Rewarding Product Development Success

Among select US. companies, best practices modify standard pay programs to reinforce a company-wide commitment to success. J. Gregory Kunkel OVERVIEW: Although much is known about successful management practices that accelerate the product development effort and lead to product success, relatively little research has been conducted to explore those compensation and reward practices that best support the product development effort. This article summarizes the "best practices" of selected major US. companies regarding the design of their compensation and reward systems in support of the product development effort. The research indicates that although traditional compensation and reward systems may be used to support the product development effort, these systems must be modified to ensure management commitment to the process, a culture of innovation and risk-taking, teamwork, and discipline in meeting product development milestones. Recognition and reward systems must foster dedication to product development and a culture of innovation. The key drivers of timely product introduction and success have been well-documented in a variety of articles. Key factors include: the use of true cross-functional teams, up-front research, clearly defined product definition and a strong customer orientation, technical excellence, attractive target markets, and a well-executed product launch (1). Despite the use of these management practices, successful product development may be hindered over the long run if an organization's compensation and reward systems do not support, or in the worst case run contrary to, these practices. A few excellent articles document the type of compensation and reward systems currently in use (2,3). It appears that large companies place an emphasis on intrinsic recognition programs, while smaller companies place more emphasis on monetary rewards. To further our understanding of the compensation and reward practices that best support the product development effort, I conducted extensive interviews with R&D and human resource executives at ten major U.S. companies. The companies selected were chosen from Fortune magazine's 1996 "most-admired" list and are considered to be leaders in their industries, which include chemicals, pharmaceuticals, computers and office equipment, and scientific and electronic equipment. Companies were asked to identify those compensation and reward practices that best supported the product development effort. If a certain type of reward system or practice was mentioned several times, it was deemed to be one of the "best" or most effective practices used by the companies interviewed. In a few cases, a compensation or reward system may have been used by only one company. Such a system was still considered to be a "best" practice if, based upon my experience, it was likely to have a major impact upon the product development effort. Interviews focused on company culture, the organization of the product development effort and compensation and reward systems. For obvious reasons, any compensation and reward system must be supportive of how the product development efforts are organized and must be consistent with the desired company culture. Culture and Product Success According to those interviewed, a company's culture and shared value system are critical to product development success. Top management and employees at all levels and across all functions must truly believe in the importance of new products to the company's survival and success. This means that top management must devote the necessary resources (in terms of money and people) to the product development effort, and that the recognition and reward systems must foster dedication to product development and a culture of innovation. As an example of "true" dedication to the product development effort, the interviewee at one company mentioned that key scientists lived at the corporate R&D center (and did not go home! …