Just in it for the money?, how to devise an effective incentive strategy

Managers all face the same challenge – how do I recognise and recompense those who have put in the extra mile to make things happen, without forgetting those who may also have contributed to the process? More to the point, how do I find the “right” kind of reward to ensure that those same people want to continue contributing in a similarly positive manner? The answer(s) to these questions are of obvious interest to both the employees and his/her boss. The area of open innovation, where the R&D department are more transparent in terms of the research conducted and the resources used and therefore no longer the sole proprietors of the finished article, provides a fascinating example of how best to keep everyone happy and motivated, not just in the short term but also in the long term.

A human, managerial science

Previous research has very much focussed upon the human and behavioural aspects to this question, and rightly so. People within organisations will inevitably react differently to the various possible types of recognition of service, from bonuses and pay rises through to hierarchical changes and modifications to the actual content of their job. However, the manager has the sustained performance not only of employees in mind but also the firm, hence the potential delicacy of the issue. Design and implementation are therefore key, as well as the not-to-be-neglected reality of “keeping everyone happy”, as far as that is possible…

Incentive systems – take your pick!

Based upon successful performance and results, these can take three main forms, and range in terms of tangibility and intangibility. First and most obvious is the traditional financial version (pay rise, bonus, change of contractual terms, payment of expenses etc.). Second is the more “immaterial”, which can range from raising international networking opportunities and higher visibility within the corporate world through to improving access to the higher-level knowledge that the firm is producing and enabling the establishment of longer-lasting, more professionally-beneficial ties within the industry. Finally, actual work content can be modified in return for good results, be it creating more flexible allocation of work time, greater involvement in top-level discussions or easier access to key intellectual property issues. The nub of the issue is – what is the employee after in the first place and what impact may that have on the firm?

Take the money and run?

From the manager’s perspective, the question is clear – how do I get the best out of my staff, keep them happy and ensure that they continue producing the same good (if not, better) results? The monetary offer has an obvious short-term advantage but one may wonder if employees who can be easily “bought” may retain the same level of motivation in the event of not receiving the same again in the future. Once financial recompense is perceived as a fait accompli, managers will find themselves with an extra HR issue on their plate.
The second option is more geared towards employees who see themselves as having an actual career within an open innovation form, as opposed to simply picking up a salary at the end of each month. The potential offer made to them in thanks for their contribution opens up avenues for career evolution.
The third option takes this a stage further, by giving employees who have successfully contributed in the past a sense that they will “climb the ladder”, if not necessarily and immediately in a financial sense, then at least in terms of the level of implication in key projects. Although harder to implement from a managerial perspective than the simple signing of a cheque, it is this option that will have the most positive long-term effect on the business done by the firm in question.

How can managers “sell” option 3?

One of the main challenges in selling the third option is the actual perception of “incentive” by employees in the first place. Theory is one thing, but the reality of the workplace is that people take up positions within firms in order to earn a living. Introducing greater transparency within the firm can certainly help, in terms of workflow and how top-level decisions are taken. These can help those lower down the chain feel as involved as the people at the top who actually apply strategies. This forms a part of an overall “socialisation” process, whereby hierarchy ultimately still exists but where all contributors to a project still have a sense of involvement and, crucially, a recognition of the role they have played.

To be continued….

How managers actually align the different roles employees play in a successful project and then devise and implement a coherent strategy remains open to question and also to further research. There is much organisational learning to be done at the top of any firm, not least when you also add the multicultural dimension into the equation. Specific incentives schemes for individuals may be easier to implement à la “the quick pay-off” but managers will continue to juggle with the short and long-term interests of staff and the firm and how best to incorporate these into an overall corporate strategy, rather than acting on a case-by-case basis.

This article is inspired by the paper Strategic Incentive Systems For Open Innovation, written by Dirk Schneckenberg and published in The Journal of Applied Business Records – January/February 2014 (volume 30, number 1).

Dirk Schneckenberg is an Associate Professor of Strategic Management at the Rennes School of Business. Research interests in knowledge management, business model thinking and innovation strategies, as well as the necessity to rethink higher education for the 21st century.