How do you motivate people…the answer isn’t money.

We know how it’s supposed to work: If you want people to perform better, reward them with bonuses, merit pay, and commissions while threatening them with negative consequences if they fail. Businesses rely on this system of carrots and sticks to work. But it doesn’t.

According to Daniel Pink, author of Drive: The Surprising Truth About What Motivates Us, there is a fundamental mismatch between what science knows and what business does. His work examines five decades of behavioral science that shows incentives don’t work in the way we think they do. And sometimes, they do exactly the opposite.

Higher incentives cause worse performance?
A review of 51 studies of pay-for-performance showed the same conclusion: financial incentives can result in a negative impact on overall performance. “If-then” rewards work well for simple tasks with simple goals. But, as soon as the task calls for higher cognitive skills, a larger reward often leads to poorer performance.

Even though it seems counter-intuitive, this work has been replicated in poor and wealthy countries and by the top economists in the world from MIT and the London School of Economics. But, the findings don’t seem to have an impact on how many do business. Pink says, This is one of the most robust findings in social science and also one of the most ignored.

This doesn’t suggest that we shirk basic wages. If you don’t pay people enough, they won’t be thinking about the work. But what really motivates people to show up, work hard, and excel are three things: autonomy, mastery, and purpose.

What actually motivates high performance?
The most innovative companies know that autonomy boosts creativity, productivity, and work satisfaction. At Atlassian and Google, for example, employees enjoy bouts of completely unstructured time to work on anything they want. These periods of autonomy have produced many of the most successful products, including Gmail and Google news. Pink explains, Management is great if you want compliance, but if you want engagement, self direction is better.

Based on a multi-year study featured in Harvard Business Review, the biggest motivator for employees was progress. People are motivated when they excel. That’s why musicians (even some who never get paid) will sit with their instruments for hours. Succeeding in a challenging endeavor is intrinsically motivating.

Some of the most successful companies in the world have also discovered the power of Purpose. Employees are motivated when their work is in service to something much larger than themselves. That’s why Google’s cult-like ethos has been so effective. That’s why Steve Jobs at Apple said, “I want to put a ding in the universe.” And why the founder of Skype said, “Our goal is to be disruptive in the cause of making the world a better place.” Being Latino itself is another example. Many of us volunteer our time for no pay because we love the opportunity to contribute to our community.

Finally, consider this: Microsoft Encarta failed and Wikipedia was a success. The first one was managed and paid their employees; the latter was self-directed and created by volunteers.