Extrinsic reward

Rewards in general can consist of every benefit provided by an employer to their employee in return for their work. The term extrinsic reward describes a certain type of rewards, which are tangible and visible. They can for example consist of pay, trainings, job security or the opportunity to be promoted. They are called extrinsic, as they are separate from the work itself.

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 level. They can be useful tool for attracting potential employees as well as retaining current staff.

Link to Motivation Theory

In Herzberg et al’s motivation-hygiene theory, a distinction is made between two types of motivation:

• 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.

Effects of Extrinsic Rewards

• 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 mediated the connection between extrinsic rewards and both job performance and job satisfaction

Money’s Reward Functions

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

• It can be a general goal for employees to work towards.
• It can be used as a lever 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.

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. That is, if a person is already motivated to perform a task, adding extrinsic rewards might crowd out the employee’s pervious 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. Additionally, a combination of both extrinsic and intrinsic rewards might be recommendable, as intrinsic rewards possibly have a more sustainable impact on employee motivation.

References

• Amal Jishnu, H. M. & Hareendrakumar, V. R. (2021). The Impact of Extrinsic and Intrinsic Rewards on Employee Commitment in the Public Sector Manufacturing Companies in India. SCMS Journal of Indian Management, 18(1).

• Armstrong, M. (2007). A Handbook of Employee Reward Management and Practice (2nd ed). Kogan Page.

• Eneh, S. I., Augustine, E. A., Anyadighibe, J. A., Okongo, J. N., Enouh, R. O. & Pepple, J. G. (2022). Extrinsic Reward and Employee Performance in Cement Manufacturing Firms in South-South, Nigeria. “Journal of Management Information and Decision Sciences”, 25(4), 1-16.

• Kinley, N. & Ben-Hur, S. (2015). Changing Employee Behavior – A Practical Guide for Managers. Palgrave Macmillan.

• Poch, R. & Brett, A. S. Martin (2015). Effects of Intrinsic and Extrinsic Motivation on User-Generated Content. “Journal of Strategic Marketing”, 23(4), 305-317.

• Riasat, F., Aslam, S. & Nisar, Q. A. (2016). Do intrinsic and extrinsic rewards influence the job satisfaction and job performance? Mediating role of reward system. “Journal of Management Info”, 3(3), 6-11.