The Idea Driven Blog

Be Careful With Rewards

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Can $5 screw up an idea system?

Recently we visited a company known for its creative products in order to study its idea system and innovation processes. The company is well-managed, the leader in its field in North America with every Fortune 500 company as a customer, and a significant player in several international markets.

While its employee idea system was getting some good ideas, the company’s managers believed that it should be performing much better. We confirmed this concern. During our interviews with employees and discussions with managers, one feature of the program kept being identified as problematic. The company had a policy that gave each employee $5 for every one of his or her ideas when it was implemented. The reward was intended to be a simple institutional “thank you” to the employee. But this well-intentioned gesture had unforeseen consequences. To avoid any potential trouble with taxes, the company’s accountants insisted that the $5 be rolled into employees’ regular paycheck, where it was often missed by the employee. As a result, the idea system team spent a great deal of time backtracking payments and working with the payroll department to assure employees that they did actually received their missing rewards. At the same time, many employees who did not complain expressed irritation about being frequently cheated out of their rewards.

Whenever we ask people why they offer ideas, the most frequent answer is that ‘I want to make my job easier and more productive.’ Other common answers include personal pride in achievement, contributing as a positive team player, and for the respect of peers. These are intrinsic rewards; rarely does anyone mention extrinsic rewards. Whenever extrinsic rewards are introduced, intrinsic incentives are forced out. Daniel Pink, in his 2009 book Drive, does an excellent job of discussing this phenomenon.

Given the real reasons people naturally offer ideas, the best encouragement a company can provide for offering ideas is to implement those ideas quickly and with a minimum of fuss, and to personally thank each employee for his or her contributions.

So, can a simple $5 reward screw up an idea system? Essentially, yes! Be very careful with extrinsic rewards. Even modest ones can backfire.

Dean Schroeder
Dean Schroeder
Dean received his Ph.D. in Strategic Management from the Carlson School at the University of Minnesota, an M.B.A. from the University of Montana, and a B.S. in Mechanical Engineering from theUniversity of Minnesota. He currently serves as the associate dean and director of graduate programs in management at Valparaiso University in Northwest Indiana.

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