Back in 1976, two economists, Michael Jensen and William Meckling, published a paper looking at why managers don’t always behave in a way that is in the best interest of shareholders. The root cause, as Jensen and Meckling saw it, is that people work in accordance with how you pay them.
Many managers have come to believe this, too: you just need to pay people to do what you want them to do, when you want them to do it.
The problem with thinking about incentives in this way is that there are powerful anomalies that it cannot explain. For example: some of the hardest working people on the planet are employed in charitable organizations. They work in the most difficult conditions imaginable; they earn a fraction of what they would if they were in the private sector. Yet it’s rare to hear of managers of nonprofits complaining about getting their staff motivated. The same goes for the military.
So how do we explain what is motivating them--if it’s not money?