Abstract
Classical agency theory and its associated practice focus almost exclusively on extrinsic motivation and the design of monetary incentives for explaining managerial effort levels and effort alignment. In this article, we challenge the realism and usefulness of this assumption for the purpose of corporate governance. Using data from a large-scale survey of Norwegian managers, we show that monetary incentives only explain a small amount of variance in extrinsic motivation, effort levels and effort alignment. The motivational potential of the managers’ jobs on the other hand explain a substantial amount of variance in intrinsic motivation and effort levels. We find no evidence that the presence of extrinsic incentives crowds intrinsic motivation. However, we find a hitherto undiscovered crowding effect, i.e. that intrinsic motivation appear to crowd out extrinsic motivation.
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