Incentives are powerful, but not all powerful incentives are for money. If you want to keep meetings short, make everyone stand until the meeting is over. All of a sudden the cost of talking is higher so people have an incentive to talk less.

419

In addition to money, other powerful rewards include the feeling of identification and belonging that comes from being part of a team, the joy that comes from a job well done, and the status that comes from success on one’s own terms. Intrinsic motivation is when you want to do something simply for feelings of enjoyment and pride. Ideally, firms would like their employees to be motivated by intrinsic rewards like pride in a job well done, as well as extrinsic rewards like money.

A good manager will get workers to enjoy doing what the manager wants. One way of doing this is to encourage workers to identify with the corporation and its goals in the same way that sports fans identify with their team. Many workers, for example, are given shares of stock in the company they work in. Currently, about 20 million American employees own a part of their employers.12 Since most workers don’t have much control over the value of the entire company, this doesn’t make sense as a monetary incentive. But workers are more likely to identify with their company if they are also part owners of their company. Workers who identify with their company see corporate success as their success. Bostonians celebrated when the Red Sox won the World Series even though the fans didn’t receive any monetary rewards. In a company with strong worker identification, high profits are a cause for celebration even if the workers don’t receive raises. Workers who identify with their company are more likely to see themselves in the same boat as other workers and to think and act more like a team or sometimes even like a family. This is also why many companies run staff retreats or invest in a softball team.

Successful businesses take great care to create the right corporate culture. Corporate culture is the shared collection of values and norms that govern how people interact in an organization or firm. Sometimes it is said that corporate culture is “how things get done around here.”

The American military is one of the most successful creators of a powerful “corporate culture.” In the military, a team member may sacrifice his or her life for the sake of the team. Business corporations can rarely rely on this intensity of identification, but a strong corporate culture can help align incentives. Recall that one of the big problems with monetary incentives is that the firm can’t always measure what it wants and a firm that can’t measure quality, for example, may be worried about creating strong incentives for quantity. But a firm with workers who value high quality for its own sake can have the best of both worlds—high quality and high quantity. Corporate culture helps firms incentivize what is difficult to measure.

The importance of morale and good relations extends beyond the business corporation. You can see these same principles at work in your everyday life.

Intrinsic and extrinsic motivation can work together but not always. When intrinsic motivation is strong, people are sometimes insulted by offers of money. If you ask a friend to give you a ride to the airport, the friend would probably say yes (well, some friends … maybe not all friends). Offer your friend $20 for a ride and all of a sudden the friend feels like a taxi driver, not a friend. The friend who might have done it for free will turn down the job for $20. In one advice column, a woman complained that her husband promised to “pay her by the pound” to lose weight (the advice column did not say whether the husband was an economist). This marriage probably was not a happy one, and we should not expect this proposed transaction to succeed.

420

Similarly, it is not always possible to pay a son or a daughter to do the dirty dishes. Nagging doesn’t always work well either but paying money can be worse. When the parents pay money, the daughter feels less familial obligation. Once she says to herself, “Doing the dishes is a job for money,” the daughter is no more obligated to do her parent’s dishes than she is to get a job at a restaurant to do other people’s dishes.

In these cases, payment causes external motivation to replace internal motivation. Yet for some tasks, internal motivation is what gets the job done, and in these cases payment can be counterproductive.

Note that payment from a restaurant will get the same daughter to show up for work on time. Having her own job—which is a signal of adulthood and independence—is “cool” and makes the daughter feel like a grown-up. Money from parents, which feels like an allowance for tots or like a means of parental control, will not boost the daughter’s internal motivation to do the dishes.

The lesson is this: monetary rewards are most effective when they are supported by intrinsic motivation and measures of social status. Good entrepreneurs understand these connections, and they design their workplaces so that money, intrinsic motivation, and status incentives work together. Money can’t buy you love, however, and sometimes love is the incentive that makes family and personal relationships work well. Money can’t buy you duty or honor either, so even within firms and other organizations such as the military, monetary incentives must be used with care. Understanding when extrinsic and intrinsic rewards complement one another and when they are at odds is today more of an art than a science. Questions like these are on the cutting edge of social psychology and behavioral economics.