Leaders Effecting Intrinsic and Extrinsic Rewards

Intrinsic rewards are those rewards that are built into and incidental to performance of the job. Intrinsic rewards are within the context of the job and are strongly correlated with leaders and constituents performing at their best. Recognition is an example of an intrinsic reward. The challenge of the job and satisfaction of doing a good job can be an intrinsic reward. Praise and other alternative rewards outside the company’s formal reward system are other forms of intrinsic compensation.

On the other hand, extrinsic rewards are those rewards that are supplied from outside of the performance of the job. Financial rewards such as salary, stock options, bonus, and benefits of the job, prestige and title are examples of extrinsic rewards. Kouzes and Posner (2002) suggest that intrinsic motivation must be a part of the entire perceived reward package for the team member to perform at their personal best. Moreover, Kouzes and Posner (2002) suggest that extrinsic rewards and intrinsic rewards might negate one another instead of being additive.

Employees cannot be expected to work for free, but if the job is intrinsically rewarding, then the addition of external rewards may not make that much difference. Why is this the case? I am reminded of a mentor’s stance on variable pay (paraphrased): “If I have to pay someone extra to do the job as best as they can, then I’ve hired the wrong person for the job.” He definitely has a point, when one considers positions outside of sales, where the control over outcomes is often limited. If a person is well-suited and motivated to do a job, should they do less than their absolute best if we pay them less? No, and many professionals would still uphold professional standards even if they were paid minimum wage, because they are professionals. Of course, their professional job status and economic contribution often warrants more than minimum wage though. In some positions, altering the extrinsic rewards may have some effect but not a considerable amount because the job has professional standards of performance. However, if you increase intrinsic rewards for professionals, the quality of output may increase because the team member feels subconsciously that they are doing a better job and, therefore, are more closely adhering to professional standards.

Reference

Kouzes, J.M., & Posner, B.Z. (2002). The leadership challenge (3rd ed.). San Francisco, CA: Jossey-Bass.