The Downsides to Incentivizing Innovation

If you need continuous big, bold imaginative ideas to remain ahead of your competitors and in the good graces of your customers, do you need an equally big and bold incentive program for your employees?

Spoiler: Actually, no.

In the world of incentives, there are “low-powered” incentives and “high-powered” incentives. You’re already offering low-powered incentives if you offer good paying wages, give your people feedback, call out their achievements, and keep them around for doing a good job. In contrast, high-powered incentives dole out direct compensation in return for completing a specific task and achieving a measurable result.

When Google introduced the Founders Awards in 2004, they created a high-powered incentive by offering financial rewards to their highest-performing teams. $57 million in awards and three years later, they realized that the program was causing more harm than good, and dramatically changed their incentives structure.

But why was it a flop?

It makes intuitive sense that people will be more likely to do something if you pay them to do it. So why do programs like Google’s fail, and what’s wrong with high-powered incentives?

  • High-powered rewards can disempower people. The more money you offer as a prize, the more people the program attracts, which makes it harder for any single individual to win. Employees convince themselves they can’t win and resent it.

  • High-powered rewards can distract from regular work as employees become focused on winning. In the worst case, this can even lead to unethical behavior as people try to win at all cost.

  • High-powered rewards can exacerbate internal rifts. At Google, rewards disproportionately favored engineers, which only compounded a sense of social strata.

But wait: high-powered incentives aren’t ALWAYS bad. They work exceedingly well in a very specific context: small firms, with a homogenous workforce, in growing markets, with short product life cycles.

  • A small firm means a higher chance of winning the prize for individuals.

  • A homogenous workforce means there’s less of a chance of reinforcing favoritism.

  • A growing market means there is likely a wider field of opportunities for new ideas.

  • And lastly, short product life cycles mean new ideas can be quickly tested and measured.

A final note: don’t assume that just because you don’t have a big, sexy incentive program that new ideas aren’t being generated by your people. To the contrary, in our experience at NOBL, companies rarely suffer from a lack of ideas. Instead, they lack the capability to try and learn from those ideas. You don’t have to set aside treasure to motivate new ideas, you simply need to give permission and create a simple process to trial those ideas.


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