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walked to the periphery of the group after everyone had arrived, just to figure out who belonged to whom. Out of the corner of my eye, I saw Diana, one of our scientists, and her husband, playing with their two children. Diana had a key position in the lab: she was an analytical chemist. Her job was to help the other scientists use our company’s specialized equipment so that they could know what elements were present in the compounds they created or with which they were working. By definition, waiting until the results came back from the tests Diana ran occasionally frustrated some of the twenty or so scientists on the team—each of whom needed his or her test run as the highest priority. But it frustrated Diana even more. She wanted to help everyone, but as a start-up we couldn’t buy unlimited equipment. So there were a limited number of machines and only ten hours in Diana’s workday. As a result, her days were often filled with turf battles.

      But that’s not what I saw at that moment. Instead, I was impressed by the love Diana and her husband clearly shared with their two children. Seeing her there, I began to gain a perspective of Diana in the full context of her life. She wasn’t just a scientist. She was a mother and a wife, whose mood, whose happiness, and whose sense of self-worth had a huge impact on her family. I began to think about what it must be like in her house in the morning, as she said good-bye to her family on her way to work.

      Then I saw Diana in my mind’s eye as she came home to her family ten hours later, on a day that had gone badly. She felt underappreciated, frustrated, and demeaned; she learned little that was new. In that moment I felt like I saw how her day at work negatively affected the way she interacted in the evening with her husband and their young children.

      This vision in my mind then fast-forwarded to the end of another day. On the one hand, she was so engaged by the experiment she was doing that she wanted to stay at work; but on the other, she was so looking forward to spending time with her husband and children that she clearly wanted to be at home. On that day, I saw her driving home with greater self-esteem—feeling that she had learned a lot, having been recognized in a positive way for achieving valuable things, and played a significant role in the success of some important initiatives for several scientists and for the company. I felt like I could see her go into her home at the end of that day with a replenished reservoir of esteem that profoundly affected her interaction with her husband and those two lovely children. And I also knew how she’d feel going into work the next day—motivated and energized.

      It was a profound lesson.

      Do Incentives Make the World Go Round?

      Six years later, as a new professor, I was standing at the front of a Harvard classroom teaching Technology and Operations Management, a required first-year course for all of our MBA students. In the discussion that day about the case study on a big materials company, a student recommended a way to resolve a conflict with one of their most critical customers. She suggested the company assign a key engineer, Bruce Stevens, to this project—in addition to his other responsibilities. I questioned her: “Asking Bruce to do this makes sense in isolation. But getting Bruce to actually make this his highest priority, on top of an overflowing plate of other responsibilities—isn’t that going to be hard?”

      “Just give him an incentive,” was her reply.

      “Wow—that sure is a simple answer. What kind of incentive do you have in mind?” I asked.

      “Just give him a bonus if he gets it done on time,” she responded.

      “The problem,” I said, “is that he has other responsibilities on other projects as well. If he focuses on this as his top priority, he’s going to fall behind on those other projects. So then what are you going to do—give him another financial incentive to motivate him to work harder on all the other projects?” I pointed to a statement in the case about Bruce. He was clearly a driven man, who routinely worked seventy-hour weeks.

      When the student said that’s exactly what she would do, I pushed her harder. “All the other employees will see that you are giving Bruce a bonus. Aren’t they going to demand that you treat them similarly? And where does this all lead? Do you feel like paying them specifically for every assignment—moving to a piecemeal system?” I pointed out that in the case the typical engineers in this company were working very hard every day without incentives. “They seem to love their work, don’t they?” I asked.

      Another student then added, “I don’t think you can pay Bruce an incentive—it’s against the policy of the company. Pay-for-performance bonuses are typically only given to general managers in business units, not to engineers, because it is at the managerial level where revenues and costs come together. Below that, employees have responsibility only for a piece of the puzzle, so incentives can throw things out of balance.”

      “Oh,” I said. “Let me understand what you’re saying. In this company, a lot of the senior executives used to be engineers. During that period of their lives, they seemed to be motivated by the work itself. They didn’t need incentives—right? So then what happened? When they became executives, did they morph into other beings—types of people that needed financial incentives to work hard? Is that what you are telling me?”

      As the discussion in the class continued that day, I sensed a broadening rift between my world and that of some of my students. In their world, it seemed that incentives made the world go round. And in mine—well, I had worked with Diana and her colleagues.

      How could we see something so fundamental in such different ways?

      A Better Theory of Motivation

      The answer lies in a deep chasm about how the concepts of incentives and motivation relate to each other. There are two broad camps on this question.

      Back in 1976, two economists, Michael Jensen and William Meckling, published a paper that has been committed to memory by those in the first camp. The paper, which has been one of the most widely cited of the past three decades, focused on a problem known as agency theory, or incentive theory: why don’t managers 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. The takeaway was that you have to align the interests of executives with the interests of shareholders. That way, if the stock goes up, executives are compensated better, and it makes both shareholders and executives happy. Although Jensen and Meckling didn’t specifically argue for huge pay packages, their thinking about what causes executives to focus on some things and not others is financial incentives. Indeed, the drive toward top performance has been widely used as an argument for skyrocketing compensation under the guise of “aligning incentives.”

      It is not just my students who have become believers in this theory. Many managers have adopted Jensen and Meckling’s underlying thinking—believing that when you need to convince others that they should do one thing and not another, you just need to pay them to do what you want them to do, when you want them to do it. It’s easy, it’s measurable; in essence, you are able to simply delegate management to a formula. Even parents can default to thinking that external rewards are the most effective way to motivate the behavior they want from their children—for example, offering their children a financial reward as an incentive for every A on a report card.

      One of the best ways to probe whether you can trust the advice that a theory is offering you is to look for anomalies—something that the theory cannot explain. Remember our story about birds, feathers, and flight? The early aviators might have seen some warning signs in their rudimentary analysis of flight had they examined what their beliefs or theories could not explain. Ostriches have wings and feathers but can’t fly. Bats have wings but no feathers, and they are great fliers. And flying squirrels have neither wings nor feathers … and they get by.

      The problem with principal-agent, or incentives, theory is that there are powerful anomalies that it cannot explain. For example, some of the hardest-working people on the planet are employed in nonprofits and charitable organizations. Some work in the most difficult conditions imaginable—disaster recovery zones, countries gripped by famine and flood. 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.

      You

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