Can you pay too much to innovate?

Intro from Gina:

In class we’ve been talking about what drives and motivates corporate entrepreneurs.  Common wisdom is that entrepreneurs are motivated by the promise of financial reward. Many entrepreneurship professors start their first class by posing this question to their eager students: “Who in here wants to get rich?”  And the hands shoot up.  I’m not so sure that’s the whole truth, of course.  But certainly, in the world of Corporate Entrepreneurship, the financial upside is not there.  Is that a problem? Below are one student’s thoughts on the matter:

At first glance, one might answer the question that titles this post with a resounding NO,because no one will complain on getting more money to do their job. And some might even say the more money they receive, the more effective and loyal innovators will be to the company. But if you really dive deeply enough into the question your answer may start to change. Hopefully, this post will help lead the change in the way you think about monetary motivation in innovation.

In a digital and knowledge-driven economy that thrives on high-risk competition, in order to grow and survive, companies have to continuously innovate. Innovation implies that companies gain new knowledge and transform this knowledge into new products and services. In order to do this and succeed, companies put a lot of pressure and stress on their employees to develop and produce profitable offerings ahead of the competition. On top of all that, an innovator’s career path is “plagued with risk and uncertainty, as well as career stalling obstacles” (Choi et al. [1]) Thus corporations need to attract, nurture, and keep the right employees who have a skill for exploration and that ability to develop and pursue unique ideas.  What you’d think is that organizations that wish to successfully cultivate an atmosphere for constant innovation, their knee-jerk reaction is to motivate through extrinsic rewards. That’s how they handle most problems.  But it turns out that financial payoffs don’t work as incentives for real innovators.

Extrinsic motivation is driven by outside forces, whether the motivation is a carrot or a stick (Amabile). Rewards express and reinforce the values and norms that encompass corporate culture and are used by managers to communicate desired attitudes and behaviors to employees. This prompts innovators to do their job to get something desirable, monetary compensation or status, or to avoid negative repercussions, demotion or firing. The most common extrinsic motivational reward is cold hard cash.  Through extensive research that spans decades, Amabile shows that in the short-term money does not start or stop innovators from innovating. In fact, monetary rewards negatively impact the process because “they eventually lead people to feel that they are being bribed or controlled” It can also prompt an influx of people who are not interested in innovation or even good at it to become attached to that line of work just because of the financial gains.

Bloomberg Tech put out a report on February 13, 2017, highlighting the fact that monetary reward is counterintuitive to corporate entrepreneurship, citing overcompensation as one of the reasons Google’s car project lost essential veteran employees. According to Bloomberg, the problem stemmed from an “unorthodox system” implemented in 2010, where Google agreed to pay key employees bonuses and equity along with the typical salary. On top of the awards a multiplier was added a couple of years later. This multiplier was based on small accomplishments of the car division, instead of the divisions overall performance. “Part of the problem was that payouts snowballed after key milestones were reached, even though the ultimate goal of the project…remained years away.” The snowballing eventually resulted in large numbers of staff members leaving the car division by late 2015.The veteran staff members left because the financial gains were so large, accumulating to over seven figures, that they no longer needed the job security.

The irony of it all is that Google used this reward system to keep valuable employees from going to competing companies. But in the end, the exact thing they were trying to prevent manifested itself. Some of the engineers that left went to work for rival companies or became rival companies by developing their own ventures in the same market. For instance, the previous leader of the self-driving car project, Chris Urmson, left the company in August and formed a startup that develops self-driving software. Similarly, in 2016 the director of hardware development, Bryan Salesky, left Google and became the co-founder and CEO of Argo AI, which was recently awarded a $1 billion investment by Ford to develop a virtual driving system. Google car projects co-founder Jiajun Zhu, and software lead engineer, Dave Ferguson, went on to start Nuro.ai, another self-driving startup.

The moral of the story is that money as an extrinsic reward should not be relied on to motivate corporate entrepreneurship because there is no ideal amount that can ever satisfy everyone. If a person is paid too little, or too much they will eventually leave the company in search for a better opportunity. As Jon R. Katzenbach puts it, “the more you rely on money as your weapon of choice, the more likely you are to encourage self-serving behavior.” Therefore, the answer to the title question is “No you cannot buy innovators.”

-De Andra Salley

[1] Choi, Byung-Chul. O’Connor, Gina. T.Ravichandran. Navigating a Risk Averse Culture: The Effect of Strategic Human Resource Management Practices on Breakthrough Innovation(BI) in Large Firms.RpI working paper available from first author

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