I've been working on this for a few years

and I find the topic still amazingly engaging and interesting,

so I want to tell you about that.

The science is really surprising. It's a little bit freaky!

We are not as endlessly manipulable

and as predictable as you would think.

There's a whole set of unbelievably interesting studies.

I want to give you two that call into question this idea

that if you reward something, you get more of the behavior you want

and if you punish something you get less of it.

Let's go from London to the mean streets of Cambridge, Massachusetts,

in the northeast of the United States,

and talk about a study at MIT -

Massachusetts Institute of Technology.

They took a whole group of students and gave them a set of challenges.

Things like...

..They gave them these challenges and, to incentivise performance,

they gave them three levels of reward.

If you did pretty well, you got a small monetary reward.

If you did medium well, you got a medium monetary reward.

If you were one of the top performers,

you got a large cash prize.

We've seen this movie before.

This is a typical motivation scheme within organizations.

We reward the very top performers. We ignore the low performers.

Folks in the middle, OK, you get a little bit.

So what happens? They do the test. They have these incentives.

Here's what they found out.

As long as the task involved only mechanical skill,

bonuses worked as they would be expected.

The higher the pay, the better the performance. That makes sense.

But here's what happened.

Once the task called for even rudimentary cognitive skill,

a larger reward led to poorer performance.

This is strange. How can that possibly be?

What's interesting is that these folks who did this are economists,

two at MIT, one at University of Chicago, one at Carnegie Mellon,

the top tier of the economics profession.

They're reaching this conclusion that seems contrary

to what a lot of us learned in economics -

the higher the reward, the better the performance.

They're saying that once you get above rudimentary cognitive skill,

it's the other way around.

The idea that these rewards don't work that way

seems vaguely left-wing and socialist, doesn't it?

It's a weird socialist conspiracy.

For those of you who have those conspiracy theories,

I want to point out the notoriously left-wing socialist group

that financed the research - the Federal Reserve Bank.

This is the mainstream of the mainstream coming to a conclusion

that seems to defy the laws of behavioral physics.

This is strange, so what do they do?

They say, "This is freaky. Let's test it somewhere else.

"Maybe that $50, $60 prize

"isn't sufficiently motivating for an MIT student!

"Let's go to a place where $50 is more significant, relatively.

"We're going to go to Madurai, rural India,

"where $50, $60 is actually a significant sum of money."

They replicated the experiment in India, roughly as follows.

Small rewards - the equivalent of two weeks' salary.

I mean, sorry, low performance - two weeks' salary.

Medium performance - a month's salary.

High performance - two months' salary.

Those are real good incentives. You'll get a different result here.

What happened was that the people offered the medium reward

did no better than the people offered the small reward.

This time around, the people offered the top reward did worst of all.

Higher incentives led to worse performance.

What's interesting is that it isn't that anomalous.

This has been replicated over and over again by psychologists,

by sociologists and by economists - over and over and over again.

For simple, straightforward tasks,

"if you do this, then you get that", they're great!

For tasks that are algorithmic,

a set of rules you have to follow and get a right answer,

"if then" rewards, carrot and stick, outstanding!

But when a task gets more complicated,

when it requires conceptual, creative thinking,

those kinds of motivators demonstrably don't work.

Fact - money is a motivator at work, but in a slightly strange way.

If you don't pay people enough, they won't be motivated.

There's another paradox here.

The best use of money as a motivator

is to pay people enough to take the issue of money off the table,

so they're not thinking about money, they're thinking about the work.

Once you do that, there are three factors that the science shows

lead to better performance, not to mention personal satisfaction -

autonomy, mastery and purpose.

Autonomy is our desire to be self-directed, direct our own lives.

In many ways, traditional notions of management run foul of that.

Management is great if you want compliance.

If you want engagement, which is what we want in the workforce today,

as people are doing more sophisticated things,

self-direction is better.

Let me give you some examples

of almost radical forms of self-direction in the workplace

that lead to good results.

Let's start with Atlassian, an Australian software company.

They do something really cool.

Once a quarter on a Thursday, they say to their developers,

"For the next 24 hours, you can work on anything you want,

"the way you want, with whomever you want.

"All we ask is that you show the results to the company

"in this fun meeting - not a star chamber session,

"but with beer and cake and fun and things like that."

It turns out that that one day of pure, undiluted autonomy

has led to a whole array of fixes for existing software,

a whole array of ideas for new products

that otherwise would never emerge - one day.

This is not the sort of thing that I would have done

before I knew this research.

I would have said, "You want people to be innovative?

"Give them a frickin' innovation bonus.

"If you do something cool, I'll give you $2,500."

They're saying, "You probably want to do something interesting.

"Let me get out of your way."

One day of autonomy produces things that had never emerged.

Let's talk about mastery - our urge to get better at stuff.

We like to get better at stuff.

This is why people play musical instruments on the weekend.

These people are acting in ways that seem irrational economically.

They play musical instruments? Why?

It's not going to get them a mate or make them any money.

Cos it's fun. Cos you get better at it and that's satisfying.

I imagine that if I went to my first economics professor,

a woman named Mary Alice Shulman,

and I went to her in 1983 and said,

"Professor Shulman, can I talk to you after class?

"I got this idea for a business model and I want to run it past you.

"Here's how it would work.

"You get a bunch of people around the world who do highly skilled work

"but they're willing to do it for free

"and volunteer their time - 20, sometimes 30 hours a week."

She's looking somewhat skeptically there.

"But I'm not done!

"Then what they create, they give it away rather than sell it.

"It's gonna be huge!" (LAUGHTER)

She would have thought I was insane.

It seems to fly in the face of so many things, but you have Linux

powering one out of four corporate servers in Fortune 500 companies,

Apache powering more than the majority of web servers, Wikipedia.

What's going on? Why are people doing this?

Many are technically sophisticated, highly skilled people who have jobs.

OK? They have jobs! They're working at jobs for pay,

doing sophisticated technological work.

And yet, during their limited discretionary time,

they do equally, if not more, technically sophisticated work,

not for their employer, but for someone else for free.

That's a strange economic behavior. Economists have looked into it.

"Why are you doing this?" It's overwhelmingly clear -

challenge and mastery, along with making a contribution, that's it.

What you see more and more is the rise of the "purpose motive".

More and more organizations want some kind of transcendent purpose.

Partly because it makes coming to work better,

partly because that's the way to get better talent.

What we're seeing now

is when the profit motive becomes unmoored from the purpose motive,

bad things happen.

Ethically sometimes, but also bad things, like "not good stuff"!

Like crappy products.

Like lame services.

Like uninspiring places to work.

When the profit motive is paramount

or when it becomes completely unhitched from the purpose motive,

people don't do great things.

More and more organizations are realizing this,

disturbing the categories between what's profit and what's purpose.

I think that actually heralds something interesting.

The companies that are flourishing - profit, not-for-profit

or somewhere in between - are animated by this purpose motive.

Let me give you some examples.

The founder of Skype says, "Our goal is to be disruptive,

"but in the cause of making the world a better place."

Pretty good purpose. Here's Steve Jobs.

"I want to put a ding in the universe."

That's the kind of thing that might get you up, racing to go to work.

I think we are purpose maximizers, not only profit maximizers.

I think the science shows that we care about mastery very deeply

and that we want to be self-directed.

I think that the big take-away here

is that if we start treating people like people,

not assuming that they're simply horses -

slower, smaller, better smelling horses -

if we get past the ideology of carrot and stick

and look at the science,

we can build organizations and work lives that make us better off.

They also have the promise to make our world just a little bit better.