Incentives and Innovation: A Multi-Tasking Approach
Thomas F. Hellmann
Saïd Business School, University of Oxford ; University of British Columbia (UBC) - Sauder School of Business; University of Oxford - Said Business School
Queen's University - Queen's School of Business
November 12, 2008
Queen's School of Business Research Paper
This paper examines how employees trade off planned activities versus unplanned innovation, and how firms can choose incentives to affect these choices. It develops a multi-task model where employees makes choices between their assigned standard tasks, for which the firm has a performance measure and provides incentives, and privately observed innovation opportunities that fall outside of the performance metrics, and require ex-post bargaining. The model shows how firms adapt incentive compensations in the presence of such unplanned innovation. If innovation are highly firm-specific, firms provide lower-powered incentives for standard tasks to encourage more innovation, yet in equilibrium employees undertake too few innovation. The opposite occurs if innovation are less firm-specific. We also investigate the effectiveness of several possibilities to encourage innovation, such as tolerance for failure, investing in employee innovation, stock-based compensation, and the allocation of intellectual property rights.
Number of Pages in PDF File: 54
Keywords: Innovation, multi-tasking, incentives
JEL Classification: D82, D86, M52
Date posted: November 16, 2008 ; Last revised: July 2, 2014
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