Motivating Innovation
Author(s)
Manso, Gustavo
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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.
Date issued
2011-10Department
Sloan School of ManagementJournal
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
ISSN
0022-1082