There is a great deal of evidence that for inventive/creative tasks (such as most kinds of software development), extrinsic rewards (such as bonuses) do not work as primary motivators.   In fact, if used without any intrinsic motivations, extrinsic rewards will actually decrease performance over both the short term and long term.  Dan Pink and others assert that engineers and other creative types instead value autonomy, mastery, and purpose above all else in their jobs.

Here’s an outstanding whiteboard animation where Dan Pink neatly explains the science behind intrinsic vs. extrinsic motivation:


Here’s a great video of Dan Pink speaking at TED last year where he explains the hard-core science more fully:


His book, Drive: The Surprising Truth About What Motivates Us, explains the principles still further and drills down into the how’s, why’s, and gotcha’s discovered over the last several decades of research.

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