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 subsidy , for instance. You still can buy something with the money although you did nothing to earn it.

It is extrinsic because their 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 car, location 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.

What motivates 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