Extrinsic Versus Intrinsic Rewards In A World That Is Changing
Extrinsic rewards are those that reward even if you do not necessarily do a task. Getting a for instance. You still can buy something with the money although you did nothing to earn it.
It is extrinsic perceived value depends on how it is valued externally and this perceived value has a very short term of rewarding. Maybe two weeks. And its perceived value is not the absolute reward but its rate of increase.
Let us use some examples to manifest those characteristics.
There are two types of extrinsic rewards: The first type of extrinsic reward is money. Pure and simple. How much you take home. The second type is non–pecuniary rewards like symbolic recognition: title, office location, company of the individualized parking spot, etc.
Let us start with salary. You can get a salary without much work. For example, the son of the owner. He gets paid, but his performance does not meet the value of the salary he gets.
How rewarding is it? Well, since it depends on what you can buy with it, its value is determined by external factors. It’s the same with recognition. Its value depends on how others value it.
It feels rewarding to get a bonus, but the feeling fades after about two weeks or months. Then you ask yourself what is next. It is not a sustainable motivation.
is if the change in your take–home income increases from year to year. This year you got a five percent increase, next year ten percent, etc. You must feel that you are not stagnated. That you are growing. That is why profit–sharing is more motivating than fixed bonuses.
Intrinsic rewards are different. To feel rewarded, you have to perform a task you love. The reward is task–dependent. It does not depend on any external recognition. It is sustainable as long as you do the job is no need to increase the reward to feel rewarded .
There are four types of intrinsic rewards: task, power, mission, and affiliation.
Task reward is when you love the task you perform. Just performing it is rewarding, like dancing, painting, playing music, etc. (P reward)
Power reward is when the task gives you power. You do not love the job but love the power it gives you, like a warden in a prison. Or a bureaucrat that makes you go and come back to fill out some form. (A reward)
Mission reward is when you have a mission in life and are attached to it: the reward is in feeling you are advancing towards your mission. Like missionaries, soldiers in war. (E reward)
Affiliation is the reward you feel in your task when associated with people you love and appreciate and want to be with. (I reward)
Feeling rewarded both extrinsically and intrinsically is perfect but not realistic to expect.
If one had a choice in how to design the package, I would say have threshold extrinsic reward and maximize intrinsic rewards. They sustain .
Now that we defined our terms, let us discuss how the world is changing.
I believe that in times of scarcity, extrinsic rewards are more in demand than intrinsic. Intrinsic rewards are a luxury. You need money to live, and recognition to get more money.
In times of abundance, materialistic needs like money play a much smaller role. One can now turn to intrinsic rewards.
When a society moves from scarcity to abundance, extrinsic rewards will be less motivating than intrinsic rewards. There will be a transition from extrinsic to intrinsic.
With extrinsic rewards: More Is Better. More money. More capital. More recognition. The more we have, the better we feel about ourselves. Thus, the accumulation of wealth.
With intrinsic rewards, it is the reverse: Better Is More. The better we are at doing our task, achieving our mission, affiliating with more , the more we feel rewarded. It is a transition from quantity to quality.
In developed countries, we are in the midst of this transformation as a society. We now live in unprecedented abundance. Therefore, it is no surprise that millennials worry less about the money they get and more about having a job that provides intrinsic rewards. Granted, there are exceptions. There are still remnants of those who focus more on extrinsic rewards. I suggest it applies to all societies that were once under a communist regime. In communism, materialism was discouraged. Once communism beat the dust, and people had the freedom to accumulate wealth, it became a major preoccupation in these countries.
If I am right in what I say here, it has major repercussions for management and leadership. As artificial intelligence is coming to rule the roost, people will seek intrinsic rewards. Robots and algorithms will replace salary earning people but will not be able to replace those that are intrinsically motivated.