Compensation as a barrier to innovation?

We are seeing the role of compensation being held up as a barrier to many of the things that organisations actually want to achieve. For example, in a blog post Jeffrey Phillips, looks at how traditional compensation structures, particularly in large organisations can be seen as a barrier to innovation:

“The reason that compensation is such an insidious barrier to innovation is that we all share it and it’s not polite to talk about. No one wants to focus on compensation since it can be such a headache to revise and restructure, but there’s little doubt it is a serious impediment to innovation. Unlike some of the other barriers that can be overcome – few resources, few dollars, few insights – compensation affects everyone and it is a personal barrier as well as a corporate barrier. It’s hard to rally people round the innovation flag when they are looking over their shoulder wondering about how the innovation work will affect their compensation.”

“I think that when we strip away all of the other innovation constraints and blockades, we’re going to find a very small but very powerful disincentive to innovate, buried in how we compensate our teams.”

There is another interesting take on the role of group interaction on innovation in an article from Wharton. In this example it is interesting that the authors pick up on the often negative impact of managers on the innovation process:

“People like having a process because they understand that it’s fair. In a typical brainstorming meeting, it’s not fair and everybody knows it. The boss is always right.”

I think that this complements the idea that compensation can have a negative impact on innovation and also change. Current compensation models clearly have the effect of creating a hierarchy of ideas and built in bias towards certain people’s ideas.

This post is an extract from Four Groups' Quarterly Update, originally posted here.

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