Extrinsic and Intrinsic Rewards – Impact on Individual and Organization Performance

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 Vroom’s expectancy theory of motivation, 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. 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. 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. 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.

Types of Extrinsic Rewards

  • Pay:  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. This pay may inspire employees to work and motivate them to attain tremendous result in the same time accomplish their organization’s goals.
  • Bonuses:  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. For example, excellent performance on a project in a company 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.
  • Promotions:  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. For example, senior employee who works longer in the company is capable to be elected for better position like senior project manager.
  • Recognition:  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. It depends on the perceived value and the individual’s behavior.

Impact of Extrinsic Rewards on Individual and Organization Performance

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. 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. 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. 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.

Types of Intrinsic Rewards

  • Completion:  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:  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.
  • Autonomy:  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.

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. 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.

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