I have blogged many times about how to motivate employees and what kinds of incentives work in different situations. In past blogs, I have warned that financial incentives can be counterproductive when creativity is needed because people tend to get conservative in order to hang on to any financial incentives they have already earned. In general, I only recommend financial incentives for brute force kinds of jobs, either physically or mentally.
I was just reading a book written by a marketing consultant that had another take on financial incentives. Sometimes, we don’t see money as money. We see it as a trophy that we can compare to other people in similar situations. This explains why CEOs, athletes, actors, etc are so gung ho at negotiating their compensation, even when it is already higher than they could even hope to spend. Instead, it’s a way of comparing themselves to others. It becomes just a scorecard. Mine is bigger than yours.
So financial incentives can also work for superstars who take an egocentric view of their compensation. Of course, you don’t want a price war within your company, so this is really just at the level where an individual superstar is comparing themselves to a similar superstar at another organization.