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What motivates employees: carrots or sticks?

I love horses, they are such gorgeous creatures. Whenever I have the opportunity to get close to them I have my bag of carrots at the ready. 
 
I am however less convinced by the school of thought that treats employees like horses to be motivated by carrots and corrected by the stick.

The old theories of motivation are just not working any more. At a time when all public services have to take money out of their budgets here’s my quick solution for you. 
 
Dump all of your performance related pay (PRP) schemes. 
 
A little radical I hear you ask?  No not at all. 
 
Public services spend millions maintaining the systems that aspire to promote better performance through PRP but do they do what they should, that is, increase performance? The evidence is not supportive.
 
There is a study by the London School of Economics and Political Research which found that performance related pay often did not encourage people to work harder and sometimes had the opposite effect. In an analysis of 51 experimental studies of financial incentives in employment they found overwhelming evidence that incentives may reduce an employee’s natural inclination to complete a task and derive pleasure from doing so.
 
They said:
 
“We find that financial incentives may indeed reduce intrinsic motivation and diminish ethical or other reasons for complying with workplace social norms such as fairness. As a consequence, the provision of incentives can result in a negative impact on overall performance" concluded Dr Bernd Irlenbusch from the LSE’s department of management.
 
One of my favourite writers on motivation is Daniel Pink, his book 'Drive, the surprising truth about what motivates us" makes for very interesting reading. You can watch a short video on RSA Animate Daniel Pink Drive. The surprising truth about what motivates us. His premise is that there is a disconnect between what science knows and what business does. Their view of many organisations is that if you reward people for certain behaviours you will get more of those behaviours. The research Pink draws on shows the opposite. He found that if rewards were given for simple straight forward tasks requiring mechanical skills you could link reward to increased performance. However once the task called for even the most rudimentary cognitive skills the larger reward led to poorer performance. The research he refers to was undertaken by the Federal Reserve Bank. His conclusion was that higher incentives led to worse performance. So not only are PRP schemes not doing what they said on the tin, they are actually driving poor performance and costing a huge amount to manage and communicate. There are some roles where PRP can be effective, in sales for example. It can be useful if well managed and as described earlier for simple tasks there can be a correlation with higher performance.
 
What should organisations do then to motivate staff who are not in these groups such as the majority of public sector workers? Pink's findings were that once you are paying people fairly for what they are doing there are 3 things that drive both higher performance and engagement. 
These are:
  • Autonomy
  • Mastery
  • Purpose
 
These 3 are the components of greater productivity and more engaged staff. There are some useful insights on www.engageforsuccess website. It’s clear that engagement is the way to higher productivity and better performance.
 
It may not be the fashion for HR to lead the way by dismantling the processes that have been touted as the wonder cures for organisational ills but the case to me is clear. Pay people well through their basic pay, focus on engagement and treat people like people not horses. 
 
Am I correct? 

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