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Monday, December 11, 2006

Reward failure

... if the goal is spurring innovation, and for Manso that is the paramount goal, innovators must be shielded from punishment for failure. "Incentive schemes that motivate exploration are fundamentally different from standard pay-for-performance incentive schemes used to motivate effort," Manso wrote in an abstract this fall. "The optimal compensation scheme that motivates exploration exhibits substantial tolerance (or even reward) for early failure."

By contrast, the pay-for-performance model ubiquitous in business today compels employees to exploit existing approaches and technologies instead of trying something new, Manso suggested. And he warned that proposed US laws that would empower creditors in bankruptcy proceedings could put a damper on the nation's serial entrepreneurs.

Manso refers to Gustave Manso, a Brazilian-born finance professor who joined the faculty at MIT's Sloan School of Management this fall according to this article in the Sunday Boston Globe by Robert Weisman.

I believe one of the key environmental settings that a business leader needs to create is this arena where failure is allowed. If it is not easy to fail, success and innovation will be slow.

What do you think?
How do you reward failure?
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