Should you incentivise employees to innovate?

How to design the right rewards and incentives system for innovation

When we run an Innovation Ecosystem Assessment in a large organisation to identify the biggest blockers to innovation, the number 1 blocker according to employees is always the same. Drumroll… the incentives and rewards system, or lack thereof.

In this blogpost I propose an approach to “incentivise” employees to innovate that goes beyond the narrow scope of financial rewards and also focuses on:

1. Removing the underlying blockers for employees to innovate,

2. Helping them connect to their intrinsic motivation,

3. Accessing financial and non-financial rewards adapted to corporate innovation.

The problem with incentivising innovation

I remember one instance a couple of years ago when I shared my top ten recommendations on how to improve the innovation capability of an energy company in Western Europe. The CEO endorsed them all, except one. I had recommended to design a rewards and incentives system for innovation and that really made him cringe. He would not hear about this.

In What money can’t buy, Michael J. Sandel dedicates a whole chapter to “incentives” that can help us understand why some people cringe at the idea of incentivising certain things.

“To decide whether to rely on financial incentives, we need to ask whether those incentives will corrupt attitudes and norms worth protecting.”

- Michael J. Sandel

That’s probably the root cause of this CEO’s discomfort. The fact that financial incentives leave a mark and can corrupt those attitudes and norms worth protecting. For a leader who truly believes in innovation and wants to free up employees to innovate, the idea of “bribes” to trick employees into doing what they should be doing willingly is simply unacceptable.

The other insight from the pushback that day was that when people hear “rewards & incentives for innovation” they only think of financial rewards, but we should take a wider perspective on this challenge, a perspective that goes beyond financial rewards.

In fact, we must, as survey after survey shows the absence of rewards and incentives for innovation comes up as the number one blocker perceived by employees.

In this blogpost I propose an approach to “incentivise” employees to innovate that goes beyond financial rewards and focuses on:

1. Removing the underlying blockers for employees to innovate,

2. Helping them connect to their intrinsic motivation,

3. Accessing financial and non-financial rewards adapted to corporate innovation.

Removing blockers

In their book The Human Element, Loran Nordgreen and David Schonthal explain that to overcome the resistance that awaits a new idea you must resolve the friction(s) that idea creates. That book resonated because experience shows me that “removing blockers is 50% of any change work”, and I have made it a design principle in my work on innovation ecosystems.

“To create change we must first understand the forces operating against change. While we might not see them, they are there, quietly undermining our efforts to innovate.”

- Loran Nordgreen, David Schonthal

To create an incentive system that overcomes the main forces operating against the participation of employees to innovation, you should start by identifying them.

In a recent project, my clients identified the most common obstacles for employees in their organisation as:

1. Difficulty to start. Employees don’t know how to join an innovation program, or joining is too complicated,

2. Skills gap. Employees don’t feel confident enough in their skills to join an innovation project,

3. Unfair process. Employees don’t know how innovation projects will be measured and judged, or fear unfair treatment,

4. Access to funding. Employees don’t believe funds will be allocated to innovation projects,

5. Risk of losing variable pay / bonus. Employees cannot risk losing a bonus or variable pay component by joining an innovation project,

6. Career risk. Employees fear joining an innovation project is career suicide.

Once the obstacles are clearly identified, you should move on to brainstorming different options on how you could overcome each obstacle and select one or two options that you would want to offer in your “incentives and rewards” system.

For instance, one of my clients resolved the “career risk” by making it a prerequisite for career progression that high-potential executives spend 18-months embedded with one of the organisation’s innovation programs. That changed the “innovation is career suicide” narrative when innovation leaders moved to prestigious roles and created a virtuous circle when those executives took an innovation mindset to their new roles.

Caveat, I’m sharing this as an illustration only. That might not be the right approach in your organisation, and every organisation will have to select the option that works for them.

I advise my clients to use an options table as their main tool to progress this work. You can see a sanitised example below. Each line represents an obstacle, and each column is an option on how to overcome that obstacle. The preferred option(s) to be implemented in the “rewards & incentives system” can be highlighted in a different colour by the team.

Connecting with intrinsic motivation

If removing those underlying blockers is 50% of the job, it’s not all of it, and there is a lot more we should do to help employees innovate in large organisations.

Let’s come back to the CEO I was mentioning earlier. He wanted to tap into employees’ intrinsic motivations to innovate. But that doesn’t happen without the right support. And here as well, employees would benefit from a little help from a well-designed “rewards & incentives system”.

The framework provided by Daniel Pink in his book Drive is a great introduction to understanding motivation.To motivate employees who work beyond basic tasks, Pink argues that supporting employees in the following three areas will result in increased performance and satisfaction:

Autonomy: The desire to be self-directed.

Mastery: The urge to get better skilled.

Purpose: The desire to do something that has meaning and is important.

With those motivation drivers in mind, we can start brainstorming options on how participating in innovation programs could help employees connect to their sense of purpose and develop autonomy and mastery.

For instance, one of my clients ran a campaign to join their intrapreneurship program calling for new business ideas only around the ESG (Environmental, Social, and Governance) area, creating the opportunity for employees to make a difference towards a better world.

Rewards truly adapted to corporate innovation

Whether you’re writing a blogpost or working on the design of an innovation capability, there comes a point where you can no longer avoid the tricky topic of rewards. Rewards can be separated into non-financial and financial rewards.

Let’s start with non-financial rewards. Imagination is the only limit to non-financial rewards that can be designed. And they can play a much bigger role than what is commonly expected. The simplest ones are usually the most effective – visibility and recognition for instance can be powerful incentives for employees in large organisations.

One of my clients finishes every innovation sprint with a dinner between innovation teams and Executives. Teams whose projects will move on to the next phase as well as teams whose projects have been stopped at the end of the sprint attend the event. The recognition given to all innovation teams during that dinner and the visibility that employees receive even beyond the event thanks to pictures, videos, and internal communications work wonders to motivate them and all employees to be part of the innovation effort.

Let’s now address the tricky topic of financial rewards. One of the misconceptions I often hear is that to attract talent in corporate innovation, organisations have to provide financial rewards with similar upsides to what a successful start-up founder could expect. That assumption ignores the fact that corporate innovators are very different to entrepreneurs, with different motivations and expectations when it comes to financial rewards.

In their book Corporate Explorer, Andrew Binns, Charles O’Reilly, Michael Tushman share a similar point of view.

“Rewards are important, but our experience is that what motivates a corporate explorer is not the same as that of a true entrepreneur – and the rewards are therefore different. It is best not to experiment with schemes that try to force the venture capital world into the corporate”

- Andrew Binns, Charles O’Reilly, Michael Tushman

I advise my clients to acknowledge that difference between corporate innovators and entrepreneurs and to design their financial rewards accordingly. I help them think through the below key factors and how they impact financial rewards:

Triggers for rewards:

• Is participation in innovation enough to earn a financial reward?

• Should displaying the right innovation behaviour trigger a financial reward, even if it doesn’t lead to an outcome yet?

• What outcomes should trigger a financial reward?

Types of rewards:

• Should rewards include bonuses?

• Participation in a long-term incentive (LTI) plan?

• Stock-options?

• Equity in future business?

• Promotions?

Individual vs. collective:

• Should rewards be designed for the individual?

• For the innovation team?

• For all stakeholders in the innovation portfolio?

The above list is not exhaustive but can act as a conversation starter to explore different aspects of financial rewards and how they would impact employee behaviours. Those conversations are then translated into financial reward prototypes that can be tested with relevant stakeholders, and then iterated until you find the financial reward system that feels just right for the particular profile of innovator you’re designing for.

You should repeat this work for each profile of innovator that you will have in the organisation. Indeed, the rewards and incentives for an intrapreneur – i.e. an employee that will join an intrapreneurship program and work on an innovation project on a part-time basis for a few months – should be very different to the rewards and incentives for an employee in a dedicated innovation team exploring new product, service, or business ideas.

At Vibrance we believe there is huge untapped value in employees of large organisations. To seize that opportunity, you need to create the space for employees to innovate. We know from surveying employees in large organisations in all types of industries that the biggest blocker to innovation from their perspective is always the same: the lack of a proper incentives and rewards system.

While working on this topic might be uncomfortable at times and challenge existing cultural norms of an organisation, it is key to attracting and retaining employees who have the skills and attributes to be successful in corporate innovation. The market for innovation talents is becoming increasingly competitive. So it is worth putting on your designer hat, and start prototyping the unique rewards and incentives that will attract or unlock the innovation talents that the future of your organisation depends on.