If your company has stopped innovating, you might need to take a look at how you're treating your employees.

You might think billion-dollar companies like Google and Facebook only offer lavish employee perks and benefits because they have cash to burn, but in fact they are on to something larger. Walter Frick, senior associate editor at Harvard Business Review, writes in HBR about a new research paper that finds companies that treat workers better are more innovative.

Researchers from Monash University and LaTrobe University in Australia found that the companies with the highest worker treatment scores produced more patents than companies with lower treatment scores. The best-treated employees produced patents that were cited more and were more relevant to the company's industry.

The findings aren't the first of their kind, Frick points out. Last year, the Journal of Financial Economics published a paper that found when companies offer stock options to non-executive employees, the employees are more innovative.

It may seem obvious why employees innovate more when they are treated decently. But, Frick writes, economic theory suggests it's a little more complicated than just keeping employees well-fed and happy. The real reason innovation increases with good treatment and benefits like stock options has to do with long-term incentives.

"If workers feel pressure to deliver results in the short-term, either for fear of being fired or in order to be promoted, they may be less likely to pursue riskier innovations," Frick writes. "On the other hand, if failure in the short-term is acceptable or even rewarded, and if workers have a stake in the company's long-term performance, they should be more likely to innovate."

The trick, Frick writes, is to connect employee incentives to your company's fate. You want your employees to think long-term. If they feel like what they do matters and the perks and benefits are good enough for them to carve out a proper living, they will stay and help the company innovate.

Published on: Nov 3, 2015