From VIP (very interesting person) Randi comes this story:
I was head of HR for a 50-person entrepreneurial startup. The CEO-Joe--was a proven big company corporate manager, and a strong believer in traditional management theories like pay for performance, measurement, and financial rewards. I think they're tricky, and over-rated.
Once we had a major online product launch, culminating on a Monday. Several folks in the IT group pulled a 48-hour all-nighter to get it all done. We pulled it off, and went live Monday morning without a glitch.
As we all celebrated, Joe decided to introduce his newest motivational tool-spot cash rewards. He went around, quietly handing out fifty-dollar bills to selected people, saying how much he appreciated their contribution to this team effort.
Some were delighted. Then he gave one to a maintenance crewmember as he came from cleaning the men's room. The guy's face quickly reflected two emotions in rapid succession: WTF? And then 'lemme get outta here before this sucker figures out who I am.'
Joe was a little discomfited. He then went up to one of the key IT folks who had spent the entire weekend in the office, approaching him with a big smile and handing him the $50 with a pat on the back.
This time the look was different: more like incredulity, as in, "I do 48 hours straight no-pay overtime and you figure I'm worth a dollar an hour? Same as the guy doing his cleaning job on his regular shift?"
I said to Joe later, "now do you see what I meant about carrots and sticks?"
Too many managers automatically assume that carrots and sticks are the primary motivators of worker performance. At a macro level, it's even worse; TV pundits and economists all overtly say things like "people are motivated by economic opportunity," using that to justify the dampening impacts of raising marginal tax rates, for example.
It's just not particularly true. Study after study suggest not only that extrinsic rewards are not only less powerful than intrinsic rewards, but even that the usual "soft" rewards (praise, recognition) are not tops in the motivation department.
An interesting recent study based on 12,000 diary entries suggests that the largest motivator of people is almost absurdly obvious: the sense of making progress in their work. A feeling of progress trumps all the others.