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Theories underpinning rewards for innovation

Agency theory strategic human resources management.

There are various conceptual themes underpinning reward and innovation concepts.

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Rewarding practices that promotes innovation

Rewards and various rewarding practices positively impact innovation. Both financial and non-financial rewards are recorded as positively impacting innovation. Primary among them are monetary incentives, promotion, and management recognition. Intrinsic and extrinsic rewards are interchangeably for monetary and non-monetary rewards.

It is well documented through various researches on rewards that positively impact innovation. Although most of research agree why innovation should be awarded, they struggle to explain what should be rewarded as innovation is a multistage and complex process. Additionally, when should be innovation rewarded, is also an intriguing question among the scholars.

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Rewards inhibiting innovation

Employees abandon work on more challenging ideas and focus on lower risk incremental innovation to increase their chances of receiving monetary rewards. Evidences also suggest that it leads to a decreased innovation capacity.

Reward is a double-edged sword. Although it has shown to be of benefit in situations like idea generation, its benefits are limited. Extrinsic and monetary rewards “crowd out” intrinsic parts. As a result, lower motivation for innovation.

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Administration of monetary versus non-monitory rewards

Both monetary and non-monetary rewards are linked to innovation, but are difficult to administer. Some rewards systems are transparent, while others are translucent. Quantity of ideas is linked to non-monetary rewards. The quality of ideas is important since it is mostly linked to non-monetary rewards.

Rewards mean different things to different people and hence a recipe for rewarding innovation is difficult to prescribe. Employees can self-determine their reward choices. Rewards can be linked to innovation objectives, innovation stages, level of contribution and degree of innovation.


Rewards linked to different types of innovation

Intrinsic reward is linked to radical innovation, whereas extrinsic reward is linked to incremental innovation and diminishing innovation speed. These research findings are linked to quality of ideas leading to radical innovation.

Although radical innovation is shown to have greater impact on customers, markets and competition, organizations can determine their innovation objectives. Incremental innovation and extrinsic rewards linked to it can be a genuine innovation objective.


Rewards linked to different stages of innovation

Rewards can be linked to different stages of innovation such as opportunity finding, problem and solution findings.

Innovation is a multistage process. It starts with creativity and ends with commercialization of the innovation outputs. Rewards linked to different stages helps to design meaningful rewards, according to the contributions made by employees.


Rewarding external stakeholder for innovation

Suppliers and distributors should be part of the reward system of innovation.

Innovation is not limited to only employees but external stakeholders bring new perspective to the organization and hence should be rewarded.


Rewarding beliefs and cultural traits

Rewarding beliefs and cultural traits rather than innovation.

This stream of research believes that without a culture of creativity and innovation, rewards do not hold any meaning. In such scenarios innovation is just an event rather than sustainable.


Reward creativity or rewarding innovation

Reward idea management as it is the core of innovation process.

Since ideas are the seed of innovation ideas should be rewarded. However, the issue with this argument is al ideas do not result in innovation and hence are we rewarding just the effort or the outcomes of those efforts.


Rewards linked to job design

Rewards are useful only for routine jobs and employees have no sense of control and ownership. Extrinsic reward programs given them a sense of ownership and being valued.

Rewards should be ideally linked to job design, which makes it consistent and integrated to work practices, rather than an occasional or external process.

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Rewards linked to different personality types

Highly motivated employees are not motivated by extrinsic rewards. Threat or reward appraisals do not work well with these employees. On the other hand, challenge appraisals are more meaningful to them.

Rewards are a stimulus. Creative and innovative urge exists in all, it is important to harness them. Rewards can be designed based on individual considerations.