Friday, April 2, 2010

Rewarding innovation: What doesn’t work – story of United Airlines

How do you reward innovators? This is a question every organization interested in fostering a culture of innovation needs to answer. In this article we explore a related question – Is there any policy of rewarding innovation that is known not to work? Authors Robinson and Schroeder present one such policies in a chapter titled “Reward systems that work” in their book Ideas are free. The book is the result of a study of over 150 idea systems across 13 sectors in 17 countries. According to Robinson and Schroeder, most schemes that reward individual ideas according to each one’s worth backfire. Let’s look at one such story that illustrates this principle.

In March 1971, James Lisec and Krishan Jagga, two employees of United Airlines submitted an idea that increased the company’s profits by at least $3 million per year. Lisec was an HR manager and Jagga was an industrial engineer at the San Francisco maintenance base. Their idea was to offer discounted fares to employees of the major airlines and their families – 50 percept off reserved seats, 80 percent off standby seats – in order to fill the seats that would otherwise fly empty. Other major airlines, such as TWA and PanAm did this and United already discounted fares for its own people as an employee benefit.

For six months Lisec and Jagga battled various middle managers who blocked their idea. But everything changed on October 10, 1971, when John Stilwell, a union committee member, approached Edward Carlson, then President to the International Association for Machinists. Stilwell told Carlson about the difficulty Lisec and Jagga are having in getting their idea accepted. Carlson forwarded a copy of Lisec and Jagga’s proposal to a senior vice president in the rate department. In November 1971, this department confirmed the correctness of Lisec and Jagga’s analysis. Eleven weeks later, on January 3, 1972, corporate policy committee approved a plan that differed only in minor details from Lisec and Jagga’s proposal. Later they learned that instead of getting a 10 percent reward, they were given a $1,000 “Impetus award” to be split between them. The money was to recognize their efforts in championing the idea.

Lisec and Jagga filed a grievance. When it was turned down in 1973, they filed a lawsuit. In summer of 1975 jury awarded them $1.8 million in damages, later reduced to $400,000 by the judge. United appealed and in 1979 the appeals court reversed the decision, ruling that the rewards were clearly intended for those who suggested the idea first, not for those who championed it. The two men petitioned for a rehearing, which was denied. Instead, they were fired. The reason was the negative publicity generated by a Wall Street Journal article. The two men sued for wrongful discharge. When the case came to trial six years later in 1985, a jury awarded them $2.9 million in damages, half a million for breach of contract and $2.5 million in punitive damages. United appealed and it went back and forth until November 1992 when United’s last appeal to the California Supreme Court was denied. Finally, after almost twenty years of expensive and exhaustive litigation it was over. And no one had really won.

How do you attribute the value an idea creates to various people that take part in the journey from concept to cash? There are many people: Idea author, mentor, champions, selectors, implementers, testers and many others who have helped on the way. Most of the time there is no easy way.

1 comment:

  1. It is obvious in hind-sight that there was something drastically wrong at United Airlines.

    It would be worthwhile to analyse, why was there a resistance to ideas getting implemented in the first place rather than how the idea originators got rewarded.