Extrinsic motivation

Traditionally, extrinsic motivation has been used to motivate employees:

Tangible rewards such as payments, promotions (or punishments). Intangible rewards such as praise or public commendation. Within economies transitioning from assembly lines to service industries, the importance of intrinsic motivation rises:

The further jobs move away from pure assembly lines, the harder it becomes to measure individual productivity. This effect is most pronounced for knowledge workers and amplified in teamwork. A lack of objective or universally accepted criteria for measuring individual productivity may make individual rewards arbitrary. Since by definition intrinsic motivation does not rely on financial incentives, it is cheap in terms of dollars but expensive in the fact that the inherent rewards of the activity must be internalized before they can be experienced as intrinsically motivating.

However, intrinsic motivation is no panacea for employee motivation. Problems include:

For many commercially viable activities it may not be possible to find any or enough intrinsically motivated people.
Intrinsically motivated employees need to eat, too. Other forms of compensation remain necessary.
Intrinsic motivation is easily destroyed. For instance, additional extrinsic motivation is known to have a negative impact on intrinsic motivation in many cases, perceived injustice in awarding such external incentives even more so. (See also work by Edward Deci and Bruno Frey who discusses crowding theory.)

Intrinsic motivation

Intrinsic motivation is evident when people engage in an activity for its own sake, without some obvious external incentive present. A hobby is a typical example.

Intrinsic motivation has been intensely studied by educational psychologists since the 1970s, and numerous studies have found it to be associated with high educational achievement and enjoyment by students.

There is currently no "grand unified theory" to explain the origin or elements of intrinsic motivation. Most explanations combine elements of Bernard Weiner's attribution theory, Bandura's work on self-efficacy and other studies relating to locus of control and goal orientation. Thus it is thought that students are more likely to experience intrinsic motivation if they:

Attribute their educational results to internal factors that they can control (eg. the amount of effort they put in, not 'fixed ability'). Believe they can be effective agents in reaching desired goals (eg. the results are not determined by dumb luck.) Are motivated towards deep 'mastery' of a topic, instead of just rote-learning 'performance' to get good grades. Note that the idea of reward for achievement is absent from this model of intrinsic motivation, since rewards are an extrinsic factor.

In knowledge-sharing communities and organizations, people often cite altruistic reasons for their participation, including contributing to a common good, a moral obligation to the group, mentorship or 'giving back'. This model of intrinsic motivation has emerged from three decades of research by hundreds of educationalists and is still evolving.