As we move to a more hybrid workplace there have been calls for employees to be judged less on how many hours they put in and more on the output they produce. Such calls could easily result in a more performance-based remuneration scheme that is tied to what people produce.
While such an approach certainly has its merits, research from Bocconi University highlights how it could also harm innovation. This is because pay-for-performance schemes can often encourage a short-term and quantitative approach to assessing work.
“[F]rom a practitioners’ standpoint, our findings highlight the role of managerial policies in shaping networks in organizations,” the researchers say.
Influencing behavior
The researchers wanted to understand how managers can create the social conditions that promote certain forms of social network to emerge at work. They built upon previous research that identified the types of networks that usually result in stronger performance at work and how such networks emerge.
The researchers focused on the way incentive plans can change how we connect with others, with a particular focus on those that weakly link short-term and individual contributions to those that tightly link them. They also examined what impact this might have on innovation within an organization.
They hypothesize that a shift to performance-related pay would prompt an increase in short-term outcomes from employees, while people would also strive to ensure they received a fair share of the credit on any jointly-produced work. This could enable innovators to more easily build networks and allow them to execute projects more rapidly.
Put to the test
The researchers tested their theory using patent application data at the Japanese electronics firms Fujitsu and NEC. They focused on co-innovator networks, as both firms deploy performance-based incentive plans.
After conducting interviews with innovators who had experienced the redesign of incentive schemes, the researchers identified three key areas of change. Firstly, innovators became far more goal-oriented. This in turn created a short-term orientation among employees, which coincided with a rise in risk aversion. Lastly, innovators became more individualistic and more sensitive about precisely who contributed to each project.
The results affirm the researchers’ theory that the change in incentive design resulted in both smaller and more closed networks, which ultimately harmed innovation, not least as there was some evidence that the networks that did form were with those of like mind.
“A critical message from these observations is that before engaging in incentive redesign, companies need to understand that, No. 1, (it) influences goals that employees pursue, No. 2, employees might adapt their networks to the renewed goals and, No. 3., the updated networks might not be ones that managers prefer,” the researchers say.
Of course, managers could design performance-based incentive schemes that don’t rely on short-term metrics, which may limit some of the short-termism that results and ensure that innovation doesn’t suffer as a result.
