Extrinsic Rewards

What Is an Extrinsic Reward?

Whether achieved through discipline or hard work, a reward is something given to symbolize one’s success in a field or task.

Extrinsic usually refers to something outside of a system. The word can be applied to many facets, but when we put it in the context of reward, it refers to receiving something outside the frame in which we have been granted the reward.

In short, an extrinsic reward is something given to an individual that does not necessarily hold value within the boundaries of the work itself.

These types of rewards are usually in the form of a salary bonus, a paid vacation or other incentives like vouchers or memberships.

These rewards are given to an individual to improve their life outside of the context of work, making them 'extrinsic'.

It may not seem obvious how a company financially benefits from handing out extrinsic rewards. However, if we look deeper, we will see how vital they are for productivity and performance.

An extrinsic reward not only emphasizes an employee's achievement, but it can also make them feel appreciated, thereby encouraging them to continue with their good work.

In this article we will discuss the differences between extrinsic and intrinsic rewards in the workplace. We will also cover the main advantages of an extrinsic reward system.

Finally, we will highlight how you can use extrinsic rewards effectively and fairly to increase work satisfaction and productivity.

Differences Between Extrinsic and Intrinsic Rewards

Now that we have established what an extrinsic reward looks like, let's look at the major components of an intrinsic reward.

An intrinsic reward comes from within a workplace environment, so it stems from the work itself.

Finishing a given project or seeing a plan come to fruition are examples of intrinsic rewards. These types of rewards are encouraged from strong leaders in the workplace, but they are also self-imposed.

On the other hand, an individual can set themselves extrinsic rewards like a vacation away from work, but they primarily come from a manager or an employer who has the power to grant a pay rise or a vacation in the first place.

Here are the major differences between the two reward systems:

1. Motivation

Whether we are self-employed or working for a large corporation, we generally work more productively when rewards are visible.

Our motivations to work hard do not necessarily exist solely with the salary we earn or the enjoyment in the work itself. There is usually a combination of the two reward systems.

An extrinsic reward pushes individuals to achieve things externally. A bonus at the end of a long project may encourage someone to maintain concentration throughout.

In contrast, an intrinsic reward in this case would be the completion of the project itself. After completion of the project an individual may receive recognition and trust from other colleagues.

As well as this, they may even receive more responsibilities in the form of a promotion.

A promotion can be both an extrinsic and intrinsic reward if it comes with a salary increase.

2. Scalability

How rewards are given over a certain time period, and how they change over time is fundamental to keeping employees satisfied in a position.

For instance, if a reward is not given within, say, five years, and if there is no incentive to improve one’s productivity during that time frame, it is likely that an employee will feel undervalued.

The scalability of a reward can determine whether an employee wants to put in the work, and each reward system achieves this differently.

For an extrinsic reward, an employee may be contracted to a role for two years. During that time, the employer might include clauses that highlight the importance of biannual reviews.

In this case, if the employee’s work is deemed satisfactory, they may receive an extended vacation and a percentage increase on their salary. These types of incentives keep an employee motivated to work hard over the course of the relevant period.

With an intrinsic reward, the satisfaction stems from the work. Keeping employees interested relies on adequately scaling projects.

Keeping an employee on one team or task for a long time will result in them becoming bored and uninspired.

Setting time frames and deadlines to complete projects is a way of keeping things interesting in the workplace. Rewards through responsibility and recommendations can also give an individual extra inspiration on a project.

3. Outlook and Strategy

Both reward systems are designed to keep individuals motivated to work. They are a way of showing an employee how much they are valued.

An extrinsic reward shows this through taking into consideration an individual's broader life outside of work.

A pay rise may go towards finally obtaining a mortgage or property. Extrinsic rewards also take into consideration an individual’s family and wider interests.

In contrast, the strategy of intrinsic rewards prioritizes an employee’s life and respect within the workplace. Rewarding more important work contracts and positions of trust will lead to an increase in one’s feeling of worth at work.

Main Advantages of Extrinsic Rewards

Intrinsic rewards are a great way of motivating team members when the work is exciting. However, as with all positions of work, there are sometimes essential tasks that are monotonous.

In these cases, it is hard to use intrinsic reward systems as the work itself is not exactly rewarding. What's more, in positions where the focus is centralized around one facet or goal, intrinsic rewards can’t be used as the goal cannot be changed.

It is in these scenarios that extrinsic rewards are used to keep staff members and individuals interested in work.

A pay rise or a bonus can push a team member to continue working hard, even though they may find the job repetitive at times.

Further, the extrinsic rewards used to compensate for a repetitive work pattern can be scaled over time.

If a job or a project is set for completion in five years, extrinsic reward systems are used to keep individuals interested over the long term.

Extrinsic rewards also offer a great psychological boost for team members. Corporations and companies that have structured bonus systems often perform better than companies who do not.

A quarterly or annual financial incentive will maintain an employee’s interest and help them set goals in the long run.

Moreover, once the bonus has been given, there is a general increase in employee performance and productivity.

In this sense the extrinsic reward can increase a staff member's productivity and lead to better intrinsic interest as well.

The two do not necessarily exist separately, and rewards given extrinsically often result in more attention being paid to the work at hand. With greater focus on the given work, the opportunity arises to reward an individual intrinsically as well.

Extrinsic rewards are also easier to entice people to work in the first place. Whenever we apply for a job or a higher position in a current role, we want to know what the salary is.

Outlining a salary, the percentage increase that will come with promotion, and access to a bigger pension are all ways that corporations use extrinsic rewards to attract the right personnel.

It is hard to do this with intrinsic rewards. If someone is new to a role or has not been in a company for long, it is difficult to explain the satisfaction they will receive from just doing their job.

People are attracted to salaries, particularly in the corporate industry. So it’s no surprise that corporations emphasize these to employ the right people.

Another great advantage of extrinsic rewards is how they can be offered to someone towards the end of their time at work.

A company would find it hard to offer intrinsic rewards to someone who is moving towards their retirement. Instead, businesses and companies typically provide extrinsic rewards to show their gratitude for someone’s continued efforts during employment.

Once they retire, the intrinsic reward cannot be applied. However, a substantial bonus or a top-up on a pension fund will greatly improve the life of the individual who is leaving.

Finally, companies show great interest in an employee’s external life. Generally, we only work for five days a week, and we do not spend all our life in one position or at one desk.

Offering an extrinsic reward is a way of demonstrating acknowledgment that an individual comes to work to live their life rather than the other way around.

Without extrinsic rewards, individuals will leave positions to look for better extrinsic rewards elsewhere. A corporation or a company must show respect for its employees’ lives, and an assured way of doing so is by offering good extrinsic rewards.

How to Use and Apply an Extrinsic Reward

When you offer extrinsic rewards and how you deliver them can determine how useful they are.

For example, if you only offer an annual bonus scheme with little discussion of how much it will be or what it will look like, it will be difficult to entice an individual with it.

Even more important are the ways in which extrinsic rewards are recognized. A salary increase is generally well received, but employees are even more grateful when they understand they are receiving it for their hard work.

Here are the key points to consider when using and applying extrinsic rewards.

Timing

Depending on the projects and the type of work, an extrinsic reward can be offered at different times.

Annual or quarterly bonuses are a good example of this. An annual reward at the end of the year works well in corporations where employees are committed to working practices that do not shift.

In contrast, quarterly bonuses work well with individuals who may be completing three or four different types of projects over the course of a year.

The timing of an extrinsic reward can help employers keep their staff interested within a certain time frame.

Combination With Intrinsic Rewards

As discussed above, the two reward systems are used together to improve motivation and work satisfaction.

When the rewards are given together, there is more significant employee acknowledgment.

After the completion of a difficult project an individual may receive accolades, a promotion and with it an increase in their salary.

Applying an extrinsic reward alongside the intrinsic rewards that come with a new position will make an employee feel valued in their respective position.

If possible, both reward systems should be combined to show appreciation for an individual’s working efforts.

Clarity

When applying an extrinsic reward, make it clear to the individual concerned that they are receiving it for their hard work.

If a bonus or extended paid vacation is given as a reward without an explanation as to why the employee is receiving it, the reward can be less impactful.

Being clear on why they have received the reward will not only be appreciated but will also help the individual understand that their hard work is recognized and they are respected.

Clear communication helps others in the workplace understand what they need to do to receive an extrinsic reward. This will lead to better performance results over the long term.

Progression

The effects of an extrinsic reward do not last forever. Often the impact it has on a workplace is short-lived.

Offer extrinsic rewards progressively and sparingly. Let’s consider an individual’s salary to explain this further.

If you increase the salary only once over the course of 10 years, their efforts towards work will inevitably decrease over time.

At first, the individual who has received the salary increase will be uplifted and grateful. As a response, they will work hard for a short period, but this effort will decline if they have no further extrinsic incentive.

On the other hand, increasing an individual’s salary gradually over the same period will provide better results in the long run.

A gradual increase every two years instead of once in 10 years will keep the individual interested and help them visualize what they need to do to justify their next pay rise.

Progressive extrinsic rewards help a workplace to regulate its staff members’ interests and are more financially beneficial in the long run.

Final Thoughts

Whether you are a team manager or you are running your own company, extrinsic rewards are an essential part of acknowledging your employees' worth.

Extrinsic rewards are often used alongside intrinsic rewards, but when this is not possible, it is still beneficial to apply them to a staff member who has shown they are deserving of recognition.

Applying an extrinsic reward is relatively straightforward, just ensure that you are doing it fairly and clearly.