Self-determination: the real key to unlocking employee potential

Many managers are still convinced that people only work if monitored. But it is a counterproductive strategy.

Published on Mit Sloan Management Review Italy, May/June/July 2025.

Ever since managers began managing, they have asked themselves howmotivate employeesto beproductiveand to do a good job and, for the most part, their answers are still shaped by assumptions made long ago. Although imodern leadersare aware that the best performance comes from intrinsically motivated and highly committed employees, mmany still use traditional management practiceswhich assume that people don't work hard unless they are incentivized and monitored to make sure they do. There are at the basis of this inconsistencytwo theorieswith very different assumptions about how humans are motivated, each with significant implications for management, organizational structure, culture, and outcomes.

In our recent article published onJournal of Management Studies, let's compare theagency theory and self-determination theory,both very influential in research, corporate education and practice. We suggest that agency theory has dominated management practice for decades – despite evidence of its limitations – leading to suboptimal ways of managing workers (Gagné and Hewett, 2024).

Theagency theoryis based on the assumption thathuman beings are self-interested and rational beingswho needbe controlled and motivatedthrough external mechanisms such asrules, tracking and rewards.A fundamental assumption is that the goals of the employees and those of the organization are in opposition: the owners of the organization (for example, shareholders) want to pay the minimum necessary to get the job done, in order to maximize capital gains, while the employees want to put in the minimum effort to obtain the maximum pay. This means thatemployees must be convinced to contribute to organizational objectivesthrough incentives and must be monitored and regulated to ensure they work effectively.

How is itsuboptimal?Monitoring, regulating and incentivizing people to work more is expensive and never infallible.It requires constant attention to fill the gaps that humans find when their autonomy is limited by command and control systems.It's like fighting a losing battle.The attempts ofmonitor and encourage workcan also lead tonegative consequencesunintended, such as employees exploiting the system, ignoring moral and ethical issues, and focusing on short-term gains rather than long-term sustainability. In recent decades, scandals such as those at Wells Fargo, WorldCom and GlaxoSmithKline have been linked to the use – and failure – of these control mechanisms.

Theself-determination theory, however, starts from the assumption thatindividuals are naturally intrinsically motivated and thrive when their basic psychological needs for autonomy, competence, and relatedness are met(Gagné and Deci, 2017). Organizations can meet these needs by providing people with clear strategic direction, meaningful feedback, a sense of connection to work and colleagues, and a space to work appropriately. Thanks to these practices, employees can more easily internalize organizational goals, leading to alignment between their interests and those of the organization without managers having to offer incentives and monitor people.

Research supports the effectiveness of this approach: Employees whose psychological needs are met are intrinsically motivated to find meaning and pleasure in their work, which leads not only to better performance, but also to greater well-being. Using self-determination theory to manage employees canpromote ethical behavior, innovation and long-term commitment.

Of course, it's not easy: this type of performance management requires time and investment, and often requires giving up some measure of control. It meansinvest in peopleand thentrustlet them move forward. This isn't always comfortable, and if it's not done correctly, it doesn't work. For example, giving people autonomy does not mean leaving them free to do what they want; they also need to beclear objectives,with clear explanations of what needs to be achieved and why.

Policies and procedures are sometimes necessary, for example for legislative compliance, but when employees do not know why these policies and procedures exist, it can be difficult for them to voluntarily approve and follow them. In other words,autonomy must be accompanied by a certain structure.

How assumptions about motivation shape management

Let's consider an entrepreneur whose main goal is to increase profitability. If this leader believes that employees only engage if it personally benefits them and that their goals are focused on their self-interest (minimum effort for maximum reward), he or she will implement prescribed performance goals, monitor employees to ensure they achieve them, and tie compensation to goal achievement.

In theory, this approach makes sense, since people generally searchclear objectivesand they want to berewarded fairlyfor their work, but in practice it implies that employees have a purely transactional relationship with their work. Research shows thatprecise objectives,measured and incentivized can lead people to focus only on what is measured and rewarded, whilemonitoring can put you under stresspeople and make them feel untrustworthy. This can also backfire on the organization, because employees who don't feel trusted reduce their commitment and ultimately quit.

Rigid managerial control through performance objectives, monitoring and incentives also spreads within the organization. If the company owner sets and monitors rigorous performance goals for his management team, these managers will do the same within their teams, leading to the micromanagement everyone fears. Employees at all levels focus solely on what it takes to meet (not exceed) their goals,forgettingto help colleagues andto find innovative solutions to problems.This is particularly dangerous for companies operating in increasingly volatile environments that requireagility and proactivity:rigid and controlling management will not produce adaptive and creative employee behavior.

Organizing work without command and control

Agency theory and its associated management style are remarkably resilient. Especially in times of challenge or uncertainty, leaders may be tempted to assuage their insecurities by doubling down on control. But how could they organize their work if they started from the assumption that self-determination theory is a more valid model of human motivation and behavior?

One approach consists inorganize work according to the principles of self-management.Self-managed teams typically set their own goals – linked to the organization's strategy – and decide together how to distribute work, roles and schedules based on individuals' different strengths and needs. They can hire new colleagues, make decisions about how to spend the budget, create cross-functional teams to work on new projects, deal directly with customers and suppliers, and coordinate with other teams. Of course, this level ofautonomy requires training,structure and supportto avoid creating chaos. Leaders must create and communicate acoherent visionestrategic objectivesto which teams can align their work, but must leave them thepossibility to experiment and innovate.Clear guidance on who decides what allows teams to set goals and make decisions without needing higher-level approval. It means saying: "Do we need a new photocopier? Don't ask me, buy it if the team needs it." In these environments, employees are more likely to accept the goals of the organization and the team because they haveparticipated in their definition.This also makes them less likely to game the system. They understand the implications that decisions affecting one area (for example, Sales) will have on other areas (for example, Operations) because they have abroader vision of the organizationand they hear asense of belongingto collective objectives (Gagné, 2018).

What incentives are significant in an organization guided by self-management principles? Here, performance meanscontribute to the entire organization,do not focus on specific individual goals. People are then rewarded for theirstotal contribution,with a fair salary that recognizes their level of competence rather than bonuses strictly linked to results. Their pay is important, but it is not at the forefront while they do their job. Do you think it's a dream? Think again. Organizations of this type exist all over the world.

The Dutch mortgage company Viisi lives by its goal: “People first, then customers, finally shareholders”. At the fintech company, founded in 2010, team leader roles are rotated among team members, who decide who to hire into their team and how much to pay them. They existprocesses that guide decisionsand the pay is transparent, so everyone knows the decisions are fair. Everyone is carefully inducted into this way of working to make sure they know howcontribute effectively,and they are given the autonomy to do so in a way that works for them. It works so well that former employees have returned to the company after moving elsewhere to gain new experiences.

Also Supercell, the game design company behindClash of Clans, structures its operations around teams that set their own goals, with high levels of trust and psychological safety to take risks as they work together to achieve the company's purpose (Martela, 2023).

The Brazilian manufacturing company Semco does not have managers, but rather advisors and coordinators who support democratically managed teams. Semco employees set their own salary and compensation scheme (which may include profit sharing), and individual salaries are public. Not only has Semco been consistently successful for the past 40 years, with a turnover rate of less than 1%, but it works so well that the company can hire without posting job ads and has a backlog of a few thousand applications.

Many other companies are havingsuccess with self-managed teams.In our research, we identified nearly 400 organizations around the world that operate in this way, across commercial sectors, government organizations and non-profits.

Shift hypotheses to shift practice

To create work environments that nurture employees' internal motivation and help them feel engaged and proactive at work, leaders must question their assumptions abouthuman motivation.Do they align with what a solid body of psychological research has discovered about what allows people to thrive in their jobs?The most effective leadersthey communicate oneclear vision and organizational objectives,allow employees to decide howorganize your work,while providingguidelinesto ensure alignment and coordination, and provide afair and stable remuneration,not conditioned on the achievement of objectives. These practices are synonymous withtrust and respect,in contrast to the mutual distrust and misalignment that agency theory presupposes.

It is important to note that fully organizing self-management is not easy and it takes time to put the necessary structure, processes and training in place. Furthermore, we are not suggesting that all organizations should become self-managed. Moving to this management philosophy does not necessarily mean fully committing to a new organizational structure. Here are some ways an individual manager can explore and experiment with this approach.

1. If your organization is very hierarchical, with a rigid chain of command, consider where it might be flatter.Who makes decisions (and about what)? Consider thehandling timewhich could be saved if many decisions were made further down the organization, by the people who do the work. Identify decisions that are appropriatedelegateand who should take them. Look for ways tomake the decision-making process more decentralized and participatory.Involve people in this process from the beginning.

2. Review the organization and implementation of policies and procedures in your organization.Identify which ones are necessary and which could be eliminated or made more flexible. For those you feel are necessary, be ready to explainbecause they are important,so that employees can see thevalueand follow them, but also keep an open mind and follow up when engaged employees question the need for them. If it doesn't meet the needs of the people in the organization, why do you do it?

3. Thoroughly examine your performance evaluation processes.The main function is to evaluate, reward and sanction, or it is onetool that helps employees develop their skillsand their talentsand see the impact they have through their work? Work with HR leaders to redesign performance management tools and processes to emphasize ongoing informal feedback andgrowth orientation.Consider eliminating the traditional, backward-looking annual performance evaluation. If your organization uses individual pay-for-performance schemes, experiment with eliminating them in some functions to see if they are truly effective and necessary to help people do a good job.Involve employees,because who knows better than them whether the incentives meet their needs?

4. Observe old mental habits that persist.The deepest assumptions can guide your instincts as a manager in times of stress, such as when you are frustrated with an underperforming employee or when you need to make quick decisions. Practice self-awareness before thoughtlessly perpetuating unproductive practices such as offering rewards or threatening to discipline or constantly monitor the person. Instead, engage him in person, starting a conversation about what you see and trying to understand what's behind the behavior. Dips in motivation can result from stress, overwork, overfatigue, conflict and many other causes. Aempathetic approachthat encourages employees to reflect on their motivation through constructive conversations can be more effective in getting a struggling employee back on track than the proverbial carrot or stick (Hewett, 2023).

Working with organizations, we constantly hear leaders' concerns about attracting sufficient talent and adapting toneeds and preferences of the new generation of workers.Most business leaders, even those who subscribe to agency theory, would like to havemore employees who believe in the company's missionand they are enthusiastic about their work.They could have them if they attended to the basic psychological needs of their employees, instead of undermining them.

The key to putting self-determination theory into practice is to keep in mind the conditions under which employees are intrinsically motivated to do their best work:autonomy, competence and relationship.Delegating decisions that affect their work to employees creates autonomy, cultivating the skills necessary to make these decisions creates competence and supporting collaboration rather than pitting employees against each other builds relationships. By consistently paying attention to all three qualities, your employees will be more engaged, healthier physically and mentally at work, and more proactive and innovative.

Bibliography

M. Gagné and R. Hewett, “Assumptions About Human Motivation Have Consequences for Practice,” Journal of Management Studies, Early View, published online June 3, 2024. M. Gagné and E.L. Deci, “Self-Determination Theory and Work Motivation,” Journal of Organizational Behavior 26, no. 4 (June 2005): 331-362; and R.M. Ryan and E.L. Deci, “Self-Determination Theory: Basic Psychological Needs in Motivation, Development, and Wellness” (New York: Guilford Press, 2017).

M. Gagné, “From Strategy to Action: Transforming Organizational Goals Into Organizational Behavior,” International Journal of Management Reviews 20, no. S1 (2018): S83-S104.

Martela, “The Outsized Benefits of ‘Minimalist’ Leadership,” Harvard Business Review, December 18, 2023,https://hbr.org.

R. Hewett, “Dissonance, Reflection, and Reformulation: Unpacking the Black Box of Motivation Internalization,” Journal of Management Studies 60, no. 2 (March 2023): 285-312.