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“The effect of intrinsic and extrinsic rewards on employee

motivation”

Introduction

Every person is motivated by different factors in their workplace. Some are

motivated primarily by external factors such as salary, promotion and bonuses.

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These are known as extrinsic rewards (Wilson & Madsen, 2008, p. 52; Manolopoulos,

2008, p. 65) and some are motivated primarily by internal factors such as job

satisfaction, recognition and the desire to learn, which are referred to as intrinsic

rewards (Wilson & Madsen, 2008, p. 52; Manolopoulos, 2008, p. 65, Ramlall, 2004,

p. 10). This essay will explore both of these reward types using a range of literature.

Specifically the essay will explore the theory that while extrinsic rewards can be
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motivating in the short term, intrinsic rewards are more sustainable and

employers should aim to provide a balance of both reward-types to ensure

employee satisfaction. This essay will also uncover the dominant motivating

factors of its author, and link these findings to the literature. Then finally the essay

will examine a case study relating to motivation, and apply the literature reviewed.

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Part one - literature review

There is extensive literature on the topic of employee motivational factors, and

within the literature reviewed, there are opposing ideas about intrinsic and extrinsic

rewards. Even within single pieces of literature, there are differing ideas of intrinsic

and extrinsic rewards, with the majority of authors leaning towards intrinsic rewards

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as a prime motivator, and many advising on a balance of both to ensure employee

satisfaction. The main theme that arose from the literature is that different factors

will motivate people for different reasons, but if they are not sustainable, then

employee dissatisfaction may result.

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Intrinsic motivation

A study by Eby, Freeman, Rush and Lance (1999, p. 465) reveals that there are four

states that employees can experience which contribute to intrinsic rewards and

motivation. These are perceptions of meaningfulness, responsibility, knowledge of

results, and empowerment and exchange. These states may fulfil employee’s job

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satisfaction because a sense of accomplishment is achieved. These perceptions

support the work of Linz, Good and Huddleston (2006, p. 417) who also believe that

high moral, high work effort, and the need for achievement and meaning are

intrinsic motivating factors. Wilson and Madsen (2008, p. 52) also believe that

intrinsic motivators are far more likely to be sustainable than extrinsic. These

author’s views supports the theory that extrinsic factors alone cannot sustainably
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motivate employees. The next section talks about extrinsic motivators and will

further explore the theory that extrinsic motivators alone are not always going to be

sustainable.

Extrinsic motivation

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On the other side of the coin, parts of the literature reveal that extrinsic factors such

as pay, rewards and bonuses play a significant role in employee motivation (Rynes,

Gerhart and Minette, 2004, p. 381; Manolopoulos, 2008, p. 63; Grant, 1999, p. 456).

Studies and surveys performed by Rynes et al (2004) and Manolopoulos (2008)

revealed that the dominant motivator of employees was extrinsic rewards. Rynes et

al (2004, p. 382) states that pay is nearly always the most effective motivator and
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their study shows that on average, employees were more motivated by pay than

any other type of reward. Manolopoulos’ study (2008, p. 70) also went on to reveal

that extrinsic rewards such as pay and job security can motivate and empower

employees. Although these authors all agree that extrinsic rewards can be

successful in motivating employees, it is this authors view that this is not always

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sustainable, and will only be successful in the short term. The reason for this view is

that pay is sometimes only part of the reason for an employee’s de-motivated state.

Mixture of intrinsic and extrinsic

Many of these authors show evidence that supports either intrinsic or extrinsic

rewards as a means of employee motivation, however those same authors also


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realise that a balance of both is paramount to sustain employee satisfaction.

Although Rynes et al study (2004, p. 386), shows compelling evidence that pay is a

substantial factor in employee motivation, they also recommend that a balance

between extrinsic and intrinsic rewards will assist with employee motivation.

Tischler (1999, p. 275) and Wilson and Madsen (2008, p. 56) also believes that pay

and monetary incentives alone will not motivate, but offering extrinsic in conjunction
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with meaningful work will assist employees grow and develop, and sustain

satisfaction. Eby et al (1999, p. 475), as well as Linz et al (2006, p. 415), conducted

convincing surveys and both found that employees valued a very close balance

between the intrinsic and extrinsic rewards as motivators factors. The above

evidence makes a compelling argument to support the theory that mixing intrinsic

and extrinsic rewards are important to sustainable employee motivation.


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Part two – results of self assessment

This next section will explore the outcome of my motivation tests from the Self

Assessment Library (Robbins, 2008). I will analyse each test, demonstrating my

understanding of what they mean for my current and future workplace behaviour,

and I will link each to the above literature review.

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Test I.C. 1: What motivates me?

The first test gauges the order of importance in terms of a person’s existence,

relatedness and growth, also known as ERG theory (Robbins, Judge, Millett and

Waters-March, 2008). This test also relates to Maslow’s Hierarchy of Needs, which

states that people are motivated by five needs which are: physiological, safety, love,

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esteem and self-actualisation (Maslow, 1943, as quoted in Ramlall, 2004, p. 5). This

test revealed that my primary motivator is existence, which relates to pay and

benefits. These are extrinsic motivators, and I believe that at this stage of my life,

these are important to me. They are important because I am recently married, I am

on the about to purchase a second house with my husband, and we planning to

have children. As a result of this stage of life, pay and benefits are more important
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to me than the other aspects of ERG theory. This may not always be the case,

because later in life, I will be more career-oriented and I imagine the growth factor

of ERG theory will be my primary motivator.

Test I.C.2 - What are my dominant needs? McClelland needs

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The second test relates to McClelland’s Needs Theory (Ramlall, 2004, p. 5). My

results in this test show that the need for affiliation, i.e. the desire to interact

socially and be accepted, were most important to me, followed by achievement,

autonomy and finally power. I did not find this surprising as I am a sociable person,

and I am constantly concerned with the need to be accepted by my peers, which

could be seen as intrinsic motivator. My next dominant need was achievement,


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which is the desire to excel and improve past performance (Ramlall, 2004, p. 5).

This could also be seen as an intrinsic motivating factor, and can benefit me in a

working environment because it means that I will always strive to be better and

perform to the highest standard possible. This also aligns with the above authors

who support that intrinsic rewards are important.

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Test I.C.3: What rewards to I value most?

The final test examines what value I place on particular rewards (Robbins, 2008).

This test relates to Vroom’s Expectancy Theory which states that a person’s decision

to behave in a certain way is dependent upon the expected outcome of that

behaviour (Robbins 1993, as quoted in Ramlall, 2004, p. 5). The rewards I found to

be of extreme value to me were job security, vacation time, chances to advance and
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friendly co-workers. Followed by those were rewards of great value which are pay,

recognition, interesting work and flexible schedule. I believe this is a comfortable

balance between intrinsic and extrinsic factors and will be sustainable through my

working life. This also aligns with the literature reviewed and the theory that both

intrinsic and extrinsic rewards are important for employee motivation.

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The results of all three tests show that my motivating factors are a mixture of

intrinsic and extrinsic reward which aligns with the literature review, in particular

the work of Tischler (1999, p. 275) and Wilson & Madsen (2008, p. 56), and also

supports this essay’s theory.

Case study answers


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Question one

From the case study, and based on the evidence in the literature review, it is

apparent that Matt’s motivation is primarily intrinsic rewards i.e. factors such as his

work performance and the drive to succeed. This aligns with the work of Linz et al

(2006, p. 417). When assessing Matt’s motivation in relation to Maslow’s Hierarchy

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of Needs (Wilson & Madsen, 2008, p. 49), it could be said that the only need Matt

has not fulfilled is self-actualisation, which is his need to achieve (Wilson & Madsen,

2008, p. 48). Matt’s feelings towards Jack’s higher earnings could be causing part of

his de-motivation and can be analysed using Equity Theory (Ramlall, 2004, p. 5).

That is, Matt believes that his salary is disproportional to his outputs and effort. Matt

seems to be frustrated by this and displays a negative attitude as a result. Matt’s


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case also relates to Expectancy Theory (Ramlall, 2004, p. 6) because at the end of

the case study, he will be taking on new challenges which may lead to a change in

his behaviour and lead to positive outcomes. Matt’s boss was smart to pose some

new challenging goals to Matt to keep him motivated. Using Edwin Lockes Goal

Setting Theory (Robbins et al, 2008, p. 189) could be a way to tap into intrinsic

factors to keep employees motivated and lead to higher performance levels.


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Question two

If I were Peter Finch, I would take into account that Matt’s primary motivation is

intrinsic rewards such as challenging and meaningful work, as well as recognition

(Linz et al 2006, p. 417). Although Matt says in the case study that he is not

motivated by money, I would make sure that his effort in his work is reflected in his

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salary. I would also ensure I provided a balance of intrinsic and extrinsic rewards.

This approach aligns with the literature review and the work of Linz et al (2006, p.

415).

Conclusion

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This essay has covered many facets. Comparisons between intrinsic and extrinsic

rewards were discussed, and the benefits and detriments of both were analysed.

There was compelling evidence to suggest that while extrinsic rewards such as pay

and bonuses can motivate employees in the short term, they can prove

unsustainable. A number of motivation test results were analysed. The results of

these tests also showed that a mix of intrinsic and extrinsic motivation can be a
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successful combination. Finally, in the case study, although Matt’s motivation did

not purely rely on monetary incentives, the effort he applied to his work should be

reflected in his salary and any related bonuses. All aspects of this essay provide

substantial evidence to support the theory that while extrinsic rewards can be

motivating in the short term, intrinsic rewards are more sustainable, and

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employers should aim to provide a balance of both reward-types to ensure

employee satisfaction.

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Reference List
Journal Articles

Eby, L.T., Freeman, D.M., Rush, M.C. & Lance,. C.E. (1999) “Motivational bases of
affective organisational commitment: A partial test of an integrative theoretical
model”, Journal of Occupational and Organisational Psychology, 72, 463-483

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Grant, P.C. (1999) “New Perspectives on Incentive System Design: Integrating the
Theory of the Firm and the Theory of Individual Behaviour”, The Journal of
Psychology, 133(4), 456-464

Linz, S.J., Good, L.K. & Huddleston, P. (2006) “Worker Morale in Russia: an
exploratory study”, Journal of Managerial Psychology, 21(5), 415-437

Manolopoulos, D. (2008) “An evaluation of employee motivation in the extended


public sector in Greece”, Employee Relations, 30(1), 63-85

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Ramlall, S. (2004) “A Review of Employee Motivation Theory and Their Implications
for Employee Retention”, Journal of American Academy of Business, 5(1/2), 52-64

Rynes, S.L., Gerhart, B. & Minette, K.A. (2004) “The Importance of Pay in Employee
Motivation: Discrepancies Between What People Say and What They do,” Human
Resource Management,43(4), 381-394

Tischler, L. (1999) “The Growing Interest in Spirituality in Business: A Long-term


socio-economic Explanation”, Journal of Organisational Change Management”, 12(4),
273-279
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Wilson, I. & Madsen, S.R. (2008) “The Influence of Maslow’s Humanistic Views on an
Employees Motivation to Learn”, Journal of Applied Management and
Entrepreneurship, 13(2), 46-62

Texts

Robbins, S.P (2008) Self Assessment Library, New Jersey, Pearson Prentice Hall

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Robbins, S.P., Judge, T.A., Millett, B. & Waters-March, T.(2008) Organisational
Behaviour (5th Ed), Australia, Pearson Prentice Hall

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