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Incentive Pay or Windfalls: Remuneration for employee inventions in Japan

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  • ONISHI Koichiro
  • OWAN Hideo

Abstract

This paper summarizes historical developments in Japan's legal treatment of firms' invention remuneration policies and examines the impact of such policies on R&D performance using original data from surveys including the 2005 IIP Invention Remuneration Survey, the 2007 RIETI Inventor Survey and its 2008 follow-up survey. Tracking the linkages between remuneration policy and R&D performance is complicated by Japanese firms' reluctance to reveal the details of their policies to their employees before the 2004 amendment of Japan's Patent Law. By matching the data from firm-level and individual-level surveys, we find that nearly 40% of inventors believed that their firms did not have revenue-based remuneration although their employers reported they actually had instituted such policies. We estimate the effect of revenue-based remuneration policies on R&D performance using two policy variables for the incidence of contingent remuneration policies, one of which depends on the firms' responses and the other on individual employees' survey responses.

Suggested Citation

  • ONISHI Koichiro & OWAN Hideo, 2010. "Incentive Pay or Windfalls: Remuneration for employee inventions in Japan," Discussion papers 10049, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:10049
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    1. OWAN Hideo & NAGAOKA Sadao, 2011. "Intrinsic and Extrinsic Motivations of Inventors," Discussion papers 11022, Research Institute of Economy, Trade and Industry (RIETI).
    2. Honig-Haftel, Sandra & Martin, Linda R, 1993. "The Effectiveness of Reward Systems on Innovative Output: An Empirical Analysis," Small Business Economics, Springer, vol. 5(4), pages 261-269, December.
    3. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
    4. Todd R. Zenger & Sergio G. Lazzarini, 2004. "Compensating for innovation: Do small firms offer high-powered incentives that lure talent and motivate effort?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 25(6-7), pages 329-345.
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