Blog Article

The role of rewards in enabling a culture of innovation

Posted by Tom McMullen

Tom McMullen

Most companies say that innovation is a core value and reward professionals overwhelmingly report that incentive programs have a positive impact on encouraging innovation, according to new Hay Group research.

One of our prior Hay Group studies found that the “Best Companies for Leadership” are more likely to reward innovation and collaboration than other organizations. But while these organizations understand the importance of innovation and their incentive programs can help reinforce a culture of innovation, creating the right plan that does that is not as easy as it sounds.

The Conference Board recently identified innovation as the number two challenge for CEOs in 2015 (it was number three in 2014). Hay Group found that the “Best Companies for Leadership” are more likely to reward innovation and collaboration than other companies. Furthermore, there is a trend to expand the responsibility for innovation beyond the R&D function to employees throughout the organization (Baumann & Stieglitz, 2013).

Together with Dow Scott, a Professor of Human Resources at Loyola University Chicago, Hay Group recently conducted a study to identify the impact of reward programs on enabling a culture of organization innovation. The study surveyed senior HR and compensation professionals to learn:

  1. How innovation is defined by organizations and the importance each company places on encouraging innovation.
  2. How effective reward strategies, programs, and policies are at encouraging innovation and what the “best practices” are.
  3. The extent reward professionals intend to develop reward programs that will support a future culture of innovation.

A sample of WorldatWork members and Hay Group clients were surveyed in March, 2015 and 166 responses from North America based organizations were received. Participants represented a diverse group of organizations – by size, industry sector and by ownership status. The research indicated that most reward professionals were consistent with CEOs in identifying innovation as a high organization priority.

Reward professionals also overwhelmingly reported that incentive programs had a positive impact on encouraging innovation. Promotions are considered the most often utilized method to encourage innovation, followed by incentives, spot awards and non-financial recognition. Management’s future commitment to improving a culture of innovation is strong, with most increasing investment in innovation initiatives.

Our findings provide strong support for using reward programs to encourage innovation. Based on those findings, the authors determined several key characteristics that make rewards programs more effective in supporting organization innovation. These include:

  • The organization’s performance model and desired work culture should drive the design of the reward program as it relates to innovation
  • Innovation must be carefully defined and organizational drivers of innovation identified
  • The responsibility for encouraging innovation starts with leadership and must be widespread, including HR and various business units
  • Innovation performance measures should be balanced between leading (e.g., employee engagement, customer engagement) and lagging (e.g., financial) indicators of performance
  • Rewards in incentive plans should have line of sight to the type and impact of organization innovation
  • Spot awards and public non-financial recognition should be utilized as a key recognition vehicle
  • Effective communication and ongoing engagement of employees is needed to ensure the program is implemented effectively
  • The impact of programs and processes to encourage innovation must be rigorously evaluated to ensure the organization is optimizing its reward spend

Clearly, there is a positive connection between success in innovation and reward systems. By giving thought to some of the principles above, organizations should be able to derive benefits from their reward programs in reinforcing a culture of innovation.

For more information, see the following:

The role of rewards in enabling organization innovation

The author would like to recognize the contribution of Jeremy Anders to this piece.


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