There was
no information provided on personality characteristics, race, or gender (the outcomes
and summary statements were described in neutral terms), yet raters went beyond the
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given information and drew trait inferences. These trait inferences, in turn, influenced
rater judgments concerning the ethical behavior exhibited by the ratee.

Study 2
Study 1 provided initial findings regarding judgment accuracy when assessing ethical
performance. Study 2 was conducted to examine the stability of findings from study 1
and to test the hypotheses with more realistic material and more experienced raters.
The ethical manipulation in study 1 consisted of ratee vignettes with all critical
incidents for the “ethical ratee” depicting ethical behavior and all incidents for the
“unethical ratee” depicting unethical behavior. This portrayal of ratees may be extreme
and, thus, may not reflect actual ratee behaviors found in real life. A mixture of both
ethical and unethical behavioral incidents would represent a more realistic
ethical/unethical behavior. Thus, a major objective of study 2 was to again examine
the effect of outcomes on ethical judgment bias using ratee vignettes consisting of both
ethical and unethical ratee behaviors.
Study 1 was conducted with undergraduate students participating as raters. While
the use of students as participants is often not a problem for studies of judgment
processes (e.g. Mook, 1983; Cardy, 1991), the question of generalizability of findings
with a more applied sample always remains. Study 2 employed participants with more
real world experience.
Finally, the individual differences in the ethical belief scale used in study 1 (Froelich
and Kottke, 1991) may measure a narrow domain of ethical beliefs. Froelich and
Kottke’s (1991) scale measured two dimensions representing “company support” and
“lie to protect the company.” A more comprehensive individual beliefs scale may more
effectively tease out the moderating influence of ethical beliefs on ethical judgments.
Study 2 again examined the possible moderating role of ethical beliefs, but utilized a
more comprehensive measure of ethical beliefs.

Method
Sample and materials. A total of 48 full time employees enrolled in a night MBA
program at a large south-western university volunteered to participate in the study. Of
these, 44 participants (18 women; 26 men) returned questionnaires in usable form. The
average age of the participants was 32 years with an average of ten years of work
 experience. The participants also reported having considerable experience in Assessing ethical
appraising the performance of others. On a self-reported scale ranging from “1 ¼ no behavior
experience in appraising others” to “7 ¼ Great deal of experience in appraising others”,
the average appraising experience for these participants was 4.6.
As in study 1, the basic experimental material for this study consisted of written
vignettes describing the behavior of four fictitious sales person ratees. The critical
incidents used in study 1 (presented as Appendix) were used for study 2. Each vignette 63
contained ten critical incidents describing a salesperson’s ethical behavior. The
behavioral incidents represented five of the six dimensions (two incidents for each
dimension) of ethical behavior. For each ratee vignette, no information was provided on
one of the six ethical dimensions. The “ethical” ratees had ethical behavioral incidents
for four of the five dimensions of ethical performance and unethical behavioral
incidents for the fifth dimension (“deception”). Similarly, “unethical” ratees had
unethical behavioral incidents for four of the five dimensions of ethical performance
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and ethical behavioral incidents for the fifth dimension (“deception”). As in study 1, in
addition to the incidents of ethical behavior, the vignettes also contained eight
summary statements regarding sales performance outcomes; further, the overall
performance of each ratee was described as successful or unsuccessful, as appropriate.
A total of four ratee vignettes were formed by crossing the two levels of ethical
behavior (ethical or unethical) with two levels of outcomes (success or failure).
Measures. The rating scales included a 12-item behavioral observation scale used in
study 1. A scale developed by Daniel et al. (1997) was used for measuring individual
differences in ethical beliefs. This scale includes five dimensions of ethical beliefs:
personal integrity issues, corporate integrity issues, individual rights issues,
environmental issues, and international issues. For this study, the items
representing the three most relevant dimensions, namely, personal integrity issues,
corporate integrity issues, and individual rights issues, were used. Sample items for
this scale include: “It’s acceptable to use investment resources from questionable
resources” and “It’s acceptable to restrict legal actions by damaged customers” The
alpha reliability for this 16-item scale in the present study was 0.76. The two global
rating scales were used as manipulation checks for the ethical and outcome
manipulations. A demographic data form was used to collect information about age,
number of years of experience, current job title, gender, and performance appraisal
experience. As in study 1, the dependent measure was bias.
Procedure. The participants were randomly assigned to one of the four experimental
conditions (i.e. success, unethical; success, ethical; failure, unethical; failure, ethical).
The packet of materials given to the participants included one ratee vignette, one set of
rating forms, an ethical belief scale, and a demographics data form. Participants were
instructed to carefully read each vignette and fill out various forms. Participants were
specifically asked not to look back at the description of the salesperson while they were
filling out the rating forms.

Results
Usable questionnaires were completed by 44 of 48 participants. The possible influence
of demographic characteristics of respondents on the bias measure was the focus of an
initial analysis. Results of the analysis showed that age, gender, years of experience,
 JMP and appraisal experience did not significantly affect the level of bias in the ethical
21,1 performance ratings.
Analysis of manipulation checks revealed that both the outcome and ethical
manipulations were effective (Fð1; 42Þ ¼ 62:45, p , 0:001; Fð1; 42Þ ¼ 42:41, p , 0:001
respectively). The corresponding effect sizes were 0.602 and 0.504.
The means and standard deviations of the bias measure for the four experimental
64 conditions are presented in Table IV. The results of the ANOVA showed significant
main effects for ethics (Fð1; 40Þ ¼ 11:71, p , 0:01) and no significant interaction
effects between ethics and outcomes. The mean level of bias for the success condition
was 0.791 and for the failure condition was 0.567.
Before running the hierarchical regression analysis, a factor analysis was
performed to determine the factor structure of the scale. Using principal components
factor analysis and inspection of a scree plot, a five factor solution was obtained in
which all eigen values were greater than 1. However, a three-factor solution was
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expected based on the scale development work (Daniel et.al., 1997). Given the
theoretical meaningfulness of three dimensions, a three-factor solution was forced
using principles component analysis. Varimax rotation indicated that two items did
not load high (. 0:5) on any of the three factors. These items were dropped from
further analysis.
The results of the hierarchical regression for the moderating influence of ethical
beliefs (H2 of study 1) are shown in Table V. As evident from the table, the interactions
between outcomes and the three ethical beliefs dimensions were not significant. None
of the three interactions resulted in practical or significant increases in R-squared at
p , 0:05.

Discussion
Study 2 reexamined H1a and H2 of study 1 using participants with more real world
experience as raters and more realistic vignettes. Consistent with study 1, the results of
study 2 indicate that outcomes bias judgments. Ethical ratings were again found to be
more positively biased for successful than for unsuccessful ratees. While not a
significant contrast, the pattern of results for this more experienced group of raters
indicate that ethics was rated even more positively for a worker who was unethical but
successful than for a worker who was ethical but unsuccessful. The moderating
influence of individual beliefs was not found to be significant, although a more
comprehensive scale was employed to measure individual differences in ethical beliefs.

Factor M SD n

Outcome: success
Unethical 0.719 0.115 11
Ethical 0.87 0.04 10
Outcome: failure
Table IV. Unethical 0.512 0.134 11
Cell means and standard Ethical 0.617 0.158 12
deviation for outcome
and ethical manipulations Note: Higher score indicates more bias
 Assessing ethical
Steps and variables Beta R-squared change F for R-squared change
behavior
Factor: personal integrity
1. Outcomes (O) 0.623 0.412 29.40 *
2. Personal_Integrity 20.218 0.047 3.57
3. O £ Personal_Integrity 0.349 0.003 0.655
Factor: Corporate_Integrity 65
1. Outcome (O) 0.657 0.435 31.63 *
2. Corporate_Integrity 0.039 0.002 0.744
3. O £ Corporate_Integrity 1.099 0.045 3.4
Factor: Individual_Rights
1. Outcome (O) 0.63 0.417 27.87 * Table V.
2. Individual_Rights 20.121 0.014 0.953 Hierarchical regression
3. O £ Individual_Rights 0.353 0.002 0.147 analysis to test for
moderating effects of
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Note: * p , 0:01 ethical beliefs

Both studies generated identical results despite changes in materials and different
samples. The consistency of results across two samples may reflect the findings by
Locke (1986) that students and employees respond similarly to experimental stimuli.
More importantly, the identical pattern of findings across the two studies supports the
generalizability of the effects of outcomes on ethical performance judgments.

General discussion
The purpose of this research was to examine some of the important processes
underlying the assessment of the ethical nature of performance. Specifically, two
studies examined whether outcomes achieved by ratees bias rater judgments of their
ethical performance. The results from both studies indicate that outcomes bias ethical
judgments. That is, successful ratees were judged to have exhibited more ethical
behaviors than did unsuccessful ratees. This finding extends similar findings in the
domain of performance appraisal (e.g. Cardy et al., 1991; DeNisi and Stevens, 1981) to
judgments of ethical performance. It is important to note here that the dependent
measure of judgment bias has to do with observation, not with evaluation of the
quality of the ratee’s performance. The raters in these studies were more likely to
report the occurrence of ethical behavior that did not actually occur when the ratee
achieved successful outcomes than when the ratee’s performance was unsuccessful.
While determining the exact locus of this effect requires additional research, it appears
that either rater perception and/or recall of ethical behavior is biased by the outcomes
achieved by ratees. It is also interesting to note that these results are consistent with
the results of the National Business Ethics Survey conducted by the Ethics Resource
Center (2000). In this survey of 1,500 employees, nearly one-third of respondents said
their co-workers disregard questionable ethics practices by showing respect for those
who achieve success using them.
The present finding regarding the influence of outcomes on ethical performance
judgments is provocative and, given that it reflects common cognitive processing
characteristics, it has important implications for organizations. Success may serve to
excuse unethical behaviors. This phenomenon is sometimes referred to in the sports
 JMP domain where it has been noted that winning is everything and that nothing succeeds
21,1 like success. For the business world, which generally places strong emphasis on
results, this finding means that others’ perception of ethical behavior may be
significantly colored by the outcome levels. If ethical judgments are colored by
outcomes, then, employees may quickly learn that achieving positive ends can excuse
less than positive means.
66 Both the studies found that rater’s ethical beliefs did not moderate the influence of
outcomes on ethical judgment bias, contrary to the hypothesis (H2). This finding
further underscores the importance of the biasing influence of outcomes on ethical
judgment bias. That is, this outcome influenced bias held true even for those raters
who held relatively stronger ethical beliefs in their lives. In this study, we tested for one
rater characteristics. There could be other potential rater characteristics such as the
rater personality characteristics, rater’s cognitive moral development, and rater ability
which could potentially moderate the relationship between outcome and ethical
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judgment bias.

Practical implications and directions for future research

The major finding that outcomes bias ethical judgments has important implications for
practicing managers. Clearly, if managers take a relatively more lenient view of
unethical behaviors for successful subordinates, it could perpetuate a “success breeds
acceptance” culture. This effect would likely be more pronounced in organizations
which place a stronger emphasis on outcomes. Managers, in particular, may naturally
place an emphasis on outcomes since they do not always have the opportunity to
observe the behavior of subordinates closely. One way to counter the influence of
outcomes on ethical judgment may be to collect ethical ratings from multiple sources
(e.g. peers and customers). It may be that non-managerial sources of appraisal may be
more sensitive to the process of ratee performance rather than to its outcomes.
Customers, in particular, may be much more focused on process rather than outcomes.
Peers may also be much more focused on the work process engaged in by a team mate
since it is directly observable. Whether the source of appraisal may moderate the
influence of outcomes on the accuracy of ethical judgments must await further
research.
Another area that might be investigated is the potential for rater training to reduce
the influence of outcomes on judgments of the ethical nature of performance. It may be
that a process of norm development, instruction, and evaluation practice, similar to the
frame-of-reference training (Bernardin and Buckley, 1981), could reduce the influence
of outcomes. While it is worthwhile exploring the possibility of reducing the influence
of outcomes on ethical judgments it is important to note that there was direct and
adequate information provided in the present studies for clear and independent
judgments of ethical behavior. Nonetheless, the ethical judgments were biased by the
outcomes achieved by the ratees.
Our research design considered performance at two levels (high and low
performance). However, in real world situations, a vast percentage of employees tend to
have average levels of performance. Thus, future research design needs to consider the
biasing influence of outcomes of ratees whose performance ratings are at average
levels.
 Another practical implication is that biased ethical judgments may result in Assessing ethical
suboptimal payoffs for organizations in the long run. Performance judgments can be behavior
considered a form of investment in employees, and managers may want to reward
those employees who achieve the outcomes they expect by ignoring/discounting ethics.
In the short run, such a decision may not have any adverse impact for organizations.
However, investment decisions based on subjective biases of decision makers tend to
have a greater dissipating effect on the value of the outcomes in the long run (Chi and 67
Fan, 1997). Thus, organizations, such as those exemplified by Enron, that condone
unethical behavior of employees may appear highly successful in the short term but
may become bankrupt in the long term. While this study examined outcome biases
from a cognitive psychology and performance appraisal perspective, future
researchers may also look into literature on decision making for further explanation
of ethical biases. Decision making literature (e.g. Mowen and Stone, 1992) has looked at
how outcomes influence the quality of the inputs and decision making process.
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Results from study 1 indicated that raters make trait inferences from ethical
behavior observations. As argued by Krzystofiak et al. (1988), this trait inference
phenomenon may be more pronounced in a field setting where raters have an
opportunity to construct implicit theories based on various observations, stereotypes
and so on. One implication of the present finding is that using a behavior based scale to
measure ethical performance may not reduce the influence of personality inferences on
ethical judgments.

Limitations
Potential limitations of the present research need to be recognized. The studies were of
a laboratory nature and the generalizability of the findings can be an issue. However,
as with many laboratory studies, it is the model or theory tested, and not the
representativeness of the study characteristics, that should provide meaningfulness
and relevance to the findings (Cardy, 1991; Mook, 1983; Sackett and Larson, 1990). The
purpose of the study was to test the possibility that outcomes bias ethical judgments. It
is this conclusion, and not the characteristics of the study per se, that have important
implications for appraisal. Moreover, the use of paper people and artificial stimuli does
not necessarily preclude the generalizability of research findings (Berkowitz and
Donnerstein, 1982; Cleveland, 1991). Finally, as mentioned previously, the same pattern
of findings was obtained across the two studies employing different subject samples.
This similarity in results is consistent with the findings that judgment biases
generalize from naı̈ve participants to real-world employees (e.g. Shanteau and Stewart,
1992). Nonetheless, replication and extension of present findings in field settings is
called for, especially since the influence of political factors (e.g. Longnecker et al., 1987)
on the appraisal of ethical behavior can only be studied in a field setting.

Conclusion
In this study, we have looked at some of the important issues involved in the ethical
performance judgment process. Specifically, it was found that outcomes influence the
judgment of ethical performance such that successful people were judged more
favorably than were unsuccessful people. These results were not moderated by the
strength of individual ethical beliefs. It was also found that raters drew trait inferences
even when they were presented with only behavioral and outcome information. These
 JMP trait inferences were found to have independent effects on the accuracy of ethical
21,1 judgments. These findings have important applied implications for measuring ethical
performance.

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management commitments, external pressures, and corporate ethics practices”, Academy
of Management Journal, Vol. 42 No. 5, pp. 539-52.

Further reading
Christie, P.M.J., Kwon, I.G., Stoeberl, P.A. and Baumhart, R. (2003), “A cross-cultural comparison
of ethical attitudes of managers in India, Korea, and United States”, Journal of Business
Ethics, Vol. 46 No. 3, pp. 263-87.
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DeCotiis, T.A. and Petit, A. (1978), “The performance appraisal process: a model and some
testable hypotheses”, Academy of Management Review, Vol. 21, pp. 635-46.
Hammonds, K.H. (1996), “Texaco was just the beginning”, Business Week, Vol. 16, pp. 34-5.
Larson, J.R., Lingle, J.H. and Scerbo, M.M. (1984), “The impact of performance cues on leader
behavior ratings: the role of selective information availability and probabilistic response
bias”, Organizational Behavior and Human Performance, Vol. 33, pp. 323-49.
Smith, P.C. and Kendall, L.M. (1963), “Retranslation of expectations: an approach to the
construction of unambiguous anchors for rating scales”, Journal of Applied Psychology,
Vol. 47, pp. 149-55.

Appendix
Ethical incidents
(1) Offers the same level of service to everyone, regardless of his or her financial or social
means.
(2) Always gives due credit to his/her co-workers’ achievements.
(3) Uses free samples only to further the company’s business (rather than keeping them for
own use).
(4) Refuses to accept gifts from clients since it might convey an impression that he/she
would show favoritism to those clients.
(5) On company business travels, spends travel and lodging money carefully.
(6) Completes all needed paperwork himself/herself, rather than pushing it off onto others.
(7) Whenever uses company phone for making personal long distance calls, promptly
informs the company to charge it to his/her personal account.
(8) Does not overstate business travel expense accounts.
(9) On several occasions, after knowing that a product of inferior quality has been delivered
to a customer, promptly informed the customer and replaced the product.
(10) Tells customers everything (even negative aspects) about the product up front.

Unethical incidents
(1) Succeeded in obtaining a huge order by giving the purchasing agent a gift worth $2000
(2) Gives preferential treatment to influential customers to gain personal favor.
 JMP (3) Always passes the blame on co-workers for his/ her own mistakes
21,1 (4) Takes credit for the efforts of his/her co-workers.
(5) Hoards free samples meant for customers for personal use.
(6) On a business travel incurred $1000 business expenses but reported expenses for $2000.
(7) Misuses company resources by making long distance personal phone calls at work.
72 (8) Routinely overstates the business travel expenses on taxi fares, car mileage, tips and the
like.
(9) Sells returned/slightly used product as new when it is difficult for the customer to detect
any difference.
(10) Sold a more expensive product to a customer when a less expensive one was more
suitable for the customer’s needs.
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Corresponding author
Robert L. Cardy can be contacted at: Robert.cardy@asu.edu

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