Drawing on recent research on incentives in organizational
economics and on the evolution of cognitive
frames in the organizational literature, we build a framework
for the analysis of incentives that highlights the
ways in which incentives and cognition, while being
analytically distinct concepts, are phenomenologically
deeply intertwined. We suggest that incentives and cognition
coevolve so that organizational competencies or
routines are as much about building knowledge of “what
should be rewarded” as they are about “what should
be done.” We argue that this recognition has important
implications for our understanding of how the interaction
of cognition and incentives constrains and enables the
evolution of organizational competencies. It also opens
up important new areas for further research.