It seems that the carrot and stick approach will work less in the future than it has in the past. Science is demonstrating that for tasks that require even a modest amount of cogitative skill, paying more for the task actually reduces performance. Again, the higher the rewards, the less the performance, and our world is rapidly becoming a place where routine and repetitive tasks are being eliminated.
So much for the notion of huge executive pay as an incentive. When you look around, it is pretty obvious. Linux, Wikipedia, Apache, the list goes on, major businesses emerging from an economically impossible business model, getting smart people to work for nothing, then giving away the results!
That should make an economists head hurt.
Humans work for a meal and a place to stay, be warm, and have some basic comforts, but once these basics are taken care of, they work for the satisfaction, the recognition, to achieve something meaningful, and to enjoy doing it. The trick therefore is to have a purpose in your business, one that engages and motivates, and allow your employees to exercise their innate creativity and insight to achieve the purpose.
Daniel Pink presents these ideas in an animated presentation that is as entertaining as it is informative.