Employees belong to the most critical resources for any organization (Aldrich & Ruef, 2006) and most entrepreneurs and new ventures rapidly face issues of attracting, motivating and retaining employees. It is generally acknowledged that base pay and other financial rewards are not the only driving force behind employee behavior, meaning that other rewards that reside in the employment relationship and the nature of the work are considerable motivators as well (Bloom & Milkovich, 1995; Guest, 1999). Rewards are supposed to affect different kinds of motivation, namely extrinsic and intrinsic motivation. Non-monetary rewards will create a better working climate that is related to higher intrinsic motivation, increased creativity, and therefore higher levels of innovation. Furthermore, new ventures often offer variable incentive compensation in addition to fixed base pay for monetary compensation to their employees. To encourage innovation, it may be necessary for new ventures to induce risk taking (Hayton, 2005). In exchange for accepting higher risk, employees must be given the opportunity to realize higher incomes from variable incentive compensation. This paper investigates the effect of non-monetary rewards and monetary rewards granted to employees on innovation in new ventures.