Motivating Innovation
Name
Manso_Motivating Innovation.pdf
Size
383.26 KB
Format
Adobe PDF
Checksum (MD5)
a338b0060968edfe5ba0be6771e0ac3b
Author(s)
Manso, Gustavo
Date Issued
October 2011
Journal
Journal of Finance
Publisher
American Finance Association
Citation
Manso, Gustavo. "Motivating Innovation." The Journal of Finance, October 2011, Volume 66, Issue 5, Pages: 1823–1860.
Version
Author's final manuscript
Abstract
Motivating innovation is an important concern in many incentive problems. For example, shareholders of large corporations often need to motivate managers to pursue more innovative business strategies. This paper shows that the optimal incentive scheme that motivates innovation exhibits substantial tolerance (or even reward) for early failure and reward for long-term success. Moreover, commitment to a long-term compensation plan, job security, and timely feedback on performance are also essential ingredients to motivate innovation. In the context of managerial compensation, the optimal incentive scheme that motivates innovation can be implemented via a combination of stock options with long vesting periods, option repricing, golden parachutes, and managerial entrenchment.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike 3.0
Persistent DSpace Link
DOI of Published Version
http://dx.doi.org/10.1111/j.1540-6261.2011.01688.x
https://doi.org/10.1111/j.1540-6261.2011.01688.x
