learning resources
Evaluating the impact of extrinsic and intrinsic reward
Overview
To a great extent, reward management is about utilising reward practices in a way that increases employee and, in turn, organisational performance. These practices differ in terms of their source, some being part of carrying out the work itself (intrinsic) and some external to the immediate role (extrinsic).
These learning resources aim to evaluate the impact of extrinsic and intrinsic reward practices. In the audio clip (to the right) HR tutor Andrew gives an overview of the purpose and content of this learning, and below is a summary of how this fits with the CIPD units.
Version 1.1 – Updated April 2024.
Associate (level 5)
This learning relates to unit 5HR03 – Reward for performance and contribution
LO1 – Understand the impact of reward approaches and packages.
AC 1.5 – Assess the contribution of extrinsic and intrinsic rewards to improving employee contribution and sustained organisational performance.
Advanced (level 7)
This learning relates to unit 7HR03 – Strategic reward management
LO2 – Understand the value of a ‘total rewards’ approach.
AC 2.5 – Discuss the significance of non-financial rewards as part of a total rewards approach.
1. Reward management and motivation
One of the most important concerns of reward management is how high levels of performance can be achieved by motivating people. A typical aim of a reward strategy is to develop a performance culture. Therefore, it’s important to understand the factors that motivate people and how, in light of these factors, reward processes and practices can be developed which will enhance motivation, engagement, commitment and positive discretionary behaviour.
Motivation theories provide essential guidance on the practical steps needed to develop effective reward systems. Motivation theory is concerned with what ‘moves’ people to behave in certain ways. It helps to explain the factors that impact on the effort that people employees put into their work, their levels of engagement and contribution, and their discretionary behaviour.
2. Extrinsic and intrinsic motivation defined
Herzberg et al. (1957) identify two types of motivation:
Intrinsic motivation
This is motivation through the work itself. It occurs when employees feel that the work they do is intrinsically interesting, challenging and important; allows autonomy; gives scope to use and further develop skills and abilities; and offers opportunities for growth.
extrinsic motivation
This is what is done to or for people to motivate them. This includes rewards such as increased pay, recognition, praise or promotion, and penalties such as disciplinary action or criticism.
Activity
Consider the reward practices in place in your organisation.
- Categorise them under the intrinsic and extrinsic headings
- Make a note of how effective you think they are in terms of motivating staff. Is their impact short or long term.
Once you’ve done this listen to the summary from Andrew (right).
3. The impact of reward practices on motivation
As you might imagine, those responsible for reward management in organisations, and indeed organisations themselves, are interested in the impact of practices on motivation. Which practices are more effective, those that are intrinsic or extrinsic in nature? It’s a complex area! Armstrong (2007) suggests that extrinsic motivators have an immediate effect, but are unlikely to be long-lasting, whereas intrinsic motivators are likely to have a deeper and longer-term impact because they are inherent in individuals and not imposed from outside.
The importance of intrinsic motivation
Rees and French (2013) explain that the resurgence of interest in intrinsic factors such as meaning, purpose, spirituality and commitment and, more recently, engagement, has emphasised the importance of work as a motivator in the organisation. Intrinsic motivation can lead to more engaged and committed employees and the four most critical intrinsic rewards are:
- a sense of meaning and purpose
- a sense of choice
- a sense of competence
- a sense of progress.
In terms of meaningfulness, people with the highest levels of productivity and fulfilment view themselves as inseparable from their work, intrinsically motivated by the work itself and professionally committed to and engaged with the organisation.
The role of pay
According to Kuvaas (2006), the link between pay (one of the main forms of extrinsic reward) and performance is mediated and moderated by employees’ personal levels of intrinsic motivation. It is suggested that money may actually decrease long-term intrinsic motivation and so have a detrimental effect on performance. Other researchers also argue that extrinsic rewards – such as pay for performance – damages intrinsic job interest because employees lose focus on the needs of the job in hand due to the distraction of the promise of the reward (Pink, 2009).
Some researchers argue that extrinsic rewards do not undermine intrinsic motivation and effects on intrinsic motivation do not render extrinsic rewards ineffective (Ledford, et al., 2013). They argue that focusing only on intrinsic motivation is not a practical strategy for work organisations. Rather, total motivation is a function of external plus internal motivation, and extrinsic motivation cannot be ignored. This suggests that employees may be motivated by both intrinsic and extrinsic rewards at the same time or by neither, and one type of motivation may be independent of the other.
Activity
On the right are two video clips that put forward opposing arguments on the roles intrinsic and extrinsic motivation.
Watch both clips and make a note of the key points, with a focus on motivation and business performance.
References
Armstrong, M. (2007) A Handbook of Employee Reward Management and Practice, 2nd edn., London, Kogan Page.
Herzberg, F., Mausner, B. and Snyderman, B. (1957) The Motivation to Work, New York, Wiley.
Kuvaas, B (2006) Performance appraisal satisfaction and employee outcomes: mediating and moderating roles of work motivation. International Journal of Human Resource Management, Vol. 17, No. 3, pp504-522.
Ledford, G. E., Gerhart, B. and Fang, M. (2013)’ Negative Effects of Extrinsic Rewards on Intrinsic Motivation: More Smoke Than Fire’, World at Work Journal, Second Quarter, 2013.
Pink, D. H. (2009) Drive: The Surprising Truth About What Motivates Us, New York, Riverhead Books.
Rees, G and French, R (Ed.) (2013) Leading, Managing and Developing People, Chartered Institute of Personnel and Development, London.