Extrinsic reward

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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].

Examples of Extrinsic reward

  • Monetary rewards such as bonuses, salary increases, commissions, and stock options
  • Non-monetary rewards such as vacation time, flexible hours, company car, and company trips
  • Recognition awards such as employee of the month, awards for excellence, and awards for innovation
  • Performance-based rewards such as promotions, titles, and additional responsibilities
  • Social rewards such as public acknowledgement, appreciation, and respect from colleagues and superiors

Advantages of Extrinsic reward

Extrinsic rewards refer to incentives that are given by an employer in exchange for an employee’s hard work. These rewards can come in the form of money, gifts, recognition, or other tangible items. There are several advantages of providing extrinsic rewards to employees, including:

  • Increased Motivation: Extrinsic rewards can be used to motivate employees to work harder and to stay focused on achieving their goals. This can result in improved performance and better results for the company.
  • Improved Employee Retention: Offering extrinsic rewards can help to ensure that employees stay with the company for longer, as the rewards can be seen as additional compensation or recognition for their efforts.
  • Increased Job Satisfaction: Offering extrinsic rewards can help to boost employee morale and make employees feel more valued and appreciated. This can lead to higher job satisfaction, which can lead to improved performance and productivity.
  • Improved Performance: Offering extrinsic rewards can be used to recognize and reward employees for their hard work, which can lead to improved performance and productivity.

Limitations of Extrinsic reward

Extrinsic rewards may have certain limitations that can limit their effectiveness as a tool for motivating employees. These include:

  • They may be perceived as a sign of distrust or a lack of appreciation for the employee's work, as the recipient is being rewarded for something they have already completed.
  • Extrinsic rewards can create a sense of entitlement in employees, as they may come to expect to be rewarded for their work. This can lead to a decrease in motivation as employees become accustomed to the reward.
  • Extrinsic rewards can also cause employees to focus on the reward itself, rather than on the work they are doing. This can lead to a lower quality of work and a lack of creativity in problem-solving.
  • Extrinsic rewards may not be appropriate for all employees, as some may prefer recognition or other non-monetary rewards.
  • Extrinsic rewards can be expensive for employers, which can lead to a decrease in profitability.

Other approaches related to Extrinsic reward

Other approaches related to Extrinsic reward include:

  • Monetary rewards such as bonuses, salary increases, overtime pay and commissions.
  • Non-monetary rewards such as time off, flexible working hours, health and fitness benefits, and job security.
  • Recognition rewards such as awards, certificates, public appreciation or recognition, and appreciation letters.
  • Social rewards such as team-building activities, team lunches and dinners, and team building off-site events.

In summary, Extrinsic rewards refer to the advantages provided by employers to their employees in return for their work, and these can be monetary, non-monetary, recognition, or social rewards.


  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

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Author: Leonie Pöter