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Exploring the role of incentives and rewards in motivating employees for innovative behavior
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School of Business |
Master's thesis
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en
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81 + 1
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Innovation is crucial for modern organizations, driving growth, competitive advantages, and long-term sustainability. Effective innovation management, particularly through strategic incentives and rewards, fosters employee motivation for innovative behavior. Despite extensive research, the optimal design of incentive systems remains unclear. This thesis addresses this gap by investigating Finnish innovation managers' perceptions of the role of incentives and rewards in employee motivation and capacity for innovation. The study aims to identify effective incentives used by these managers and explore their approaches to designing incentive systems that foster innovation within organizations.
This study used a qualitative approach to explore subjective perceptions through semi-structured interviews. Purposive sampling targeted experienced innovation managers within Finnish firms, achieving data saturation with 13 participants. Thematic analysis was employed to analyze the interview data.
The research revealed that Finnish innovation managers find intangible non-monetary incentives most effective for fostering innovation, with task-related rewards subcategory having the highest impact. Monetary incentives are considered somewhat effective but controversial, while tangible non-monetary incentives are believed to have only an indirect impact by creating an innovation-friendly culture. Intrinsic rewards are preferred for promoting creativity, though extrinsic rewards are considered crucial in contexts like patenting and employee stock ownership in startups. Additionally, innovation managers advocate for tailored incentive systems that differentiate between individual, team, and organizational levels of reward allocation and align with the type and stage of innovation. They recommend non-monetary incentives for incremental innovation and the ideation stage, and greater, including monetary, rewards for radical innovation and the implementation stage.
The study advances theoretical knowledge by offering a detailed assessment of the effectiveness of different types of innovation incentives and rewards, highlighting efficient use of extrinsic rewards in specific contexts, and offering a comprehensive framework for designing incentive systems tailored to innovation stages and types and various levels of rewarding. Practically, it provides actionable insights for innovation managers to refine or develop their reward systems, guiding the prioritization and implementation of incentives to effectively boost employee motivation for innovation.