Employee reward programme development: Balancing intrinsic and extrinsic motivation

Image source: Ion Chiosea – 123RF.com

Extrinsic motivation: External incentives

Behaviourist BF Skinner's reinforcement theory shows that behaviour can be shaped by rewards or consequences. Positive reinforcement, such as public recognition or financial incentives, can drive desired behaviours. This extrinsic motivation is driven by external rewards like bonuses, promotions, or recognition. It’s effective for encouraging specific behaviours or performance in measurable tasks.

For example, an employee who works overtime to achieve a quarterly target to earn a cash bonus, gift card or extra time off to acknowledge their contribution and reinforces their efforts. The motivation is entirely extrinsic as no one relishes the prospect of working overtime and cutting into their personal time to get the job done.

Extrinsic motivation has its downside too, for example where behaviour is driven and motivated by a fear of a certain outcome or result – for example, the big drive around AI right now is premised in warning people to upskill or face losing their jobs to a robot – the fear of obsoletion perpetuated by external players.

Similarly, the same employee working overtime to meet a production target may be motivated to cut corners and neglect the rest of the production team just to get the ‘job done’, at all costs. The results of such motivation are short-lived and don’t change an employee’s behaviour for the long term.

Intrinsic motivation: Tapping into the inner drive

Intrinsic motivation stems from within an individual. It’s fuelled by their joy of the activity itself, the sense of accomplishment, or alignment with personal values and passions.

The intrinsic motivators are the moments that matter. Employees motivated intrinsically are often driven by curiosity, mastery, autonomy and purpose. We see this coming through in younger generation employees, who don’t speak about their salary or pay cheque, but rather about their purpose and passion.

Why customised benefits are key to top talent acquisition and retention

Shaun Raizenberg  10 Dec 2024

For example, an employee feels proud after solving a complex problem because they value problem-solving and innovation and derive joy out of the challenge. They also receive meaningful feedback, such as ‘Your innovative approach saved us time and costs’, which taps into their intrinsic need for recognition of their skills and impact, and the fact that they are seen as a subject matter expert by their colleagues and employer who can be called upon for expert advice.

Psychologist Edward Deci’s Self-Determination Theory (SDT) highlights three components crucial for intrinsic motivation, which are:

• Autonomy: The freedom to make choices.
• Competence: Feeling skilled and effective, a sense of personal mastery.
• Relatedness: A sense of connection with others.

When intrinsic motivation is nurtured, employees are more likely to feel engaged, fulfilled and self-driven.

Necessity of balancing extrinsic and intrinsic motivation

While intrinsic and extrinsic motivators each have their strengths, relying exclusively on one to the neglect of the other will limit the overall impact of an employee recognition and rewards programme.

And here’s why...

While intrinsic motivation fosters self-satisfaction, it may not address employees' external needs such as financial stability and public acknowledgment and recognition. And not all tasks required in the execution of the business plan and direction are inherently enjoyable or aligned with an individual's passions.

Overuse of extrinsic motivation can also create dependency, where employees only act for the reward rather than personal or organisational goals. It can also diminish intrinsic motivation for tasks individuals previously enjoyed – referred to as the ‘overjustification effect’.

Motivational shift

This psychological phenomenon suggests that when someone who is already internally motivated to perform a task starts receiving excessive external rewards for it, they may begin to see the task as being driven solely by the reward, not their internal satisfaction.

For example, a graphic designer genuinely enjoys creating innovative marketing materials because it aligns with their passion for art and design. They feel a sense of accomplishment and pride when their work is appreciated by colleagues and clients. The company starts offering a bonus for every project completed ahead of the deadline.

Initially, the designer is excited about the bonus, but over time, their focus shifts from enjoying the creative process to just meeting deadlines for the reward. The intrinsic motivation to produce high-quality, creative work diminishes and they begin rushing projects simply to earn the bonus.

EVP - recruitment and retention's shared secret

Simonne Adcock  13 Oct 2023

The outcome is that the designer feels less connected to their passion and may even start seeing the work as a chore. The quality of work may decline, as the reward system incentivises speed over creativity. And without the bonus, the designer may feel less inclined to invest effort, as their intrinsic motivation has been undermined.

By blending both in a strategically designed employee recognition and rewards programme, businesses create a more balanced approach that meets employees' psychological and practical needs, while driving sustained performance and engagement.

Designing a balanced recognition and rewards programme

To leverage both intrinsic and extrinsic motivation effectively:

• Listen to employees: Use surveys or feedback sessions to understand what motivates them and how to couple both the intrinsic and extrinsic motivation that drives them. Ask how the programme is doing, not just once a year but on an ongoing basis and be prepared to change it as needs and business objectives evolve.
• Use a data-driven approach: Monitor key metrics such as engagement scores, retention rates, and performance to assess whether the programme justifies its costs and achieves continuity.
• Offer diverse rewards and flexibility: Combine recognition, skill-building and career advancement opportunities, as well as financial incentives. Also remember that economic conditions, workforce demographics and employee expectations evolve. Design a programme that can adapt to these changes without losing its core purpose.
• Tie recognition to values and strategic objectives: Celebrate achievements that align with both strategic organisational goals and the personal growth and career ambitions of your people.
• Be timely and specific: Immediate recognition ensures employees feel valued, while specificity makes the recognition meaningful. Invest in a cost-effective, tech-enabled platform to automate and streamline the recognition process. Digital systems reduce administrative costs and allow for real-time recognition.
• Leadership buy-in: Train managers to recognise employees effectively and align recognition with organisational values.

By designing a programme that caters to both intrinsic and extrinsic motivators, businesses build a motivated, high-performing and more satisfied workforce. This approach fosters not just short-term performance gains, but also long-term loyalty and engagement that underpins every sustainable and successful business.