Competitive pay could be the way to spark scientific innovation

SAN DIEGO — Business leaders in all industries agree innovative ideas are a strong force behind economic growth. There can be disagreement on what the best way to encourage innovation in the workplace however. A study finds the answer may be extremely obvious to some: money. Researchers from the University of California, San Diego say increasing competitive wages can jumpstart scientific and technological industries.

The team highlights the effective nature of “winner-takes-all” pay structures, which get the creative juices flowing and ignites economic grow. Study authors say there’s a spark in creativity when money is on the table. The study examined non-management employees of Thermo Fisher Scientific and other tech companies in the region and created a competition. Utilizing two compensation models, researchers wanted to see which way sparked more fresh ideas. Each person that signed up was randomly placed in one of the two model groups.

One group was labeled “winner-takes-all,” which rewarded $15,000 to the first place winner. The second group was labeled as “top 10.” The same amount of money was available for winning in the second group but was spread out to each top 10 entry. All who entered had the choice to work individually or as a team. The results show that teamwork produced better results than those who chose to work alone. Team entries in the “winner-takes-all” bracket displayed more innovation than groups working in the “top 10” category.

“Participants under the winner-takes-all compensation scheme submitted proposals that were significantly more novel than their counterparts in the other scheme,” study authors say in a university release. “While the two groups did not statistically differ from one another on their overall scores, the risk taking encouraged by the competition with a single prize resulted in innovators pursuing more creative solutions.”

Competitive wages a ‘low-cost way for companies to induce more radical innovation’

Six industry leaders and computer sciences professors helped judge this competition, scaling entries from one to five. Judges gave a score of one for solutions that have already been on the market and five for more innovative submissions.

The study’s authors add that these findings are major, “because the 21st century economy is one that prizes novelty. It is also an essential ingredient in the development of technological breakthroughs that transform markets with major impacts to consumers and producers.”

“Those competing for one big prize had to push further in making their results creative; however what is most surprising is that this is a relatively low-cost way for companies to induce more radical innovation,” study author Elizabeth Lyons says.

Statistically speaking, researchers find the difference between the “winner-takes-all” and “top 10” categories is very small. Measuring risk versus reward however, reveals the key difference. During the process of reaching their goal, the “winner-takes-all” group was less risk-averse than those sharing a prize.

Women also performed better than average in both categories. The results note that innovation is not structured solely on incentives, but there’s strong empowerment behind it.

“It is important to recognize that incentives alone are insufficient to spark creativity,” study authors conclude. “More work is required to understand the raw ingredients that shape the relationship between creativity and compensation.”

The study was published in the National Bureau of Economic Research Paper.