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Rewarding the individual or the collective?
Researching the Relation Between Monetary Reward and Employee Innovativeness
Author Details
Author 1: De Spiegelaere, Stan
KU Leuven - HIVA
Leuven, Belgium
Author 2: Van Gyes, Guy
KU Leuven - HIVA
Leuven, Belgium
Author 3: Van Hootegem, Geert
KU Leuven - CESO
Leuven, Belgium
Introduction
Both policy makers, managers and academia are increasingly aware of the importance of employee creativity and innovativeness (European Commission, 2010; EUWIN, 2012). As organizations are under pressure to continuously reinvent their products and production processes, the employee contribution in this process of continuous innovation is progressively acknowledged. Academic research frequently stressed that in order to boost the creative performance of employees, one should focus on boosting their intrinsic motivation (motivation coming from the task itself, because the employee enjoys doing it). As such, Hammond et al. (2011) recently identified job characteristics as the main trigger of employee innovativeness in their meta-analysis. Notwithstanding the relative consensus in academia about the primary importance of intrinsic motivation for employee creativity and innovativeness, HR managers on the field still quickly turn to extrinsic, monetary reward policies in order to promote certain employee behaviour. The role of these monetary rewards is nevertheless heavily disputed. Monetary rewards would increase the extrinsic motivation of employees (motivation rooted in the desire to obtain some outcomes of the work, such as reward or status (Amabile, 1993)), which could actually result in lower levels of intrinsic motivation (Amabile, Conti, Coon, Lazenby, & Herron, 1996; Amabile, Hennessey, & Grossman, 1986; Deci & Ryan, 2000; Kruglanski, Friedman, & Zeevi, 1971). Others nevertheless found opposing evidence which suggest that giving extrinsic rewards could actually increase the creative performance of employees (Eisenberger & Rhoades, 2001; Eisenberger & Shanock, 2003; Eisenberger et al., 1990).
Some years ago, Baer, Oldham and Cummings (2003) studied these contradicting findings and discovered that the relation of extrinsic rewards on creativity is not linear, it depends on other characteristics which are related to the intrinsic motivation of employees. As such they found that for employees in complex, challenging jobs extrinsic rewards have a negative relation with their creative performance. Yet, for employees in non-challenging simple jobs, extrinsic rewards stand in an opposite, positive relation to employee creativity.
Since then, the research literature on employee creativity and innovativeness progressed rapidly. As such, the concept of ‘innovative work behaviour’ (IWB) and its dimensions related to idea generation and implementation has become more popular. Also the term employee creativity has been further investigated and researchers now frequently distinguish between incremental creativity at the one hand, and radical creativity at the other (Gilson & Madjar, 2011; Madjar, Greenberg, & Chen, 2011). According to many researchers, future research should distinguish between these various dimensions and look for differential antecedents.
In this article, we study the relation between extrinsic monetary rewards, employee creativity and innovativeness taking into account these new insights. In doing so, we distinguish between two large categories of extrinsic reward policies frequently used by organizations: individual performance related pay (PRP) and collective performance related pay. As will be shown in this article, these two kinds of extrinsic reward policies have very different relations with employee innovative outcomes. As such, this article makes a bridge between the literature streams of industrial psychology and organizational sociology by combining concepts and research traditions of both fields.
In what follows, we first define and describe the concepts of innovative work behaviour (IWB), employee creativity and their dimensions. We continue with a discussion of the difference between individual and collective forms of PRP and their relation with employee outcomes. Afterwards, we discuss the methodology and results of the analyses.
Literature
Employee Innovative Behaviour & creativity
In this study, the main dependent variables are Innovative Work Behaviour (IWB) on the one hand and incremental & radical creativity on the other. Innovative work behavior is here defined as: “all employee behavior directed at the generation, introduction and/or application (within a role, group or organization) of ideas, processes, products or procedures, new to the relevant unit of adoption that supposedly significant benefit the relevant unit of adoption”. IWB thus includes behavior of employees that directly and indirectly stimulates the development and introduction of innovations on the workplace. Employee creativity can be defined as the production of novel and useful ideas or solution in the workplace (Amabile, 1988; Oldham & Cummings, 1996; Zhou & George, 2001). The definition of IWB and creativity are very similar, yet cover distinct realities for two main reasons. First, creativity focuses exclusively on the generation of ideas, while IWB encompasses all employee behaviour related to different phases of the innovation process (Kanter, 1988). Second, creativity traditionally refers to the creation of something absolutely new. IWB on the contrary focuses on something new, for the relevant unit of adoption. Employees who take the initiative to copy successful work habits from other departments, for example, are clearly staging important ‘innovative behavior’, while not at all engaging in workplace creativity.
As already stated, IWB makes an explicit reference to the distinct parts of the innovation process. A problem is recognized, a idea for a solution is generated and developed, the idea is proposed, defended and eventually implemented in the organization (Kanter, 1988). Knowing that a normal innovation process is iterative, time consuming and complex (Kanter, 1988; Scott & Bruce, 1994; Tuominen & Toivonen, 2011), researchers distinguish between particular employee behaviour related to the different phases of the innovation process. As such, some authors refer to two dimensions: idea generation and idea implementation (De Jong & Den Hartog, 2007; Yuan & Woodman, 2010), while other suggest three dimensions: idea generation, idea championing and idea implementation (Carmeli, Meitar, & Weisberg, 2006; Janssen, 2000; Messmann & Mulder, 2011; Reuvers, van Engen, Vinkenburg, & Wilson-Evered, 2008; Scott & Bruce, 1994). Some others refer to four (e.g. de Jong & Den Hartog, 2010) or even five dimensions (e.g. Kleysen & Street, 2001). Nevertheless, only rarely these dimensions can actually be distinguished in the empirical data and separate analyses are performed for the separate dimensions.
Where IWB can be subdivided between different dimensions, also the concept of creativity can be broken up in two creativity concepts which distinguish between very different types of creativity: incremental and radical creativity. As Zhou & George (2003) state: “Implicit in the definition of creativity is the fact that there are different degrees of creativity. Creativity can range from a minor change in a work procedure to a major breakthrough in science and technology”. They here differentiate between what can be called ‘incremental’ versus ‘radical’ creativity. Other researchers (e.g. Gilson & Madjar, 2011; Madjar, Greenberg, & Chen, 2011) built on this idea when they searched for different triggers of incremental and radical creativity. The distinction between radical and incremental creativity is informative when it comes to the content of the creative ideas generated by the employees. At the same time, the concept of IWB reveals crucial information on what parts of the innovation process the employee invests in. Both when it comes to creativity, and when it comes to IWB, research showed that predictors differently affect the identified subdimensions of the two concepts.
Monetary rewards & employee creativity/innovativeness
The relation between giving employees financial incentives and employee outcomes in terms of motivation, productivity or creativity has been the subject of fierce debates, both in industrial psychology and organizational sociology literature. In industrial psychology, the discussions are focused on the roles of intrinsic motivation at the one hand, and extrinsic motivation at the other hand. Intrinsic motivation refers to a motivation to work, rooted in the work itself. Employees can be motivated because they find the work interesting and challenging. Intrinsically motivated employees would be more creative as they are generally more be more curious, flexible, persistent and have an internal drive for optimizing the work process (Baer e.a., 2003; Shalley & Gilson, 2004). Extrinsic motivation refers to a motivation rooted in the desire to obtain some outcomes of the work, such as reward or status (Amabile, 1993). Installing performance related incentive systems would increase the attention of the employees to the rewards and thus increase their extrinsic motivation. Whether this increase in extrinsic motivation occurs at the detriment of the intrinsic motivation or is added up is one of the focal points of debates between the friends and foes of providing incentive rewards. Empirical findings tend to find evidence for both the argument that extrinsic rewards stimulate (Eisenberger & Rhoades, 2001; Jenkins, Gupta, Mitra, & Shaw, 1998; Ramamoorthy, Flood, Slattery, & Sardessai, 2005) or deter creativity/innovativeness (e.g. Kruglanski et al., 1971). Building on these contradictory findings Baer et al. (2003) studied the effect of extrinsic reward on employee creativity, taking into account the role of first job complexity and second the cognitive style of the employees. His data suggested that reward has very different (and opposing) relations with creativity, depending whether the employee has a simple or complex task. They related their findings to the previously mentioned idea that when intrinsic motivation is high (complex job), extrinsic rewards will ‘outcrowd’ the intrinsic motivation and reduce the creative performance of employees. Yet, when intrinsic motivation is low (simple jobs), extrinsic rewards will give a certain degree of control to the employees which will lead to higher levels of creative performance.
The same inconclusiveness is reflected in the organizational sociology field. Here, reward systems are discussed in the context of what is called ‘High-Performance Work Systems (HPWS)’, which are HR practices that would lead to supreme company performance through the stimulation of the employee motivation, productivity and innovativeness. Nevertheless, when it comes to performance related reward systems, the overall evaluation is mixed. Empirical studies focusing on the direct effect of incentive schemes on organizational innovativeness mostly find insignificant effects (Michie & Sheehan, 1999; Shipton, Fay, West, Patterson, & Birdi, 2005; Shipton et al., 2004; Zoghi, Mohr, & Meyer, 2010), while some find positive (Nielsen & Lundvall, 2003) or mixed effects (Walsworth & Verma, 2007). Just as in the industrial psychology literature, important interaction effects are nevertheless mentioned. As such, the effect of a performance related reward system generally increases when combined into ‘bundles’ or ‘systems’ with other HR practices (Laursen & Foss, 2003).
Individual and collective PRP
Under the general term of ‘Performance-related pay’ (PRP), organizations introduced a wide variety of systems in which employees receive a monetary reward contingent on the performance of an individual, group or company as a whole (Aumayr, Welz, & Demetriades, 2011). Building on organizational research, we know that the selection of the indicators, the process of evaluation, the frequency and the height of the reward all have their influence of the effectiveness and success of the reward system (Thierry, 2011). A major distinction can be made between individual and collective PRP. The first refers to PRP systems where the reward is contingent on the individual performance of the employee, whereas collective PRP is linked to meeting collective performance indicators on the level of the department or company. When it comes to employee outcomes, both have very different rationales and consequences as the focus is or on the individual, or on the group. Individual PRP (implicitly or explicitly) introduces a form of competition between workers while collective PRP (implicitly or explicitly) introduces an incentive for cooperation while at the same time risks to stimulate ‘free rider behaviour’.
Individual PRP & Employee creativity/innovativeness
Building on the previously discussed theoretical and empirical literature, we suspect to find no significant linear relations between individual PRP and employee innovativeness/creativity. As was demonstrated by Baer et al. (2003) the effect of reward on creativity is dependent on the job context of the employee. As such, we suspect to find a significant interaction effects between job resources, individual PRP and employee creativity/innovativeness. Job resources is defined here as “those physical, social, or organizational aspects of the job that may do any of the following: (a) be functional in achieving work goals; (b) reduce job demands and the associated physiological and psychological costs; (c) stimulate personal growth and development” (Bakker & Demerouti, 2007) and is closely related to how Baer et al. (2003) see their ‘job complexity’. As they stated, providing extrinsic rewards in complex jobs tend to negatively affect individual creativity (through depressed levels of intrinsic motivation). At the same time, providing extrinsic rewards in simple jobs is related to higher levels of individual creativity (as employees are given a basic sense of control in jobs with which are not intrinsically motivating).
Hypothesis 1: There is no direct linear relation between individual PRP and employee creativity/innovativeness.
Hypothesis 2: The relation between individual PRP and employee creativity/innovativeness will be interacted by the degree of job resources enjoyed by the employee in such that individual PRP will be positively related to employee creativity/innovativeness when job resources are low and negatively when job resources are high.
We nevertheless suspect that this relation will be weaker for idea implementation as idea implementation is likely to suffer more from the competition element related to individual PRP. We also suspect that the relation will be stronger for incremental rather than radical creativity. Here we build on the work of Gilson and Madjar (2011) who stated that radical creativity is predominantly related to intrinsic motivation, while incremental creativity is more likely to be affected by extrinsic rewards.
Hypothesis 3: This interaction effect between individual PRP and job resources will be particularly strong for idea implementation and radical creativity.
Collective PRP & Employee creativity/innovativeness
Very little is known about the impact of collective PRP on the motivation or creativeness of employees. Advocates of collective reward systems refer to the increased cooperation and feelings of ownership or commitment of employees to state that collective reward systems can positively contribute to the motivation and performance of employees (Bartol & Srivastava, 2002). Adversaries on the other hand point to the problem of ‘free rider behaviour’ of employees (Gerhart, Minkoff, & Olsen, 1995). Empirical studies are rare, yet one study performed by Hanlon, Meyer and Taylor (1994) studied the effect of the elimination of a gainsharing plan. After the elimination of this collective reward policy, the researchers observed higher levels of job satisfaction, commitment, but also of idea generation. Other studies on the other hand note that through forms of collective PRP, employees have an incentive to share ideas and knowledge that they would otherwise keep for themselves (Bartol & Srivastava, 2002). Also the empirical studies on the organizational level find weak positive relations between collective forms of PRP and innovation (Aerts & Kraft, 2008; Zoghi, Mohr, & Meyer, 2010), while others find insignificant results (e.g. Michie & Sheehan, 1999). Further, Lorenz & Valeyre (2005) observed that the innovation prone ‘learning organization’ uses less individual pay-for-performance schemes and relatively more collective incentive systems as compared to the ‘lean organisation’. At last, studies on the year-old ‘Scanlon Plan’ are revealing (Welbourne & Mejia, 1995). According to these case-studies, the introduction of a form of collective reward, combined with a organizational structure in which employees can effectively influence the companies’ performance will result in an overall increase of employee motivation and firm profitability, through the optimal mobilization of the innovative and creative ideas of employees (Massoud, Daily, & Bishop, 2008; Thierry, 2011; Wren, 2009). Building on these last insights, we suspect that the relation between collective PRP and the individual innovative behaviour of employees will depend on their evaluation of the influence they have on the group outcomes. If employees feel they can effectively communicate their ideas and complaints to the group, the collective PRP will strongly affect the employees’ innovative performance. We further suspect that the influence of the collective PRP will predominantly affect the idea implementation behaviour as this type of IWB is more strongly linked to group dynamics than the idea generation.