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article imageIs the answer to workplace innovation competitive pay?

By Tim Sandle     Mar 1, 2020 in Business
If innovation is the key to businesses surviving in a competitive marketplace, how can firms ensure that innovative ideas flow from their workforce? How can businesses encourage risk taking and lateral thinking?
A new study from the University of California - San Diego, drawing on a competitive model, recommends new competitive 'winner-takes-all' pay structures as the mechanism to inspire internal innovation.
To test out the payment model, which is based on a version of capitalist competition and the notion of freely competing economic actors, the researchers worked with a life-science company called Thermo Fisher Scientific, who, among other products, manufacture microbiological culture media, as well as biotechnology reagents and test instrumentation.
The experiment took place at the company’s Baja California office and it took the form of a competition. The contest was opened up to all employees not classed as being ‘management’, not only directly employed by Thermo Fisher bit also employees of other companies in the local area. The task, in the model of television shows like The Apprentice, was to design digital solutions for the sharing of medical equipment among healthcare clinics – a type of equipment-as-a-service solution, aimed at smaller establishments.
The intention behind the competition was to explore two different compensation models, to see if one or other produced the more innovative ideas. Participants could either enter on an individual basis or as a team.
For this, participants in the study were placed into one of two groups: a "winner-takes-all" group, where there was just one prize of $15,000; and a "top 10" group, where the $15,000 was spread evenly between the top 10 best placed entries.
The results indicated that those who took part in the winner-takes-all scheme submitted proposals classed as ‘more novel’ than those who took part in the more equitable scheme. These ideas also tended to be the ones that were set to take the greatest commercial risks.
The inference from the study is that companies can increase the innovative output of employees through making changes to how pay and other benefits are awarded – in this case a highly-individualized pay structure.
The research also found that participants who entered the contest as teams, provided the teams had a balanced skill-set together with experienced members, produced stronger submissions compared with the ideas put forward by individuals.
The research outcome has been issued by the National Bureau of Economic Research, in a report titled “The Effects of Prize Structures on Innovative Performance.”
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