From City Journal:
For as long as big business has been around, management has operated under a simple principle: if you want people to do more of something, pay them more. Hence, bankers earn bonuses for posting big gains. Managers earn bonuses for meeting quarterly earnings targets (and get fired when they don’t). It’s worked reasonably well as the economy has trudged along over the past few decades.
But lately, people have begun questioning the efficacy of this approach. “In the first ten years of this century—a period of truly staggering underachievement in business, technology, and social progress—we’ve discovered that this sturdy, old operating system doesn’t work nearly as well” as it could, Daniel Pink writes in his new book, Drive: The Surprising Truth About What Motivates Us. Why? The carrot-and-stick approach was created for an economy of assembly lines and mindless number-crunching. But these days, “for growing numbers of people, work is often creative, interesting, and self-directed rather than unrelentingly routine, boring, and other-directed,” says Pink, a former speechwriter for Al Gore whose previous book, A Whole New Mind, so captivated Oprah Winfrey that she gave copies to the entire 2008 graduating class at Stanford, where she delivered the commencement address.
An accumulating pile of academic research shows that rewards tend to focus the brain more narrowly on the specific task that earns the rewards—thus making it harder to encourage employees to develop creative, innovative solutions.