What money can’t buy: The psychology of financial overcompensation

• We explored the effectiveness of overcompensation, relative to equal compensation.
• Overcompensation results in less favorable perceptions and less trust.
• Overcompensation is as effective regarding relationship preservation and cooperation.
• Overcompensation is not a cost-effective means to redress a financial damage.

When a financial damage has been inflicted, perpetrators can satisfy victims’ outcome related concerns by providing a financial compensation. Few studies have investigated, however, whether overcompensation (i.e., compensation that is greater than the damage suffered) is more beneficial than equal compensation (i.e., compensation that covers the exact damage suffered). The results of four studies show that overcompensation offers no effects in addition to the impact of equal compensation, and that it even provokes negative outcomes. More specifically, overcompensation is attributed to occur because of a lower level of moral orientation on the part of the perpetrator (Study 2 through 4), leads to less favorable perceptions of the perpetrator (Study 2 and 4), and lower levels of trust in the perpetrator (Study 3 and 4) than equal compensation. No significant differences between overcompensation and equal compensation appeared for relationship preservation and cooperation (Study 4). These results show that while overcompensation may rebuild cooperation (albeit not more effectively than equal compensation), it does so at a monetary and relational cost that limits its effectiveness as a tool to promote true interpersonal trust. The present studies thus show that a large financial compensation does not provide any surplus value in terms of psychological outcomes and relationship continuation, even though such compensation best satisfies a victim’s economic needs.