Publications
Publications
- Spring 2023
- Contemporary Accounting Research
Incentive Contract Design and Employee-Initiated Innovation: Evidence from the Field
By: Wei Cai, Susanna Gallani and Jee-Eun Shin
Abstract
This study examines how the design of incentive contracts for tasks defined as workers’ official responsibilities (i.e., standard tasks) influences workers’ propensity to engage in employee-initiated innovation (EII). EII corresponds to innovation activities that are not formally assigned to workers but are nonetheless encouraged and considered important for the company's success. We leverage field data obtained from a manufacturing company that uses a dedicated information system to track workers’ EII idea submissions. We find theory-consistent evidence that, compared to workers receiving fixed pay, employees rewarded for their standard tasks with variable compensation contracts exhibit a lower propensity to engage in EII. This result is particularly evident when we consider innovation ideas narrowly focused on the standard task (i.e., narrow-scope ideas) versus ideas benefiting other constituents and activities beyond the proponents’ standard task (i.e., broad-scope ideas). Our findings suggest that variable pay narrows employees’ conceptual focus around the standard task and hinders employee engagement in broad-scope innovation activities compared to fixed compensation contracts. We contribute to the nascent literature on incentives for employee-initiated innovation and to the growing stream of research examining the determinants of different types of innovation.
Keywords
Employee-initiated Innovation; Contract Design; Rank-and-file; Extra-role Behaviors; Compensation and Benefits; Motivation and Incentives; Innovation and Management
Citation
Cai, Wei, Susanna Gallani, and Jee-Eun Shin. "Incentive Contract Design and Employee-Initiated Innovation: Evidence from the Field." Contemporary Accounting Research 40, no. 1 (Spring 2023): 292–323.