The Effects of Incentive Schemes on Creativity

The effects of incentive schemes on creativity

Table of content

1. Introduction
2. Two real life examples
3. Application of the empirical cycle
4. Babbie´s Dialectis
5. Conclusion

1. Introduction

Incentive schemes are often viewed as the key to foster employee’s creativity. In today´s world, companies such as Apple constantly fall back on creative employees in order to launch innovative ideas. However, critics argue that the principle of “incentives matter” is just a cliché, meaning that incentives and creativity can therefore not coexist. According to author Daniel Pink, an opponent of incentive schemes, monetary incentives are actually counterproductive in the promotion of creativity (Stumbling & Mumbling, 2013).

Creativity and innovation concur with one another. Creativity helps companies to invent ingenious products. It is considered to be the engine for innovation, since innovation cannot operate without creativity. Innovation is the basis for success in a modern economy and is defined as the implementation of creative ideas within an organisation (Solkova, 2015). In order to come up with new concepts and to be able to keep up the pace with new demands in today´s competitive economy, companies are highly interested in motivating their employees to be more creative (Chan, 2011). One concept of being more creative is through the use of incentives. In general, incentive schemes are reimbursements for a job well done, or a reward for achieving certain goals and typically appear in the form of cash, recognition or company shares. The purpose of incentives is to enhance productivity and to support a creative environment (Udo & Coker, 2012).

This paper aims to investigate the effectiveness of incentive schemes in companies in order to increment creativity and proves the validity of a well conducted scientific research through the use of Babbie´s, Gravetter´s and Forzano´s framework.

First, the paper provides two contradictory examples that analyse the relationship between incentive schemes and creativity. Secondly, the paper classifies how the two cases fit into the empirical cycle. Finally, the paper will apply four concepts of Babbie´s, Gravetter´s and Forzano´s framework in relation to the two examples.

1. Two real life examples

The article “Incentives and Creativity” deals with the issue of whether to implement incentive schemes into companies in order to foster creativity. Frey, Gibbs, Neckermann, Bradler, Warnke, Siemroth, (2013) state “ideas and innovation are the key to competitiveness and success”. Concerning the previous statement, the following article outlines two core studies. The first study is a laboratory experiment and distributes rewards into contingent performance based and non-contingent based performance. Some employees have to accomplish a creative task and others a routine task. The study shows that performance based incentives show an increase of productivity in both routine and creative tasks. Furthermore, they conclude that non-performance based rewards would result in no influence on the performance of employees that have completed a creative task. However, agents that performed routine tasks enhanced their performance with the non-performance based rewards. The study leads us to conclude that performance contingent rewards are cost effective in stimulating creativity and innovation, whereas non-performance based incentives do not really pay off in terms of creativity and innovation. The second study evaluated data from a software company. The firm designed an incentive scheme to recompensate employees that were able to come up with new innovative ideas. The study showed that the number of innovative ideas had increased significantly.