Prior research has produced conflicting views on whether firms can improve the
performance of their R&D teams with the use of incentives. In addressing these controversial
views, we point at the importance of knowledge exchange and distal search as two key behaviors
within the innovation process that complement each other in driving innovation performance. We
argue that these two key behaviors are fundamentally different because they refer to different work
and knowledge domains and we derive separate roles of explicit and implicit promotion-based
incentives in promoting knowledge exchange and distal search behavior, respectively. Thus, our
theoretical model establishes and explains explicit and implicit promotion-based incentives as
control choices that are interdependent because of their distinct effects on two complementary
behaviors. We test our hypotheses using survey and patent data from 282 firms in the chemical and
pharmaceutical industry and find evidence that is consistent with our predictions.