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The Impact Of Intrinsic And Extrinsic Rewards

Paper Type: Free Essay Subject: Business
Wordcount: 2266 words Published: 1st Jan 2015

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In this competitive environment nowadays, organisations are predicted to be more aggressive on empowering the employees because the employees’ job satisfactions are important for the whole organizational performance. Because of this reason, in order to achieve the organization’s missions and goals, the effectiveness on managing the motivation of employees should not be excluded. The motivation such as employees’ satisfaction on their works or the rewards given to them leads to better performance in their organization. Rewards are the performance incentives that given by the company to the individuals due to their good work performance. There are two types of rewards that normally implemented by the organizations to motivate the employees, extrinsic rewards and intrinsic rewards. Based on the expectancy theory of Vroom research, it adapted that extrinsic rewards are positively valued work outcomes that the individual receives from some other person in the work setting, include such things as pay, financial incentives, security, recognition and promotion; intrinsic rewards are positively valued work outcomes that the individual receives directly as a result of task performance, such as feeling of accomplishment, personal growth, and self-worth (French et.al 2008). Each type of the rewards’ demands has different functions and meaning within itself that can be applied by depending on the situations and requirements of the organizations. It is very important for a manager to aware the differences between extrinsic and intrinsic rewards because both of them are intent to increase motivation of employees.

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2.0 Outline of Theory

Rewards are classified into two categories which are extrinsic and intrinsic.Everyone has different needs and perception on their job. Therefore, outcomes such as pay, promotion have different values for different people. The examples of extrinsic rewards are such as pay, bonuses, spot awards, promotion and recognition. Each of the rewards shows different methods of motivation strategies depends on the business structure and performance. Likewise, extrinsic rewards are useful if employees are able to satisfy their needs indirectly through financial rewards and incentives for past performances. Intrinsic reward is the form of motivation an employee has within himself that comes from a passion or interest in doing a job well done. In other words, intrinsic rewards come from inside an individual rather than from any external rewards, such as monetary incentives. Examples of intrinsic rewards are completion, achievement, autonomy, personal growth, challenge, responsibility, praise, and feels of self-esteem.

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2.1 Types of Extrinsic Rewards


The organizations normally raise the wages of the employees to reward their contributions to the company. Incentive pay is another type of pay, which means a bonus paid when specified performance objectives are met (Folgeman 2001). This pay may inspire employees to work and motivate them to attain tremendous result in the same time accomplish their organization’s goals.


Sometimes some of the companies will give the gifts to remunerate for those who have the excellent performance. These bonuses present the appreciation of the employer towards the employees. For example, the employer will give away the hampers to the workers who did a great job in the supermarket every end of the year.

Spot Awards

The purpose of this program is to acknowledge the impulsive appreciation for the contributions of individuals (Deadrick 2009). For example, excellent performance on a project in AmericaCompany might obtain a “spot award”, such as point-based award card that allowed employees to redeem some value gift item with the points given based on their performance level (Incentive America 2010).


Promotions less occurs in someone career because it acquired the decision of the employer to pick the right person with certain criteria such as experiences or abilities based on seniority(Ganesan&Weitz 2001).For example, senior employee who works longer in the company is capable to be elected for better position ,like senior project manager.


The recognition refers to managerial acknowledgement of employee achievement that could result in improve status like public praise, expressions of a job well done, or special attention (Head, Sorensen & Baum 1994). It depends on the perceived value and the individual’s behavior. For example, LifeScan employees’ achievement will be featured in a LifeScan Monitor article if they did a great job in their company.

2.2 Types of Intrinsic Rewards


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Some individuals think that it is important to have the ability to start and finish a given job. They value task completion. A form of self-reward is the effect of completing the tasks they have. Opportunities that allow individual to complete tasks can lead to a powerful motivating effect.


Achievement is a self-administered reward that derives from the accomplishment of a challenging goal. Some individuals look for challenging goals whereas others look for moderate or low goals. In goal-setting programs, the effect of difficult goals is a higher level of individual performance. Furthermore, individual differences that strive for achievement must be considered as well.


Some employees might want to have freedom in their jobs such as have the right to make decisions and stand on their own principles. The freedom to do what the employee considers best in a particular situation may gives a feeling of autonomy in employees themselves. In other words, they have ownership in their jobs. It is hard to create tasks that lead to a feeling of autonomy in highly structured jobs and controlled by management.

Personal growth

The personal growth in an employee is totally different from others. Some people can sense their development and sense their competences that are being expanded through experiencing personal growth. They can maximize or at least satisfy their skill potential by expanding their competences. The performance of tasks meets or exceeds their personal standards. On the other hand, others may not satisfy with their jobs and organization as they are disallowed to develop their own skills.

3.0 Impact of extrinsic rewards on individual and organization performance

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When talking about extrinsic rewards, individuals are said to be sensitively concerned on the pay and bonuses. They will be more motivated by pay than any other type of reward. Based on the research, the financial incentives have larger impact on motivation than other outcomes. This is because money is very important for an individual’s multiple needs in daily life. Extrinsic motivation can be used to coordinate resources by linking employees’ monetary motive to the goal of the organization (Osterloh and Frey, 2000).However, people who pursue goals for extrinsic reasons such as money, status or other benefits are less likely to attain their goals and are less happy even they do achieve them because they feel that the goals are less meaningful for them (Robbins 2009).This means that people are stressed on attaining the goals by completing some complicated tasks in order to achieve their bonuses, status or promotion. Although the goals of organizations might achieved perfectly, but the feelings or satisfaction of employees would be decreasing due to uncomfortable with the jobs. This situation will lead the extrinsic rewards become less effective in the organizations if they do not manage the rewards systems carefully.

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3.1 Impact of intrinsic rewards on individual and organization performance

The intrinsic rewards have an effect on both individual and organizational performance. For example, the employees in an organization have reached the esteem stage of development and possibly the self-actualization phase through the impact of intrinsic rewards. The intrinsic rewards encourage and enhance both employees and employer to be able to challenge themselves and accomplish new tasks and cooperate with others to work in a harmony environment. Apart from that, intrinsic rewards enable the employees to have greater concentration and keep them in energizing and self-managing. By having the high levels of intrinsic rewards, employees become the informal recruiters and marketers for their organization in which they recommend their friends to work in the organization and recommend product and services to potential customers. According to Thomas (2009), intrinsic rewards create a win-win situation for organization and its employees. The employees feel happy and satisfy as they experience feelings of achievement and self-worth, which create job satisfaction. At the same time, the organization increases its profit because of the increase in employee job satisfaction. The intrinsic rewards facilitated greater levels of satisfaction and competency. Employees have more interest, excitement, fun and confidence in performing tasks which leads to enhanced organizational performance. The research suggested that organizations pay employees equitable salaries, not tied to performance, so as to attract and ensure participation, and to rely more on intrinsic motivational techniques to improve performance (Uco 1992).

3.2 Advantages of Extrinsic rewards

Based on the research, extrinsic rewards can be motivating in short term period effectively (Vanderbuilt University, 2009). Moreover, the result of the performance on the individual can be expected easily and investigated in a quick review. Nevertheless, it is also increases the competitive advantages of the firms in the industry.

3.3 Advantages of Intrinsic rewards

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Increasing job satisfaction is an advantage of intrinsic rewards. Job satisfaction is considered as a great motivator in having employees and employer(s) work hard in order to produce quality results (Alexandrou 2011). In turn, it improves the organizational performance. Intrinsic rewards tend to be effective in the long run because an intrinsically motivated employee performs tasks given to him willingly, because he finds the task is either challenging or interesting and satisfies to get it done, rather than trying to escape from it once the task is done.

3.4 Disadvantages of Extrinsic rewards

Most of the researchers found out that offering extrinsic rewards to a person for performing a task can diminish the person’s intrinsic motivation (Galia 2007). This means it will decrease the personal desire on their job which caused low satisfaction and build up stresses if the organization is too relying on the extrinsic rewards. Besides¼Œsome of the psychologists argue that may be pay is not the best motivator for all performance rewards situations. According to the journal, the crowding out effect on intrinsic motivation by using extrinsic rewards is especially significant when the price-dependent, monetary compensation is perceived as controlling and hence creates the feeling of being stressed from outside (Osterloh and Frey, 2000). Once they found out that their job is exciting and challenging, they are less likely to be attracted by extrinsic rewards such as higher pay offered by other firms. Janssen and Mendys-Kamphorst (2004)also concluded similarly that introducing financial incentives to agents to contribute to a socially desirable outcome tends to decrease the number of contribution.

3.5 Disadvantages of Intrinsic rewards

Somehow, job satisfaction can be a weakness of intrinsic rewards as if an employee is not satisfied from what he does, his performance gets affected thus damaging the performance of whole team and in turn, the organization. It is difficult to achieve intrinsic rewards. Besides, short-term goals are difficult to achieve as intrinsic rewards take a long period of time.

4.0 Conclusion

In conclusion, extrinsic and intrinsic rewards are used to motivate both employees and employer to improve the organizational performance. Most of the authors stated that intrinsic rewards are important than extrinsic rewards for higher job satisfaction which can affect the performance of an organization. Both rewards have some issues that influence the individual and affect the performance as well, it is depends on the strategies that organizations have been used to manipulate the situations effectively.

5.0 Recommendations

Organizations can consider that extrinsic rewards and intrinsic rewards are accessible to both and influence situational motivation in both the short and long term period.

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For example, that individual might be highly motivated to do well on an interesting task and receive some bonuses (extrinsic motivation) so that they can gain some knowledge and experiences from that particular task (Intrinsic motivation). However, there are some factors that can influence the motivations of individual instead of extrinsic and intrinsic rewards, such as individual’s personality, behavior, culture, values and perception. The organizations should aware those factors on the employees in order to satisfy them and improve the organizations performance in the same time.


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