What Leaders Get Wrong About Employee Motivation

Since managers started managing, they have questioned how to motivate employees to be productive and do good work — and, for most, their answers are still shaped by assumptions formed long ago. While modern leaders understand that the best performance comes from intrinsically motivated, highly engaged employees, many still use traditional management practices that assume people won’t work hard unless they are incentivized and monitored to make sure they deliver. Underlying that inconsistency are two theories with very different assumptions about how humans are motivated, each with significant implications for management, organizational structure, culture, and outcomes.

In our recent paper in the Journal of Management Studies, we compare agency theory and self-determination theory — both highly influential in research, business education, and practice. We suggest that agency theory has dominated management practice for decades — despite evidence about its limitations — leading to suboptimal ways of managing workers.1

Agency theory is built on the assumption that humans are self-interested, rational beings who need to be controlled and motivated through external mechanisms such as rules, monitoring, and rewards. A fundamental assumption is that employee goals and organizational goals are in opposition — organizational owners (for example, shareholders) want to pay the minimum required to get the work done in order to maximize capital gains, whereas employees want to put in minimal effort for maximum pay. This means that employees need to be persuaded to contribute to organizational goals via incentives and must be monitored and regulated to ensure they work effectively.

How is this suboptimal? Monitoring, regulating, and incentivizing people to work harder is expensive and never foolproof. It requires constant attention to close loopholes that humans find when their autonomy is limited by command-and-control systems. It’s like fighting a losing battle. Attempts to monitor and incentivize work can also lead to unintended negative consequences, including employees gaming the system, ignoring moral and ethical issues, and focusing on short-term gains over long-term sustainability. In recent decades scandals such as those at Wells Fargo, WorldCom, and GlaxoSmithKline have been linked to the use — and failure — of these mechanisms of control.

Self-determination theory, on the other hand, assumes that individuals are naturally intrinsically motivated and thrive when their basic psychological needs for autonomy, competence, and relatedness are satisfied.