Rewarding Value-Creating Ideas in Organizations: The Power of Low-Powered Incentives
Forthcoming, The Strategic Management Journal
38 Pages Posted: 25 Apr 2011 Last revised: 2 Jul 2014
Date Written: January 9, 2013
Ideas from employees are a major source of value creation in firms, yet the merits of rewards for incentivizing the generation of ideas are highly contested. Using a computational model, we show that firms can improve performance by offering low-powered rewards for the selection and implementation of employee ideas. Low-powered incentives provide a sufficient stream of good ideas, but few exceptional ones. Higher-powered incentives, in contrast, do not systematically translate into exceptional ideas either, but generate an excessive number of good ideas. Performance-based rewards thus appear to be a blunt tool to harness the long tail of innovation. We develop propositions to guide empirical research and discuss their implications for strategy and organizational design.
Keywords: Organizational search, reward systems, value creation, employee innovation, strategy process
JEL Classification: C63, D83, M20, M52, 031
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