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When it comes to motivating employees, identifying the outcomes you want to achieve can help to shape a solid, effective reward offering which is fair, engaging and yields increased intrinsic motivation.

If you think of employee reward schemes, what comes instantly to mind? Bright, shiny discounts on the latest buying trends? Clean eating and exercise promotions? Cash bonuses? Maybe it’s something you have thought about but don’t know where to start. We take a look in this article at employee motivation and how extrinsic incentives can impact workplace productivity.

Benefits vs. Rewards

In general terms, we would look to an employee reward scheme when we want to enhance intrinsic employee motivation with extrinsic incentives, e.g a well mapped pay for performance system. Alternatively, in the process of work design and job descriptions, we may plan to enhance an employee’s compensation i.e their company salary, with certain benefits such as a company car, extra leave entitlement, day to day discounts or a selection of insurances. Both will impact the company’s costs but your accountant or Chief Finance Officer are best placed to advise and guide on financial efficiency. The important differentiator here is that well defined benefits can enhance company brand, attracting the best talent across the jobs market, whereas rewards are an auxiliary element, generally contingent upon agreed levels of performance in a specific job.

Engagement vs. Motivation

We can think of engagement as the coupling of an individual to their role. Motivation however, is the guided direction of productive workplace behaviours. We will talk more about engagement in future blogs but for now, let’s focus on motivation. Now, motivation can come from two sources; intrinsic, self directed by the individual or extrinsic, drawn out by an incentive.The dynamic relationship between intrinsic motivation and extrinsic incentives has been the subject of study across social sciences and human resources management research for some years. Maslow (1943) modelled a hierarchy of human needs which is widely accepted and still used today in HR practice. It defines human needs from their most basic physical to highest cognitive ranges. However, they are vague and difficult quantify in terms of designing workplace incentives. Herzberg’s (1960) Two Factor Theory gave a more detailed insight into motivation by dividing it into ‘Hygiene Factors’ and ‘Motivator Factors’. This helped practitioners to picture individual satisfaction gained from rewards by understanding that ‘hygiene’ elements such as work conditions, relationships with supervisors and colleagues must be maintained, but additional ‘motivators’ like achievement and recognition can be added to help an individual really fly in their careers. Herzberg, however didn’t include money in the formulation of his theory but did help to make a case for supporting greater personal achievement through a combined approach to rewarding the whole person.

So what does current research mean for business?

A good reward scheme should guide the focus, duration and intensity of performance behaviours, but as Cerasoli et al (2014) argue, long term study data has shown mixed results surrounding the role of extrinsic incentives for increasing intrinsic motivation, with pay for performance plans actually discouraging positive workplace outcomes in some cases. Dan Pink author of The Puzzle of Motivation in his outstanding TED presentation describes the confounding relationship between incentives designed to sharpen performance as actually serving to stifle creativity and strategic thought.

Is there a case to be made for designing and implementing an employee reward scheme?

Well yes, but based on emerging research it appears there are certain trade offs for businesses and organisations, and credit again here to Dan Pink who points out that when workload is physical and narrow in scope, extrinsic incentives can increase performance behaviours. However when workload is cognitive and creative, extrinsic incentives can diminish performance. This could mean that tasks such as manufacturing and production might see improvements in productivity with pay for performance incentives but areas which focus on innovation and creative problem solving may be thwarted at the outset by financial enticements. Recent research by Laske & Schroder (2017) into rewarding creative tasks suggests that when incentivising creativity with money, organisations could see increases in the quantity of solutions but these may be offset by a decrease in their quality. And this presents a very interesting area of future research for Business and Organisational psychologists.

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Further reading? Here are the references….

Cerasoli, C. P., Nicklin, J. M., & Ford, M. T. (2014). Intrinsic motivation and extrinsic incentives jointly predict performance: A 40-year meta-analysis. Psychological Bulletin140(4), 980–1008. https://doi.org/10.1037/a0035661

Herzberg. F. I., & Hamlin, R. M. (1961). A motivation-hygiene concept of mental health. Mental Hygiene, 45, 394-401

Laske, K. & Schroder, M. (2017). Quantity, quality and originality: The effects of incentives on creativity. Conference paper retrieved from: https://www.econstor.eu/bitstream/10419/168151/1/VfS-2017-pid-2751-osp3.pdf

Maslow, A.H. (1943), “A theory of human motivation”, Psychological Review, Vol. 50 No. 4, pp. 370-396.

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