The Financial & Non-Financial Theories of Motivation

There are few areas where science refuses to penetrate, and in the realm of motivation, science has recently made important discoveries concerning what drives us. The intuition of finance is that if you pay people more, they'll be more motivated. However, research on motivation and incentives has questioned this truism of Wall Street, leading scientists to a more nuanced view of what actually motivates people.

Finance's Assumption About Incentives

The financial theory of motivation has always been based largely in relatively simple economic assumptions, for example, the economic assumption that "more is better." The assumption, put simply, is that a rational person always prefers more of a good thing than less, and following from this, a larger incentive will create more motivation (and better results) than a small incentive. The American business culture has always tacitly approved of this logic, offering huge bonuses to top executives in an effort to increase their performance.

Recent Research, and the Discrepancy between Creative and Mechanical Tasks

Economists, psychologists and social scientists of all types have recently delved into this tacit assumption of finance, and this has resulted in surprising findings. Across a variety of different experimental setups, financial incentives were shown to increase performance when the task was rudimentary or mechanical and didn't require much creativity to solve, in accordance with financial assumptions. But when the task became more conceptual and the problem more open-ended, requiring creativity and a possibly unique solution, financial incentives actually made performance much worse. This finding has been shown to be remarkably consistent, across different groups of people and different types of problems. Psychology has suggested that increasing financial incentives will narrow the focus of a potential problem-solver, hindering his ability to find an out-of-the-box solution.

What Really Motivates Us

New research has suggested that the best and most potent type of motivation isn't financial motivation through incentives, but is a more intrinsic type of motivation. Career analyst Dan Pink has argued that this type of intrinsic motivation is characterised by autonomy, the desire to set the course for our own lives; mastery, the desire to get better and better at something that matters; and purpose, the desire to feel that what you're doing is part of something larger than yourself. This new science of motivation has taken hold in a several companies, most notably Google, which allows its engineers 20 per cent of their work time to work on whatever projects they desire, in whatever way they want. Google's model has led to several successful products like Gmail and Google News, showing that a new model of motivation can work in a business environment.

A New Model for Business

This new approach to management and motivation of employees has largely not caught on, and to some extent there is a contradiction between what is known scientifically by academia and what the American business culture believes. In the wake of the economic collapse of 2008-09, it seems clear that extreme, performance-based incentives of the past did not achieve higher performance or encourage responsibility and longevity. As a new wave of companies form and move forward, it remains to be seen whether managers will reform and use new techniques of intrinsic motivation, or stay set in their ways.

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About the Author

Collin Fitzsimmons has been writing professionally since 2007, specializing in finance and the stock market. He serves as a financial analyst at AMF Bowling Centers, Inc. Fitzsimmons earned a bachelor's degree in economics from the University of Virginia.