Is Innovation spurred by Incentives?
Barros, Henrique M. & Lazzarini,
Sergio G. Do Organizational Incentives Spur Innovation?, Brazilian
Administration Review (BAR). Sept., 2012, Vol. 9 Issue 3, p308-328
This article sets out to show a positive correlation between
performance-based incentives and firm innovation (Barros
& Lazzarini, 2012). It goes beyond previous
studies and theories that state a positive correlation between
performance-based pay and innovation by introducing performance-based promotion
into the focus (Barros & Lazzarini, 2012). The importance of this is that firms
can use this as a tool to increase innovation and, as a result, improve their
competitive stance (Barros & Lazzarini, 2012).
This article sets forth two hypotheses (Barros & Lazzarini,
2012). One is that performance-based pay will positively influence firm
innovation (Barros & Lazzarini, 2012). The second is that performance-based
promotions will positively influence firm innovation (Barros
& Lazzarini, 2012). Surveys are then
performed on 370 Brazillian firms to evaluate the hypotheses (Barros & Lazzarini,
2012).
The study determines that there is a moderate positive
correlation between performance-based pay and innovation, but there is a
positive correlation between performance-based promotion and firm innovation (Barros & Lazzarini,
2012). The study also showed that insignificant difference between whether
there was a medium level or high level of status incentives used (Barros & Lazzarini,
2012).
This study indicates that the use of, at least, moderate
promotions as incentives to employees to seek new innovation is effective in
improving firm innovation (Barros & Lazzarini, 2012). The study also showed, through
controls, that firms with a board of directors are inclined to be more
innovative (Barros & Lazzarini, 2012). Also, larger firms are less likely
to be innovative (Barros & Lazzarini, 2012).
I was a little confused by the findings in the last two sentences. Only because most large companies have a board of directors, yet the study indicates that large companies and companies with a board of directors show conflicting results.
ReplyDeleteI can definitely see how a promotion would positively affect performance. I have always been a champion of promoting within if someone works hard and shows initiative. This study shows that it is not only a positive for the employee, but a positive for the company, as well. Win-Win.
Nice synopsis of the article! I would have to agree with the results of the study; given the options of increase in pay vs. promotion, which ultimately leads to increase in pay as well, I would want the promotion. Increase in status and pay is the ultimate incentive for any high-performing professional. A company should provide promotion incentives for realized results for innovation; it’s the only way to retain top-notch talent. In fact, incentives do not even have to be publicized. Other employees will see the rewards reaped by innovators and focus on innovative ideas as well. What a performance motivator!
ReplyDeleteThe findings were confusing. What they intended was within a certain size range (usually smaller), those firms with a board were more innovative, and that almost all of the very large firms were less innovative due to the fact that they were more mature firms. I believe, not only in the power of the promotion, but that firms need to protect their quality employees (through raises and bonuses) from outside raiders.
ReplyDeleteWhile promotions are a great encouragement, employees can’t deposit it in the bank. If appropriate raises don’t accompany the promotion, the firm risks losing a star performer to competition. If appropriate promotions don’t accompany acknowledgement (of any kind) of performance, the firm risks losing top performers to the competition as well.