How can you design incentives and rewards that encourage innovation behavior and outcomes?

1 Align incentives with goals

The first step to design effective incentives and rewards for innovation is to align them with your strategic goals and vision. You need to communicate clearly what kind of innovation you are looking for, whether it is incremental or radical, product or process, customer or internal. You also need to define the criteria and metrics that will measure the success and impact of innovation. By aligning incentives with goals, you can ensure that employees understand the purpose and direction of innovation, and that they are rewarded for contributing to the organization's mission and values.

2 Balance extrinsic and intrinsic rewards

The second step to design effective incentives and rewards for innovation is to balance extrinsic and intrinsic rewards. Extrinsic rewards are tangible and external, such as money, recognition, promotion, or prizes. Intrinsic rewards are intangible and internal, such as autonomy, mastery, purpose, or feedback. Both types of rewards can influence innovation, but they have different effects and limitations. Extrinsic rewards can stimulate creativity and effort, but they can also create competition, risk-aversion, or dependence. Intrinsic rewards can enhance motivation and satisfaction, but they can also be difficult to measure, communicate, or sustain. Therefore, you need to balance extrinsic and intrinsic rewards, and tailor them to the individual and contextual needs and preferences of your employees.

3 Encourage learning and experimentation

The third step to design effective incentives and rewards for innovation is to encourage learning and experimentation. Innovation is a process of trial and error, where failures and mistakes are inevitable and valuable. You need to create a culture of learning and experimentation, where employees are allowed and expected to test new ideas, learn from feedback, and iterate and improve. You also need to reward learning and experimentation, not only outcomes and results. You can do this by recognizing and celebrating failures and successes, providing constructive and timely feedback, and supporting learning and development opportunities.

4 Foster collaboration and diversity

The fourth step to design effective incentives and rewards for innovation is to foster collaboration and diversity. Innovation is a collective and social activity, where diverse perspectives and inputs are needed to generate, evaluate, and implement new ideas. You need to create a culture of collaboration and diversity, where employees are encouraged and enabled to work across boundaries, share knowledge, and leverage synergies. You also need to reward collaboration and diversity, not only individual performance and contribution. You can do this by creating team-based and cross-functional incentives, facilitating communication and coordination, and promoting inclusion and equity.

5 Adapt and evolve

The fifth step to design effective incentives and rewards for innovation is to adapt and evolve. Innovation is a dynamic and uncertain phenomenon, where the environment, the needs, and the opportunities change constantly. You need to create a culture of adaptation and evolution, where employees are responsive and proactive to the changing conditions, and where innovation is continuous and iterative. You also need to adapt and evolve your incentives and rewards, not only maintain and replicate them. You can do this by monitoring and evaluating the effectiveness and impact of your incentives and rewards, soliciting feedback and suggestions from your employees, and making adjustments and improvements as needed.

6 Lead by example

The sixth and final step to design effective incentives and rewards for innovation is to lead by example. Innovation is a matter of culture and mindset, where the leaders play a crucial role in shaping and influencing the behavior and attitudes of the employees. You need to create a culture of leadership by example, where you demonstrate and model the innovation behavior and outcomes that you expect and reward from your employees. You also need to reward leadership by example, not only compliance and conformity. You can do this by acknowledging and empowering the innovation champions, mentors, and role models in your organization, and by providing them with the resources, support, and recognition they deserve.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?