African Journal of
Business Management

  • Abbreviation: Afr. J. Bus. Manage.
  • Language: English
  • ISSN: 1993-8233
  • DOI: 10.5897/AJBM
  • Start Year: 2007
  • Published Articles: 4137

Review

Motivating innovation with a structured incentives scheme – Extending the Manso model

Zheng Chengli
  • Zheng Chengli
  • School of Economics, Central China Normal University, Wuhan, China.
  • Google Scholar
Chen Yan
  • Chen Yan
  • School of Mathematics and Statistic, Central China Normal University Wuhan, China.
  • Google Scholar


  •  Published: 07 October 2013

Abstract

The conventional pay-for-performance schemes are designed for inspirit agents to exert effort. Manso structured incentive schemes to motivate innovation in a two-period production process. However, his solution is just dependent on the probability of success of different actions (work methods), and not on the amount of performance of these actions. In combining these two methods, this paper proposes a model and gives the optimal incentive contracts. By providing the suitable incentive contract to the agent, the principal can motivate the agent to be more innovative but to be more exerting effort to obtain more output. In the context of managerial compensation, an optimal innovation-motivating incentive scheme can be implemented via a combination of stock options with long vesting periods, option re-pricing, golden parachutes and managerial entrenchment.

Key words: Motivating innovation, structured incentive, path dependent, exploitation and exploration.