Research Impacts Of Extrinsic Motivation

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Over the last few years, a lot of literature has been produced on the topic of employee motivation within organizations. As people have delved more into the topic, various influencing factors on motivation have been defined, researched and implemented within organization.

In this part of the paper we would like to take the general economist's view of incentives and motivation - extrinsic motivation (Bénabou and Tirole, 2003). Extrinsic motivation is a type of behavior induced by external interventions, such as monetary rewards, praise by your boss, or status (Frey, 1997). We define extrinsic factors as 'external rewards, tangible forms of recognition such as pay hikes, promotions, bonuses, and sales prizes.' (Performance Management: Measure and Improve the Effectiveness of Your Employees 2006).

While we acknowledge that extrinsic motivation alone cannot lead to higher motivation within a whole organization, it is an integral part of how our society functions and how developed and developing economies continue to grow. People would tend to consider themselves not as extrinsically motivated; however they would consider other people around them to be motivated by extrinsic factors. We tend to think others as different and of us as being motivated by higher motives, but maybe the same assumptions that we hold of other people are coming from within our own understandings and underlying desires. According to Pfeffer and Sutton (2007) ''In data collected from surveys over a 25-year period, respondents to the General Social Survey (a representative sample of people in the United States) rated "important work" that "gives a feeling of accomplishment" as the most important aspect of their jobs, with pay typically ranking third. But when people were asked about others, 73 percent thought that large differences in pay were necessary to get people to work hard and 67 percent agreed with the statement that people would not be willing to take on extra responsibility at work unless they were paid extra.''

Within different types of organizations and within different type of functional areas, given that the right circumstances and possibilities for measurement are in place, extrinsic motivational factors can lead to an increase in productivity. However in others, extrinsic motivation will not always to a higher performance and other types of motivational tools need to be put in place.

We would like to analyze here only the weak or strong sides of extrinsic motivation, but which parts of the theories would be able to contribute in various situations. Within this part of the paper the focus will lie on the effects of extrinsic factors on the need to satisfy human needs and how these are linked to employee performance, the distribution of labor within an organization and where extrinsic motivation leads to a higher or lower productivity.

The 'market society': the needs to acquire and succeed

The extreme technological advances have changed the ways that information is being stored, exchanged, transferred and used. Moving away from limited amounts of informational flows to an environment where information flows constantly has a deep impacts on the way that our societies are functioning and how the needs of people are being shaped. Economies are functioning on the premise that people have unlimited needs, which need to be satisfied through the constant production of new goods.

We, as people, are being bombarded with enormous amounts of targeted advertisements each day, which have the only aim to create additional needs that need to be satisfied. According to Paul R. Lawrence and Nitin Nohria in the 2002 book ''Driven: How Human Nature Shapes Our Choices'', one of the drives that humans have is the one to acquire - obtain scarce goods, including intangible ''goods'' such as social status.

The consumerist needs can be satisfied mainly if we manage to increase our spending power, hence to acquire more of the goods, which we desire. Extrinsic motivation factors provide a very powerful incentive for people, when we take into account the basic human needs. Looking at a ''need pyramid'', the first two needs that we would like to satisfy are physical needs and security needs. In a market driven economy, these, we can mostly satisfy by earning more and having the necessary financial means.

Employee motivation might not always explicitly relate, in people's minds, to the need to consume and earn more to acquire more. We as humans, have also the need to feel self-accomplished and successful. When we look at how most organizations function, there is the 'corporate ladder' where each of us, given the skills and willingness to succeed, must climb so that the 'next level' of the corporate hierarchy can be reached, hence give us a sense of accomplishment.

Within the context of self accomplishment, career promotions play an important part of people's lives and are something that most strive for. A potential career promotion can be a strong stimulation for a person to perform his/her tasks with a greater motivation and desire. In the ''Wage Structure and the Incentive Effect of Promotions'' (2004), the authors point to the hypothesis that '' extrinsic motivation is affected by future promotions''. The assumption is that promotional incentives have an impact on the performance and motivation of employees. Taking this into consideration, we may assume that setting realistic career goals for one and expecting a future reward from the organization for a well done job or for achieved results, leads to higher motivation within the workforce. However, having these assumptions we also touch on the topic of how people might take an extrinsic reward for granted.

It would be a perfect environment, if companies could consistently and constantly increase the amount of performance pay to the top employees. However, as organizations operate in an environment where resources are limited, they cannot sustain consistent high increases in performance remuneration.

When employees continuously receive a bonus payment on a regular basis and in similar quantity, they tend to take this for granted, which means that as time passes on, the motivational aspect of the performance payment would decrease and possibly in the longer term disappear. According to Benabou and Tirole (2003) '' The tension between the short-term and long-term effects on motivation of offering a reward also suggests the following idea: once a reward is offered, it will be required-and "expected"- every time the task has to be performed again''. When considering the statement, extrinsic motivation can have also a positive impact on performance, when we consider different types of tasks but also differing amounts of compensations.

Extrinsic motivational factors might have strong employee performance on ''one time tasks''. Adding additional compensation for the performance of task, might lead not only to an increase of motivation within the employee to perform the task, but also to the speed and quality with which the operation is performed. In addition to one time tasks, when companies have the opportunity or need for specialized highly recurrent tasks, performance incentives can be implemented; however this will not be advisable if each additional step, within the performance incentives, is not large enough to create a high level of employee motivation.

Within this topic, a person can go deeper into the analysis of different type of ''one time tasks' and different remuneration techniques, however this will not be a goal of this paper, rather the goal is to point to instances, where only extrinsic motivation can stimulate the achievement of results.

Division of Labor: extrinsic motivation within different functional areas of organizations

Organizations are a relatively new entity within our societies; they exist are only around 100 years old. As organization grow and evolve, they start to have larger and more complex needs so that they can be effectively managed. The rising organizational complexity means that different functional areas have to be created with the different tasks and goals that need to be fulfilled. As we have seen above, extrinsic motivation might have powerful effect when used in certain circumstances. Within the organizational framework, this means that we might consider different types of companies or different functional areas where extrinsic motivators can have a positive or a negative impact. We would like to shortly focus here on different type of functional areas, or rather the different types of work that people do.

In certain types of work extrinsic motivation can increase productivity. In tasks, where quantity and quality can be measured precisely a 'pay per performance' model can be introduced where employees are rewarded for the quality and speed with which they produce a given product. Looking at Lazear's study 'Performance Pay and Productivity'' (2000) of the Safelite Glass Corporation, we can see that 'piece rate compensation' has significantly increased the output per worker. Lazear points that this comes from two sides: 1) employees are motivated to produce faster so that their immediate compensation can be increased and 2) the company is able to bring a more talented pool of workers, who have higher skills and who are more motivated to work for a company, which acknowledges and directly compensates their higher skills.

In contrast to a task where performance can be easily measured, as the case described above, and where the work needed is relatively linear, other tasks exist where the output of the worker cannot be easily evaluated. In order for companies to maintain or increase their market positions they need to innovate. According to O'Reilly III and Tushman (2007) ''although ambidexterity is a difficult managerial challenge, when executed in the appropriate strategic contexts, these complex designs are associated with sustained competitive advantage.'' Companies who have a good balance between the operations of their core business with the ability to innovate tend to perform better than their peers. Within such companies, 'creative' units might exist, where the 'pay per performance' scheme will not be suitable. In such roles, we may assume that 'failures' happen quite often, however in the longer run these might be a basis for a new product or service, which would lead to a large increase a company's revenues. Working with extrinsic rewards in such functional areas can have a positive result; however it has to be managed quite carefully. If we hold to the assumption that creativity is intrinsically motivated, than what we are pointed out to in ''Understanding the roles of Intrinsic Motivation, Monetary Rewards and Creative Thinking Skills in NPD'' is that extrinsic stimulating rewards can decrease the intrinsic motivation of a person and ''reduce the enjoyment of task…which in turn reduces the originality of the design outcome''.

Extrinsic rewards are a tool, which can clearly increase the employee's performance even within different functional areas of an organization. However, one has to clearly be able to monitor and measure how a 'pay per performance' scheme is to be implemented.


The economist view of motivation rewards, extrinsic rewards, is an important tool, which as we have seen can influence directly not only the results of the company through immediate higher productivity but also by bringing a more talented pool of people. However, as we have seen in some instances, such as creative tasks, extrinsic rewards can have their limitations within organization and need to be complemented by other factors such, for example, finding intrinsically motivated people.