Fostering strategic renewal: monetary incentives, merit-based promotions, and engagement in autonomous strategic action

Autonomous strategic actions (ASA) of an organization’s middle and lower-level members can be a powerful source of strategic renewal. Yet, we still know little about whether monetary incentives and promotion policies are effective means of fostering ASA. I therefore discuss and experimentally test the effects of such incentives on organizational members’ engagement in ASA. The evidence suggests that switching from seniority-based promotions to merit-based promotion practices enhances ASA. At the same time, it seems to lead to what some scholars have termed a “crowding-out” of autonomous motivation by extrinsic incentives. That is, for individuals who are autonomously motivated to engage in ASA, this motivation leads to higher ASA in a setting of seniority-based promotions than under merit-based promotions. Since autonomous motivation has been proposed to be particularly valuable for tasks requiring creativity and innovation, caution in the use of merit-based promotions thus seems advisable if individuals are autonomously motivated to engage in ASA. In contrast, switching from a flat salary system to a pay-for-performance system seems not to affect the role played by autonomous motivation for engagement in ASA; however, the effect of pay-for-performance in general on ASA seems to be marginal. Results thus suggest that when designing incentive schemes, practitioners are well-advised to consider that pay-for-performance and merit-based promotions do not have the same effects, and to take into account whether their middle managers are autonomously or extrinsically motivated to engage in ASA.