Extrinsic Reward

Updated on April 12, 2024
Article byJyotsna Suthar
Edited byJyotsna Suthar
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Extrinsic Reward?

The extrinsic reward system is a type of incentive or reward given to employees for their performance at work. It is in the form of tangible or financial rewards. The sole purpose of giving this reward is to encourage and motivate the employees to work even better. 

Extrinsic Reward

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Extrinsic rewards include pay raises, bonuses, corporate gifts, etc. The most common form of extrinsic reward is monetary benefits, which create a sense of pride and satisfaction among employees for their achievements and hard work. In short, they make employees feel valued and appreciated.  

Key Takeaways

  • Extrinsic reward refers to the tangible or monetary benefit given to the employees as a token of appreciation for their work. It also includes emotional or psychological benefits. 
  • Such rewards include bonuses, monetary incentives, pay raises, corporate gifts, increments, and public praise. They motivate them to perform even better by raising the standards. 
  • Unlike intrinsic rewards, they arise from external sources, usually from the other person. Here, the latter considers motivation from the employees. 
  • However, such rewards can also bring an unhealthy intention and unethical behavior within the employees. 

Extrinsic Reward Explained

Extrinsic reward is a crucial human resources management concept that provides employees with tangible or monetary benefits for their performance at work. The roots of this concept first originated in the late 20th century. The Deci and Ryan theory of motivation pioneered the term extrinsic reward system in the year 1985. It paved the way for businesses to include this concept in their organizations. 

It is usually in the form of a tangible benefit given to them for their actions. So, if a person has been working hard on a project but is unrecognized, the manager or team lead may present a corporate gift or bonus as a reward. As they receive them, it boosts the employees’ enthusiasm and dedication. In short, it is a reward that originates from external sources, unlike intrinsic rewards. 

In most cases, these rewards are monetary or usually given in the form of cash. For example, an employee may receive an increment in the salary for his extra time done at work. But, at the same time, the employee may also gain some psychological reward. It can be public praise done among the team members or enhanced positive relations with that employee. Thus, it creates a sense of security and understanding between the employees and supervisors.

Examples

Let us look at some examples of extrinsic rewards to understand the concept in a much easier way:

Example #1

Suppose Kevin is a marketing executive at Samuel & Sons Ltd. For around three years, he has contributed his talent to the firm. However, in recent times, Kevin wanted to upgrade his skills. So, he worked on himself and was soon a part of the marketing project. Kevin was the team leader who monitored the project. During this period, Kevin tried his best to finish the work in minimal time. 

 As soon as the project ended, the company saw a huge revenue rise and the credit was given to Kevin. For his extraordinary efforts, he received public praise from Samuel and was also motivated to perform even better. In addition, he also received an increment and a corporate gift in return. Thus, with the extrinsic reward and motivation received, Kevin remained more focused and was dedicated to performing even better. 

Example #2

In 2004, Google introduced a prestigious award worth millions of dollars for employees working on exceptional projects. The award was known as the Founders’ Award. The program offered large stock awards to top-performing teams, totaling $12 million in 2004. The program aims to generously reward significant contributions, aligning with Google’s startups to provide substantial rewards for accomplishments.

Benefits

Extrinsic rewards have a long list of benefits for the employees in the workplace. But, simultaneously, even companies have some gain from these rewards. Let us understand them one by one:

  1. Motivates the employees: The prime benefit of incorporating these rewards is that employees are motivated to perform better. They try to stay dedicated and deliver their talent to the organization. From the company’s point of view, this reward allows them to retain talent. 
  2. Improvise the quality of work: The employee’s efforts are improvised with the incentives and motivation received. As a result, the outcome is visible in their work. The job performed by them has a substantial increase in quality. 
  3. Easy to implement and monitor: The extrinsic reward system is easy to implement since no complex procedure is involved. Senior executives and managers can monitor the employees throughout the project and declare this reward at the end of the task. However, they may give a short-term goal for employees to perform before distributing this reward. 
  4. Aligns the employee’s goals with the organization: At times, employees feel unrecognized and apart from the organization. But with extrinsic rewards, they may feel recognized and valued. Thus, they will try their best to contribute to the company’s success, and the organization’s goals will be easily achieved. 
  5. Creates a sense of belonging and positivity: The entry of this reward system has created a sense of belonging among the employees. They have developed more positive and trustful bonds. For instance, if a person has poor relations with the manager, a reward may spark communication between them. 

Drawbacks

Until now, we discussed the benefits of this concept. Let us now cover the drawbacks or disadvantages of including extrinsic rewards and motivation in the workplace:

  1. Exists for a short-term period: The major disadvantage of this reward system is that it lasts only a short time. It cannot be used as a tool for motivation for longer periods. For instance, a leader may give bonuses occasionally, but it cannot be continued for a long time. It would lead to unwanted expenses for the company. 
  2. Unreliable and unpredictable at times: As and when companies continue distributing these rewards to employees, the latter starts to keep expectations. However, these rewards are sometimes unpredictable in their true form. In other words, the employee may receive it today but not tomorrow. Also, these rewards are unreliable as employees may not always rely on extrinsic motivation. It also includes a major part of intrinsic rewards. 
  3. Creates an unhealthy intention towards monetary benefits: Extrinsic rewards can become ineffective in the long run. Employees may slowly decrease their performance because they believe they will receive the reward anyway. Likewise, they may try to incorporate unethical practices to receive such incentives. As a result, the company’s performance may be hampered. 
  4. Excess motivation kills personal growth: Although these incentives allow employees to work harder towards their targets, they also kill personal growth. Employees may just focus on the numbers and avoid enhancing their skill sets, resulting in stagnant personal development.  

Difference Between Extrinsic Reward And Intrinsic Reward

Although extrinsic and intrinsic reward benefits the company, they both have a few differences between them. They are as follows:

BasisExtrinsic RewardIntrinsic Reward
MeaningIt refers to the physical incentive given to the employees for their work performed.Intrinsic reward is a psychological benefit the employees give to themselves.
PurposeWith these rewards, employees can perform their work with more dedication.It aims to promote personal growth and self-development.
SourcesIt usually arises from external sources, which are provided by others.This reward usually arises from within, and therefore, it is based on internal sources. 
Nature of the rewardIt is tangible and external.It is intangible and internal.
TypesBonus, pay raise, corporate gifts, public praise, and others.Personal growth, satisfaction, accomplishment, mastering skills, and fulfillment.

Frequently Asked Questions (FAQs)

1. When are extrinsic rewards most effective?

The most effective time to introduce extrinsic rewards is when the employer wants to achieve a specific goal. The possibility of achieving it depends on the collective contribution of the team members. These rewards can be introduced upon task or project completion to motivate employees to achieve the desired outcomes.

2. Do extrinsic rewards undermine intrinsic motivation?

Extrinsic rewards can decrease intrinsic motivation to a certain extent and under a few situations. Due to their tangible nature, workers can be more attracted to extrinsic rewards than intrinsic rewards. Hence, workers may solely focus on receiving external rewards rather than self-improvement or personal growth. This can lead to a decline in intrinsic motivation and subsequently affect employee performance.

3. How are intrinsic and extrinsic rewards similar?

The major similarity between intrinsic and extrinsic rewards is their common purpose of promoting the timely completion of work tasks. Both types of rewards can foster discipline, trust, and a sense of responsibility among employees in the workplace.

This article has been a guide to what is Extrinsic Reward. Here, we explain its examples, differences with intrinsic reward, benefits, and drawbacks. You may also find some useful articles here –

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