How to Incentivize Innovation

Callie Rushton, Director of ImplementationLeadershipLeave a Comment

“Think Different.”

“There is No Finish Line.”

“Imagination at Work.”

What do these famous company slogans have in common? They all demonstrate a commitment to innovation.

In today’s world, you’d be hard-pressed to find an organization that doesn’t want to be known as innovative—the market simply demands it. Start-ups in Silicon Valley and other hotbeds are always fighting to come up with new and better ways of doing things. AI is being incorporated to make processes more efficient in industries ranging from manufacturing to retail. Tech giants are becoming more adept at predicting what you want to buy, even before you’ve even realized it yourself.

With innovation being so critical to organizational success in the modern age, it’s no wonder that leaders across sectors are trying to find the best ways to encourage it among their employees. They believe that incentivizing innovation will not only help them beat the competition, but also bolster employee engagement as people take more ownership over how the work gets done.

They’re not wrong. But while most organizations share this desire to constantly improve, few succeed at fostering meaningful innovation.

Why is it so challenging? And what’s the right way to do it?

The truth is, there is no silver bullet. What works for one organization might flop at another, so it’s important not to take a formulaic approach to incentivizing innovation. That said here are a few key considerations as you hone your organization’s innovation strategy.


Above all, organizations need to signal that they truly embrace innovation by creating a culture centered upon it. Leaders must establish a sense of mutual respect and trust so that employees feel comfortable and heard when they make suggestions to existing processes or propose new ways of achieving strategic goals.

This is far easier said than done. Leaders often believe that creating space for innovation will detract from day-to-day operations; therefore, innovation should be left to managers while the rest of the team focuses on completing their work. The notion that managers have all the answers and that their job is to dictate these (rather than to learn from those closest to the work itself) stifles employee buy-in and creativity in coming up with solutions that could improve the entire organization. It’s important for leaders to understand the value of involving employees in this process, no matter where they fall in the org chart.

Furthermore, creating an innovative culture has as much to do with celebrating innovation as it does celebrating failure. True innovations are novel and untested, are therefore more likely to fail than succeed. Until failure is perceived as a positive—an opportunity to learn and adapt, a necessary step in achieving success—innovation won’t be sustained. Praising great ideas, even if they didn’t ultimately work out, can help employees feel that failure is not only okay, it’s actively encouraged.


To best incentivize innovation, it’s also important to pay attention to the process. How do you go about asking your employees for suggestions and ideas?

One best practice is to specify what kinds of ideas are sought after. Perhaps you’re a non-profit that wants to find new ways to reengage donors who once supported the organization but have since fallen off the map. You’ll want to communicate to employees why this is a strategic priority and that their ideas to address it will be considered and rewarded (more on that later). This allows employees to focus their creative efforts and prevents the “idea overload” that can happen when innovation is incentivized without any parameters. However, it’s important to leave some space for ideas to arise beyond the scope of the stated goal, as employees might be able to address blind spots you didn’t even know you had.

Another example of an effective incentive process is to demand greater accountability in the ideation phase. Allowing suggestions to roll in anonymously can lead people to put less time and effort into them. Requiring employees to attach their name to the ideas helps minimize the chances that they will be frivolous and unhelpful.

Some companies have taken this approach even further. For example, front-line workers at Toyota are encouraged to come up with solutions to everyday problems. When they have an idea, they share it with their peers (which also fosters a spirit of collaboration). If enough people agree that it is a good idea, they bring it to their manager, who can in turn offer their stamp of approval. In this event, the idea gets passed to leaders who can evaluate its promise. Regardless of whether the idea is acted upon, leaders are sure to close the loop with employees to ensure they understand why and how the final decision was reached.


The final component of your incentive strategy is the reward. The least expensive option—and often the most effective—is to institute some kind of social reward. This might simply mean recognizing the most innovative ideas of the quarter in front of the whole team. We find that most employees deeply value this type of recognition, even though it may not seem basic. A social reward could also be more formal, such as the promise of lunch with senior leaders to the people who comes up with a winning idea.

This is not to say that monetary compensation is not a useful tool for incentivizing innovation. In many companies, employees are able to keep a percentage of the savings that their creative intervention generates. Volkswagen has honed this approach even more by establishing a tiered system of financial incentives: employees will get to keep 50% of the value of small ideas, but only up to 10% for high-value ideas. This is logical, as it’s fairly easy to take action on many small ideas at once. Implementing huge structural changes, however, is often a daunting and disruptive task.

It’s often hard for leaders to change the way they’ve always done things, even if they outwardly express a desire for innovation. Shifting the culture to make it conducive to innovation, establishing a clear process and set of parameters for innovation, and creating a compelling rewards system are all necessary steps to getting your organization to the next level of innovation.