Two staged incentive contract based on efficiency and innovation: A case study of critical chain project management

Abstract

Purpose: The purpose of this paper is to define the relative optimal incentive contract to encourage employees to improve work efficiency effectively while implementing innovative behavior actively. Design/methodology/approach: This paper analyzes a two staged incentive contract coordinated with efficiency and innovation in Critical Chain Project Management using learning real options, based on principle-agent theory. The situational experiment is used to detect the validity check of this basic model. Finding: The two staged incentive scheme is more suitable for employees to create and implement learning real options, which will throw themselves into innovation process efficiently in the situation of Critical Chain Project Management. We prove that the combination of tolerance for early failure and reward for long-term success is effective in motivating innovation. Research limitations/implications: We do not include the individual differences among the perceptions of uncertainty, which might affect the consistency of external validity. The basic model and the experiment design need to improve. Practical Implications: The project managers should pay closer attention to early innovation behaviors and monitor feedbacks of competition time according to the implementation of Critical Chain Project Management. Originality/value: This study analysis the incentive schemes for innovation in Critical Chain Project Management using the principal-agent theory, and this method will shorten the completion time of a project as well as push the creative ideas among team members.