Most organisations default to financial incentives when designing reward and recognition strategies, but research shows a self-determination approach is more likely to motivate employees.

When compensation is introduced for actions we consider altruistic, it alters our perception of these acts – they no longer align with the original intent of selfless contribution.

For example, research indicates that offering financial incentives for blood donations can actually decrease participation rates. Acts like blood donation engage our intrinsic motivators, which are our internal drivers.

Leaders and managers who can harness their team’s intrinsic motivators can achieve significant performance outcomes. Unfortunately, many organisational reward and recognition strategies focus on extrinsic motivators, such as bonuses, promotions and power. Consequently, the motivational impact of these strategies is often short-lived.

“The feeling I get is that a lot of organisations use incentives without really understanding the  impact they can have,” says Marylene Gagne, John Curtin Distinguished Professor at Curtin University’s Future of Work Institute.

In collaboration with her co-author Rebecca Hewett, Gagne published a paper in the Journal of Management Studies which explores and contrasts motivational assumptions from agency theory and self-determination theory, concluding that the former is leading to suboptimal ways of managing employee motivation.

Agency theory versus self-determination theory

“Agency theory dominates management practices and education, [and 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,” says Gagne.

Consider a leader hiring a manager to oversee a division of the company. The business owner will aim to align the manager’s goals with those of the company, typically to increase profitability.

“The assumption is that if you reward that manager in a contingent manner – based on the firm’s performance – you’re more likely to encourage them to work harder and enhance the firm’s capital worth.”

In theory, this approach makes sense, as people generally seek rewards for their efforts. Gagne is not dismissing the role of financial incentives in the workplace, but suggests that our emphasis on these incentives as the primary motivating force is overstated.

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

When this happens, employees will internalise organisational goals and therefore work towards them because they want to, rather than because they feel like they have to.

“Pay people well enough so they feel like the work they do is valuable, but limit the pay-for-performance approach because it can take away some of the meaning for people.”

How does this impact businesses?

Focusing on agency theory alone can have all kinds of commercial and cultural ramifications for a business.

“It tends to amount to managers monitoring employees more because they don’t trust that they’ll do the right thing, and they’ll impose more rules,” says Gagne. 

We know from previous HRM content that trust accounts for about 30 per cent of variation in performance. Various experts suggest that innovation and creativity are often killed in a culture of high employee surveillance and that it can also lead to unethical behaviours from employees.

“Underlying that is the idea that if my employees are extrinsically motivated, their goal is just to serve their own interests – they’re not going to be motivated to serve the interests of the organisation,” says Gagne.

“We often hear this narrative that HR executives need to learn to speak the language of other executives… but what about teaching executives whose expertise are in other fields to speak and think like HR?”  Marylene Gagne, John Curtin Distinguished Professor at Curtin University’s Future of Work Institute.

This can lead to a dip in discretionary efforts across the business, which can weaken or halt productivity levels. 

When employees don’t feel trusted, it can also lead to a range of non-productive behaviours, such as moral disengagement, individualistic mindsets, gaming the system and focusing on short-term gains over long-term sustainable performance, says Gagne.

“[Extrinsically motivated employees] might be more interested in what’s in it for them, such as pleasing the boss, getting a promotion or receiving a bonus. How might they then behave if they’re thinking like that? There’s more impression management, so less genuine behaviours. For example, if they’re helping a co-worker, they might just be doing that to look good to their boss, so that help is pretty surface level.

“Essentially, they’ll think like this: ‘I’ll only do what’s necessary to look good or to get to the outcome I want. I’m not going to be genuinely interested in whether my behaviour or work has a real impact on my colleagues, clients, beneficiaries or the organisation as a whole.”

Putting self-determination theory into action

Gagne and Hewett’s research shows that employers would benefit from building employee motivation strategies that centre on self-determination theory (SDT).

“When employees are intrinsically motivated, they care about the outcomes of the organisation,” she says.

A byproduct of this is that managers tend to avoid punitive measures and relinquish control, allowing for employees to internalise their organisation’s values and goals.

The first step, says Gagne, is to help employees feel capable by ensuring they have all the information, tools and capabilities necessary to engage with a more intrinsic approach to motivation. 

For example, in a marketing team, this might involve providing comprehensive training on the latest digital marketing platforms, ensuring team members have access to the best analytical tools and creating a supportive environment where they can freely discuss strategies and ideas. 

Next, you want to give them a sense of the ‘why’. 

“Help employees to see the practical applications of this value in their real life to make it more meaningful,” says Gagne.

For example, you could draw a link between how developing a commercial mindset as part of your organisational goals could support an employee to better manage their personal finances or to set themselves up for a senior-level role in the future.

You could also draw a link between the goal and how it contributes to bettering society, says Gagne.

For example, instead of an accountant seeing their job as simply crunching numbers and producing reports, HR and managers can coach them to see their role as contributing to the financial wellbeing of their community and enabling people to make more strategic decisions with their money.

Finally – and this is a key component of SDT – ensure employees feel a sense of autonomy.

“You need to make people feel like they have some kind of choice – that they can participate in designing organisational goals, for example, or shape how you might accomplish those goals. Participative management is very powerful for that reason.

“That’s what leads to internalisation [of organisational goals]. You’re much more likely to get someone who’s going to be self-regulating and managing their own behaviour as opposed to having a manager who needs to monitor them.

“They’re going to do it wholeheartedly. They’re going to do it well, not just surface level to please the boss. They’ll do the work in a way that will lead to the results the organisation is looking for… because they care about the results.”

Organisational structures and processes should be designed with “need satisfaction” in mind, she adds. 

“This would imply organising work in a way that gives employees access to information and decision-making power, supporting employees with feedback and learning opportunities… and promoting cooperation and teamwork.”

To achieve this, HR practitioners should consider how they divide and coordinate work.

“Does it promote information exchange and cooperation? Does it allow employees to make decisions individually or in teams? Are the resulting ‘jobs’ stimulating and do they provide people with clear information about the impact they have through their work? Are leaders trained to support employees or evaluate and sanction them? What behaviours do remuneration systems reward?”

HR as champions for change

While more research is needed before systemic changes are made to reward and recognition strategies, Gagne believes HR practitioners play a central role in moving the needle on new and improved employee motivation tactics.

“It should start with the relationship between executives and the board. [Help them] see how you could instil those principles of self determination theory, and focus them on how their decisions affect autonomy, competence and relatedness.

“We often hear this narrative that HR executives need to learn to speak the language of other executives, like operations and finance. But how about thinking about it the other way? How about teaching executives whose expertise are in other fields to speak and think like HR? I think we need to work on that.”

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