April 16, 2019

How to properly reward employees for an idea or MVP

Most companies today use business incubators and accelerators to foster internal entrepreneurship. Ukrainian IT business is looking for ways to become product-based, and the ideas and personal involvement of employees make for the most effective instrument of this transformation. Plus, this approach binds employees to their respective company, which results in truly personal projects.

How to legally buy ideas from employees or reward them, and then how to sell a product developed on the basis of these ideas? An IT company turned to us with these questions.

Incentives and bonuses

The simplest option is to give a one-time bonus to an employee whose idea is selected by the employer for further testing and implementation. A bonus system is easy to implement through company regulations or an increase in contractual payments for contractors. However, if we want to make the model mutually beneficial and dependent on the results - that is, on the sales of the product, the bonus can be substituted or supplemented with a percentage of sales. If the product is successful, the employee will receive a significant reward, if not - they get nothing. This way the employer shares business risks with the employee and provides an incentive not only for the idea generating process but also for an outcome that benefits the company.

Copyright

Copyright does not protect ideas, and ideas on their own are rarely worth anything. However, this does not mean that it’s impossible to use intellectual property rights to achieve the results we need.

A team of ILF lawyers under the leadership of Arsen Buchkovsky proposed 2 solutions:

  1. The company buys from the employee not the idea itself, but the MVP - a short minimum functionality version, on the basis of which the entire project will be built. That is, the company pays royalties to the employee for developing a new product. The MVP will form the basis of the new product, and, under the terms of the contract between the employee and the company, the former will receive a percentage of the profits from the product’s sales.
  2. The employee comes up with an idea but cannot manage an MVP. For instance, if it’s about new technology, work algorithm, technical solution or design, you can register a utility model patent under the employee’s name and then have them sell the patent to the company for royalties that will be paid from future sales.

Our client intends to use both options to encourage internal entrepreneurship among their employees and protect future products.