What is an extrinsic reward? (With tips and examples)

By Indeed Editorial Team

Published 8 July 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Rewards are a useful tool to motivate employees as they provide something tangible for completing a task or reaching a set goal. An extrinsic reward can take many forms, but they generally have some element of monetary value associated with them, such as a salary increase, financial bonus or an award of recognition. Learning how and when to reward employees can help improve workplace productivity and employee satisfaction. In this article, we discuss the importance of extrinsic rewards, outline their benefits and disadvantages and provide some examples of such rewards.

The importance of extrinsic rewards in the workplace

Extrinsic rewards can motivate and inspire employees by incentivising them with money or other bonuses. In many cases, these rewards can motivate an individual with no internal motivation, such as someone who has no passion for a particular project. If a sales executive has no desire to sell their designated products, an external reward such as commission can increase their motivation. This is a common approach used across a multitude of industries to encourage staff.

External rewards are equally important as a tool for the behavioural conditioning of staff. This allows companies to roll out changes, host events or change behaviours in the workplace through incentives. For example, if a company struggles with poor attendance at work-related events, it might use an incentive to encourage more attendees. This might mean offering time off or a cash reward for attendance.

When are external rewards useful to businesses?

It's worth considering when and where external rewards are most useful for businesses, as this can help you use them more effectively. These rewards work best as a short-term way of encouraging a behavioural change in staff, but if a company intends to enact long-term change, it's important to consider the following:

  • Is the external reward motivating a behavioural change or simply motivating staff to obtain the reward?

  • Is it necessary to increase the reward to maintain the behavioural change over time?

  • Is an internal reward system at risk of changing into an external reward system?

In many instances, using an external reward to ensure long-term behaviour isn't viable, and other more internal approaches may be more suitable. Take the time to consider what's most suitable for the particular situation before promoting external rewards in the workplace.

Related: 8 fun activities at work to increase team motivation

The effectiveness of external rewards in the workplace

External rewards can be incredibly effective at encouraging behavioural changes in the workplace, but their effectiveness varies between individuals. For some employees, external rewards may be enough to motivate them and encourage positive behaviours. For others, pushing benefits with more of an intrinsic personal value may be more advantageous.

Generally speaking, external rewards work best when rewarding it rarely to provide maximum impact when the appropriate situation arises. If you reward something too frequently, its overall value dwindles. Some refer to this as the over-justification effect, where you reward a certain behaviour or activity so often that there's no longer any interest in earning it.

Related: 6 simple tips for how to work hard and stay motivated

The benefits of external rewards

External rewards are useful for adjusting behaviours in the workplace when implemented thoughtfully. There are several benefits associated with these types of rewards, including:

  • Inspires passion: External rewards are an excellent way to inspire passion in individuals who are not passionate about a task or behavioural change. For example, encouraging a member of staff with a bonus to help another employee who's struggling is an external reward.

  • Accomplish goals: When you aim to accomplish a goal, you're setting an extrinsic motivator. A goal could be almost anything, such as completing a project on time, so external rewards can boost productivity.

  • Encourages work: Even the most passionate members of staff require payment for their work because otherwise, they can't sustain a basic livelihood. External rewards can therefore encourage more successful work and keep staff focused.

Related: Team meeting strategies (plus how to organise team meetings)

The risks of external rewards

External rewards can be incredibly useful, but there are some risks involved. This especially applies if you rely on them for too long. Some of the risks associated with these types of rewards include:

  • Sustainability: External rewards don't necessarily inspire passion, so if a staff member knows that they're likely to receive a reward anyway, they may only apply the minimum effort to obtain it. The lack of sustainability of such rewards comes from the lack of direct motivation they offer.

  • Scaling: If you use the same reward repeatedly, its success can diminish rapidly. To maintain the same level of success, these rewards require an element of scaling up to achieve the same level of change over time, which can be expensive and impractical.

  • Expectations: External rewards can set expectations of rewards for staff when they complete a task or project. This is problematic because, eventually, staff may avoid tasks if they aren't offered an external reward for the work.

Related: Using motivation in management to help your team succeed

Examples of external rewards

External rewards can take many forms, but they're most often associated with some type of monetary incentive. Undertaking a new training course to advance your career is also a good example of extrinsic motivation because the certificate and subsequent promotion is external reinforcement. If you're completing a training course to learn more about your industry and grow your knowledge, then it's an intrinsically motivating reward. Below is a list of external rewards to help you get an idea of how they interact with real-world situations:

  • competing with colleagues for most sales in a day

  • undertaking courses to improve your chances of promotion

  • completing tasks quickly to receive a bonus

  • purchasing items with a shop loyalty card to earn points and discounts

  • using a credit card when shopping to receive loyalty points

  • keeping a tidy workspace to receive praise from superiors

Tips for using external rewards in the workplace

Using external rewards in the workplace can be an effective approach to changing staff behaviours or achieving specific goals. There are inherent risks with relying on these types of rewards for these purposes. To avoid risks, consider adopting the following tips to ensure use these rewards successfully:

Set realistic expectations and offer consistency

Creating an outline for how and when staff receive external rewards is essential for its success. Make employees aware of what's required to obtain the reward, and define what the reward may be so that staff knows what they're working towards. Being consistent with rewards over time is also important to help the company meet the employee's expectations. Changing the requirements for a reward is understandable, but try to inform staff in advance so they have realistic expectations. A lack of consistency can make goals more obscure, which can demotivate employees.

Focus on cash and financial incentives

Although salaries and competitive hourly rates might not be enough to motivate employees all the time, it doesn't mean financial incentives have no use. Money and financial incentives are powerful motivators for staff, particularly when they involve bonuses or additional pay. Consider offering pay raises, promotions or even cash bonuses for employees as a way of encouraging behavioural change. Make sure that you set realistic goals with defined deadlines, ideally on a weekly or monthly basis. Top earners have a right to receive rewards for their efforts, and financial rewards can be easy to implement as such.

Try unorthodox rewards

Although financial rewards are an excellent external motivator for staff, there are other approaches to consider too. Experiment with different incentives to see what your employees value most. This allows you to tailor the incentives to meet their individual tastes and adds variety to the reward scheme. Some examples to consider might be:

  • gift cards to popular local restaurants and cafes

  • company lunches when meeting targets

  • additional days off when a project is completed

  • tickets to a sporting or music event

When trying out these rewards, it's a good idea to speak with employees about their preferences. If you offer tickets to a rock concert, but your staff are country music fans, there's little motivation for them to work harder because the reward isn't to their taste. Instead, offer to pay for a concert of their choice.

Related: A comprehensive guide to four team effectiveness models

Reward hard work with positive feedback

Communication and feedback are two important aspects of maintaining employee relationships. Employees look for validation and positive feedback to know their work is commendable and respected. Sometimes reminding staff of this can be a good way of creating extrinsic motivation. This is especially true when an employee goes above and beyond expectations. It's important to celebrate their success and offer praise when earned. How you offer this praise differs from person to person, so make sure you tailor the praise to them. This might mean sending a private email or announcing it to the team.

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