Prior research has produced conflicting views on whether incentives help or hinder innovation. This paper takes a more fine-grained view arguing that the innovation process consists of various interrelated behaviors where the primary role of incentives is not to motivate employees to work harder but rather to support behaviors that are considered effective for generating innovation outcomes. We point at two key innovation behaviors, knowledge exchange and distal search, and argue that they complement each other in driving innovation. Because of this complementarity, the question arises of how to design incentives that simultaneously motivate both behaviors effectively. We propose that adequately designed explicit incentives support knowledge exchange, while implicit career incentives focus the individual’s attention on future tasks and, by doing so, effectively support behavior that opens up distant sources of knowledge. Overall, our study provides a new theoretical argument for why explicit and implicit incentives are interdependent choices within innovation processes. We test our hypotheses combining survey data with patent data from 282 firms in the chemical and pharmaceutical industry.

We explore the turnover intentions of creative R&D employees and the role of performance management practices in shaping these considerations. Since the success of a firm's R&D efforts hinges on the innovative ideas of its employees, it is crucial to retain particularly creative individuals. At the same time, however, we argue that this is especially difficult because both the higher outside options of creative employees and their specific individual characteristics make them, on average, more likely to leave their company. Most importantly, we suggest that two widely studied performance management design choices (target difficulty and career tournaments) typically used to motivate effort may influence the loss of creative talent. Using survey data from our unique access to R&D employees of a large manufacturing firm and a complementary experiment among business students, we find evidence that creative employees are, on average, more likely to leave their firm. Consistent with creative employees possessing a stronger learning orientation, we also predict and find that this tendency to leave is mitigated by target difficulty (as difficult targets speak to creative individuals' learning orientation) and exacerbated by the intensity of career tournaments (as they reduce team cohesion and, ultimately, undermine learning opportunities).