Extrinsic Motivation

Article byShrestha Ghosal
Edited byAshish Kumar Srivastav
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Extrinsic Motivation?

Extrinsic motivation is the drive to perform certain activities or tasks based on external rewards or incentives. This motivation type seeks outcomes like monetary gains, promotions, bonuses, or recognition from others. This motivation may lead to swift decision-making and immediate progress, resulting in short-term gains and goal achievement.

Extrinsic Motivation

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Individuals make investment decisions, perform tasks, or engage in financial analysis to achieve these external rewards. However, it may result in overlooking the inherent value of the functions and activities, compromising long-term decision-making for immediate gains. Furthermore, it may downplay the importance of sustainable growth, negatively impacting the company’s overall health.

Key Takeaways

  • Extrinsic motivation is when an individual engages in tasks or activities driven by external incentives and rewards. It involves them basing their decisions on the possibility of external gains like fame, money, and status.
  • Individuals make their financial decisions and perform tasks to achieve external rewards. However, it may result in disregarding the importance of sustainable growth, compromising long-term decision-making for immediate gains. It may eventually impact the company’s health adversely.
  • This motivation is guided by two factors: tangible and intangible factors. The tangible factors have a physical form, such as monetary incentives. The intangible factors do not have a physical form, like fame, recognition, and acknowledgment among peers.

Extrinsic Motivation Explained

Extrinsic motivation is the desire to engage in activities driven by external incentives and rewards instead of internal enjoyment or inherent interest in the task. This concept is applicable in various aspects of the financial world and involves individuals making decisions based on the potential for external gains such as money, status, and recognition.

This motivation type focuses on immediate benefits. It is valuable for companies with a highly competitive environment and requires employees to meet their short-term targets. However, employing only this motivation may result in superficial decision-making and a lack of long-term vision. It may disregard the need for sustainable development and the company’s long-term objectives.

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Characteristics

Some characteristics of extrinsic motivation are as follows:

  • External incentives like bonuses, fame, monetary gains, promotions, or recognition from others drive this motivation. Financial decisions and actions are taken to obtain these rewards and not for the satisfaction of the task itself.
  • Individuals motivated extrinsically tend to prioritize short-term gains and immediate rewards. It can lead to decisions that maximize quick profits without adequately considering the potential long-term consequences or risks associated with those decisions.
  • Individuals guided by this motivation may not be interested in their tasks. They might view these tasks as a means to an end, focusing on the outcomes rather than finding joy or fulfillment in the task’s analytical, strategic, or research aspects.
  • This motivation can lead to surface-level engagement with financial concepts. Instead of thoroughly understanding the underlying principles, individuals might rely on shortcuts, trends, or advice from others, compromising the depth of their analysis.
  • Since this motivation relies on external rewards, individuals might become highly influenced by factors beyond their control, including market fluctuations, economic conditions, or the management’s decisions regarding employment-related incentives.
  • Professionals relying on this motivation may seek constant validation and recognition from others. This could result in insecurity or low self-esteem if they don’t receive the expected external rewards.

Types

The types of extrinsic motivation are:

  • External regulation: It is when an individual engages in a task or action to get an external reward. The reward can be anything tangible, like monetary benefits or special perks. External regulation is one of the most common types of extrinsic motivation.
  • Introjected regulation: This is when an external motivation originates internally because of specific external pressures. Even though the individual personally chooses to take up a task, it stems from the pressure created through external circumstances.
  • Regulation from identification: This occurs when an individual finds motivation from an external reward that is important to them. The individual chooses their external reward.
  • Integrated regulation: In this regulation, the individual believes that the task is necessary for them. As a result, performing the task itself becomes a reward for them.

Factors

The factors of extrinsic motivation are the following:

  • Tangible factor: This factor is when the rewards or motivation has a physical form, like monetary compensation. Professionals, investors, and individuals engage in various activities to receive monetary rewards. Bonuses, commissions, performance-based pay, and other financial incentives are tangible factors.
  • Intangible factor: These factors of extrinsic motivation do not have any physical form. For instance, the aspiration for social recognition and prestige may influence individuals to perform the tasks. This intangible aspect includes seeking acknowledgment and esteem from peers, colleagues, and society for achievements and success.

Examples

Let us study the following examples to understand extrinsic motivation:

Example #1

Suppose Sarah is a financial advisor who aims to earn a commission for selling certain investment products. However, instead of being interested in helping clients make informed choices, she recommends specific investment options only to secure a higher commission. Her clients often choose unsuitable investments and suffer heavy losses because of her approach. Sarah risks her clients’ interests for personal gain. This is an example of extrinsic motivation.

Example #2

Working remotely has become the norm in many countries. For instance, 16% of employees in the UK have reported remote working between September 2020 and January 2023. Research has concluded that 51% of employees work more efficiently from home. Moreover, as many as 20% suffer from office burnout. The studies have suggested that employers must create reward programs for the workplace to counter this burnout.

Meeting targets and deadlines can become stressful, and the financial and social incentives will act as extrinsic motivation for employees. The reward programs must align with the company’s policies and objectives and aim for sustainable progress.

Advantages & Disadvantages 

The advantages of extrinsic motivation are:

  • This motivation provides a target or goal, like monetary rewards or promotions. It can drive individuals to work harder and strive for specific achievements, boosting productivity and accomplishment.
  • External rewards can lead to immediate results and incentivize quick decision-making. Individuals might take advantage of short-term opportunities, yielding profits within a specific time frame.
  • The motivation promotes healthy competition among professionals. The desire for rewards and recognition can lead to increased innovation and motivate individuals to outperform their peers.
  • The rewards are often quantifiable, enabling easy performance tracking and comparison. This measure can help in setting benchmarks and evaluating progress more objectively.

The disadvantages of extrinsic motivation are:

  • A strong focus on external rewards might push individuals to engage in unethical practices to achieve financial targets. It can compromise trust and reputation within the industry.
  • Relying solely on this motivation can lead to prioritizing immediate gains over long-term strategies. Financial decisions might lack thorough analysis and consideration of future consequences.
  • Excessive focus on external rewards can decrease personal interest in the domain.
  • The constant pursuit of external rewards can lead to burnout as individuals work long hours, take excessive risks, and prioritize financial goals over their well-being. The pressure to achieve can negatively impact mental health.

Extrinsic vs Intrinsic Motivation 

The differences are:

  • Extrinsic Motivation: This motivation involves being driven by external rewards and incentives rather than inherent enjoyment or satisfaction derived from financial activities. Individuals motivated extrinsically focus on achieving monetary gains, promotions, recognition, and bonuses. This motivation type is predominant when individuals decide to secure specific external rewards. It can lead professionals to prioritize short-term gains, meet particular performance targets, and seek approval from peers and superiors.
  • Intrinsic Motivation: This involves finding inherent satisfaction and interest in financial activities. Finance professionals are intrinsically motivated and passionate about analyzing market trends, understanding economic dynamics, and making informed investment decisions. The need for learning and growing within the financial domain is the driving force. This motivation can lead to more informed decision-making considering short-term gains and long-term sustainability.

Frequently Asked Questions (FAQs)

1. Why is extrinsic motivation important?

This motivation is a valuable tool for driving performance and achieving specific outcomes. External rewards, including monetary incentives, promotions, and recognition, offer concrete and measurable targets to incentivize individuals to put in their best efforts. These rewards directly link performance and tangible benefits, motivating goal achievement. This motivation serves as an instrument to set benchmarks and evaluate success objectively. It promotes healthy competition among professionals, enabling them to excel in their tasks and consistently deliver results.

2. When is the use of extrinsic motivation necessary?

This motivation is necessary when performance goals must be met, like achieving specific financial targets or complying with regulatory requirements. It becomes essential in competitive environments, where external rewards like bonuses motivate professionals to outperform and stay inspired.

3. Can extrinsic motivation be negative?

Yes, this motivation can have negative consequences. Individuals driven only by external rewards like bonuses or commissions might prioritize short-term gains over ethical and moral considerations. It may lead to risky investments, unethical practices, and overlooking long-term feasibility. Additionally, focusing on external rewards can cause decreased interest in the tasks, leading to burnout and diminishing mental well-being.

This has been a guide to what is Extrinsic Motivation. We compare it with intrinsic motivation, explain its examples, types, factors, and advantages. You can learn more about it from the following articles –

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