Meritocracy and Innovation: Is There a Link? Empirical Evidence from Firms in Brazil

Henrique M. Barros and Sergio G. Lazzarini

No 72, Business and Economics Working Papers from Unidade de Negocios e Economia, Insper

Abstract: We investigate whether meritocracy affects firms’ innovation performance. More specifically, we empirically evaluate the prediction that the use of higher performance-based pay and promotion should lead to a higher percentage of firm revenues coming from innovations in products and services. To test this prediction, we employ a survey of 370 Brazilian firms in a broad range of industries. Our two-stage regressions, devised to account for potential endogeneity, indicate that while the use of performance-based promotion strongly affects innovation, the effect of contingent pay is marginal. Apparently, the long-term feature of promotion-based meritocracy is more effective to tap into individuals’ creativity than is short-term pay. Our study sheds light on the debate about how organizational practices can affect the innovative potential of firms.

Pages: 32 pages
Date: 2009
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