Well worth watching this, it’s only 20 minutes:
I recently watched one of the very good TED talks (see link above – I’d highly recommend you take a look at these). The talk was about the surprising truth that incentives, rewards and bonuses do not motivate teams to perform better. At best they encourage a plateau of performance, at worst they drive performance down. There’s a great comparison at the end involving Microsoft.

The primary message I took from the talk was that we need to find alternative ways to motivate our teams. In consultation with senior management we decided to institute an informal implementation of Blue Sky days.

The Blue Sky days concept is simple; empower people to spend time doing what they enjoy and allow them to investigate new technologies or ideas that might ultimately deliver innovative solutions to problems or products. A defining feature of the scheme is that it is driven by the individual or team and it’s hands-off by management. The same idea is employed by Google and has generated the energy and enthusiasm in many Google projects including Maps and Wave. Blue Sky Days are awarded at the discretion of the Scrum Leader for outstanding effort during a Sprint.

For example my team recently finished a Sprint 2 days early – this was due to some hard work and innovative solutions to delivering a project. I awarded Blue Sky days to two developers.