Incentive Pay or Windfalls: Remuneration for employee inventions in Japan

Abstract

This paper summarizes historical developments in Japan's legal treatment of firms' invention remuneration policies and examines the impact of such policies on R&D performance using original data from surveys including the 2005 IIP Invention Remuneration Survey, the 2007 RIETI Inventor Survey and its 2008 follow-up survey. Tracking the linkages between remuneration policy and R&D performance is complicated by Japanese firms' reluctance to reveal the details of their policies to their employees before the 2004 amendment of Japan's Patent Law. By matching the data from firm-level and individual-level surveys, we find that nearly 40% of inventors believed that their firms did not have revenue-based remuneration although their employers reported they actually had instituted such policies. We estimate the effect of revenue-based remuneration policies on R&D performance using two policy variables for the incidence of contingent remuneration policies, one of which depends on the firms' responses and the other on individual employees' survey responses.