On the relationship between intrinsic and extrinsic work motivation

Monetary rewards and supervision crowd out intrinsic work motivation (work morale) under identifiable and relevant conditions. Work performance decreases if this crowding effect dominates the normally considered disciplining effect of external interventions. The crowding out effect is supported by experimental and econometric evidence. Crowding theory allows to explain empirical observations contradicting principal-agent theory such as why pay-for-performance is so little used, why bonding is virtually never observed, and why managers of for-profit institutions receive part of their salary in terms of bonuses, while managers in not-for-profit institutions receive a fixed payment. (C) 1997 Elsevier Science B.V.