This is well worth taking the time (roughly 18mins) to watch. Dan Pink delivers a highly entertaining presentation on the disconnect between what science knows about motivation and what business does about it.

In essence the old "carrot and stick" works in relatively few situations, mainly where little creativity is required. For more right-brained tasks, counterintuitively, traditional motivation seems to suppress performance.

(Not specifically discussed in the presentation, but my observation is that motivation and performance are disconnected - being intensely motivated by the incentive doesn't help me to solve the problem, perhaps too focussed on coming up with an answer, rather than thinking about the best answer).

Dan argues that the answer lies in Autonomy, Mastery & Purpose. Essentially gaining drive to complete a task because it matters. The fine example given of this is Microsoft's traditional management practices used to create Encarta vs. a certain more "do it because it's great" encyclopedia project. Who won?