Extrinsic reward

From CEOpedia | Management online
Extrinsic reward
See also

Extrinsic reward is a term used to describe a specific type of advantage provided by an employer to their employee in return for their work [1]. Extrinsic rewards are tangible and visible, and they can for example consist of pay, training, job security or the opportunity to be promoted [2]. These certain types of rewards are called extrinsic, as they are separate from the work itself [3].

Extrinsic rewards are especially important for employees, as they are necessary for satisfying their main physical needs and thus form the basis for their existence on personal, family, and social levels [4]. They can be a useful tool for attracting potential employees as well as retaining current staff [5].

Money’s reward functions

As mentioned above, money is one type of extrinsic rewards and it can possibly serve different purposes [6]:

  • It can be a general goal for employees to work towards
  • It can be used as a lever for creating valued results
  • It can show employees that they are valuable for the organization
  • Receiving money is linked to valued benefits, which leads to it gaining a reward value itself

Link to motivation theory

In the well known motivation-hygiene theory by Herzberg et al, a distinction is made between two types of motivation [7]:

  • Intrinsic motivation, which is created through the task itself
  • Extrinsic motivation, which is created by things done to or for the employee

Parallel to this, extrinsic rewards such as pay or promotion are distinguished from intrinsic rewards, which refer to rather qualitative benefits, which contain aspects like sense of achievement, recognition or the opportunity to take part in decisions [8]. According to Herzberg, these intrinsic rewards can also be called satisfiers or motivators. Extrinsic rewards on the other hand can be seen as dissatisfaction avoidance or hygiene factors. As stated in the motivation-hygiene theory, those extrinsic factors cannot lead to satisfaction, but create dissatisfaction if not aligned with employees’ needs and wishes. However, more current research has come to different results, which are described in the following paragraph [9].

Effects of extrinsic rewards

Current studies have shown that the use of extrinsic rewards can have different effects [10]:

  • Extrinsic rewards are significantly linked to employees’ job performance
  • There is a significant relationship between extrinsic rewards and job satisfaction
  • The structure of an organization’s reward system mediates the connection between extrinsic rewards and both job performance and job satisfaction

Still, the use of extrinsic rewards can also cause some problems for organizations, as described below.

Problems of extrinsic rewards

An increasing number of studies has shown that the use of external rewards may be helpful in the short term but can actually reduce an employee’s intrinsic motivation in the longer term. That is, if a person is already motivated to perform a task, adding extrinsic rewards might crowd out the employee’s previous motives and even lead to decreased effort. However, extrinsic rewards can also foster intrinsic motivation, if used correctly. The introduction would be most effectively, if the reward strengthens the aspects that intrinsically motivate a person [11]. Additionally, a combination of both extrinsic and intrinsic rewards might be recommendable, as intrinsic rewards possibly have a more sustainable impact on employees' motivation [12].

Footnotes

  1. Amal Jishnu & Hareendrakumar 2021, pp.108-109
  2. Eneh et al 2022, p. 3
  3. Amal Jishnu & Hareendrakumar 2021, p. 109
  4. Amal Jishnu & Hareendrakumar 2021, p. 109
  5. Armstrong 2007, p. 131
  6. Armstrong 2007, p. 127
  7. Armstrong 2007, p. 121
  8. Amal Jishnu & Hareendrakumar 2021, p. 109
  9. Armstrong 2007, p. 124
  10. Riasat, Aslam & Nisar 2016, pp. 7-8
  11. Kinley & Ben-Hur 2015, p. 63
  12. Armstrong 2007, p. 131

References

Author: Leonie Pöter