How should an organization reward innovation related activities? The answer seems simple: reward equals money, therefore, give money to the people who provide the best innovations. In the real world, however, things are rarely so simple.
Using Money to Reward Innovation
Companies have had mixed experiences with compensation based incentive models for innovation. In the examples which work, the story is always of an employee who comes up with a brilliant idea which saves the company thousands (or millions) of dollars, and, in a large public ceremony, the employee is handed a check for his or her contribution. Unfortunately for every example where this has worked, there are even more examples of where this strategy has encountered difficult unintended consequences. Let me describe a few of these hazards.
- Who should get the money? In most large organizations, getting an idea implemented is a torturous process. Many different people are involved in this process, many of who make small changes and enhancements to the original idea. In addition, other people may be involved with turning the idea into reality, and still others with the ongoing maintenance. It is rare that an idea can be taken as-is and simply implemented. By the time the idea is in full production it is hard to decide just who should get the money. The originator? The implementers? Those who enhanced it? All of the people involved? Some? In many cases it is just too hard to actually determine who is entitled to the money. And whatever decision is made, it is sure to make some people unhappy.
- It’s never enough. One of the most interesting things I have discovered is that rare is the employee who believes that compensation for his or her efforts is adequate. Regardless of level, virtually everyone feels that they are underpaid. The same problem holds true for innovation rewards. For example, someone comes up with an idea which saves the company $1 million, how much are they entitled to? 10% of the savings? 20%? 1%? And for how long? Just the first year, all years etc. What if the idea costs money this year to implement, but potentially saves money in future years? It is easy to see how this can quickly become complex and potentially contentious.
- Money is a zero sum game. Every company, regardless of size, has limited resources. Therefore, there is a limit to how much can be distributed in innovation rewards annually. This creates the interesting dilemma of what happens where money has run out for innovation incentives? Should people be told to stop implementing new ideas? Do you stop the idea pipeline? In addition, every dollar awarded in innovation incentives is a dollar which is not being spent elsewhere in the organization.
- Money is not the primary motivator? It is popular to believe that employees are primarily motivated by money. However, in employee study after study, money is rarely the most important motivator. Recently here at my own firm, we asked the leading participants in our idea management system what type of reward or recognition they would value most. Number 1 was development opportunities with 55% of the votes, with monetary compensation as Number 3 with only 11% of the votes.
Other Approaches to Recognizing Innovation
As a direct result of some of the dilemma discussed above, many firms have adopted alternative reward programs for innovation which have many of the benefits of compensation rewards with few of the downsides.
- Recognition for innovation. When I walk around our offices, I am always amazed at how people choose to decorate their offices with artifacts of their achievements. Symbols of recognition like certificates, tombstones, medals etc. are proudly displayed. This is a picture of the office of one my firm’s senior executives. Regardless of level, people want to display their accomplishments. Recognition is not a zero sum game, and it is possible to award an unlimited number of certificates, plaques etc. to as many people as needed. Additionally, the more people who are recognized the greater the marketing effect.
- Participation in implementation. Many companies have incorporated the idea originator into the implementation team for that idea. The person who originally comes up with an idea may not be the best person to lead the implementation (for any number of reasons) but has the passion and creativity to help out any team charged with implementation. Depending on the situation this involvement can be full time or part time.
- Development opportunities. A number of firms have used participation in innovation activities as a criteria for admission to management development programs. Other firms have created special courses around innovation and have invited top developers to participate as both teachers and students. Our firm is looking for ways to involve our top innovators in other types of activities which broaden their perspective on our firm and, hopefully, enable them to provide innovative ideas against a broader set of problems.
- Recognition by local leaders. One of the great paradoxes of large business is that the higher up one is in the organization, the less influence that person has on the rank and file workers. Emails from the CEO often carry less weight than the opinions of a person’s immediate manager. When my own team was setting up our innovation recognition program, we originally proposed that one of the potential rewards for our top innovators would be the opportunity to have lunch with a national leader. The feedback we got led us to change the program to lunch with local executives. Local recognition can be far more valued than national recognition.
Crafting the appropriate reward program for innovation is a critical part of any corporate innovation strategy. Each organization must take into account its own culture and determine which incentive elements will have the greatest impact and be most cost effective. Simply adding innovation to existing compensation strategies may not be the most effective approach.