Rewards for Innovation

Key Insight

An organization's reward system must explicitly recognize and incentivize creative contributions to cultivate sustained innovation. A common pitfall occurs when incentives are tied exclusively to existing operations or management roles, inadvertently discouraging new idea generation, as exemplified by a software company where new projects detracted from bonuses. While creative individuals are often driven by intrinsic desires like challenging work and the joy of contribution, extrinsic rewards are vital. Without appropriate recognition, top innovators may leave, underscoring that reward systems profoundly influence employee behavior and the company's capacity for innovation.

To effectively reward innovation, companies should establish prestigious awards, honors, and public recognition for creative contributors, both individuals and teams, across new products, business ideas, and process improvements, including 'great try' awards for valuable failures. Setting measurable innovation goals, such as mandating that 25% of annual revenue originate from products introduced within the preceding five years, provides clear targets. It is also crucial to create a distinct career track for creative contributors who prefer not to enter management, ensuring it offers comparable financial rewards and prestige to top management positions; Herman Miller, for instance, treats its designers as heroes, offering substantial retainers and royalties.

Beyond formal recognition, compensating for specific valuable creative contributions, such as bonuses for cost-reduction ideas or profit-sharing from new products, directly links effort to reward. A powerful incentive for truly creative individuals is the opportunity to 'play pinball'—where success on one challenging project grants the chance to immediately embark on another novel and significant endeavor. This fulfills their intrinsic desire to constantly create, innovate, learn, and take on new challenges. This holistic approach to rewards should extend beyond products and services, applying to creative efforts in marketing (e.g., Patagonia's unique catalog, Apple's '1984' commercial), finance (e.g., Ben & Jerry's local stock offering), and operations (e.g., Federal Express's ingenious solution to sorting hub slowdowns), stimulating innovation across all business functions.