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Rewarding value-creating ideas in organizations: The power of low-powered incentives

Authors

  • Oliver Baumann,

    1. Strategic Organization Design Unit, University of Southern Denmark, Odense, Denmark
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  • Nils Stieglitz

    Corresponding author
    1. Management Department, Frankfurt School of Finance & Management, Frankfurt, Germany
    • Correspondence to: Nils Stieglitz, Frankfurt School of Finance & Management, Management Department, Sonnemannstr. 9–11, 60314 Frankfurt, Germany. E-mail: n.stieglitz@fs.de

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Abstract

Ideas from employees are a major source of value creation in firms, yet the merits of rewards for incentivizing the generation of ideas are highly contested. Using a computational model, we show that firms can improve performance by offering low-powered rewards for the selection and implementation of employee ideas. Low-powered incentives provide a sufficient stream of good ideas, but few exceptional ones. Higher-powered incentives, in contrast, do not systematically translate into exceptional ideas either, but generate an excessive number of good ideas. Performance-based rewards thus appear to be a blunt tool to harness the long tail of innovation. We develop propositions to guide empirical research and discuss their implications for strategy and organizational design. Copyright © 2013 John Wiley & Sons, Ltd.

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