© Copyright 2018 Josh Purse

Intrinsic Vs. Extrinsic Reward Influences on Motivation, Satisfaction, and Performance

Motivating employees has always been one of the greatest challenges within the business environment. Some corporations are known for having highly productive workers, while others have difficulty retaining a stable workforce. This study will examine various factors contributing to worker motivations by investigating which methods have a higher impact on job satisfaction.


Herzberg’s Two-Factor Theory, also known as motivation-hygiene theory, states that there are growth factors every worker needs to continuously improve and maintenance factors to ensure their basic needs are met. Among the growth factors, which will also be referred to as intrinsic factors, are recognition, advancement, quality of work, and organizational culture. Examples of hygiene factors, also known as extrinsic factors, are salary, health insurance, benefits, and other monetary compensation. While Herzberg’s theory states that the intrinsic variables are the ingredients to worker satisfaction, it also claims that only the absence of extrinsic variables, like a good salary and benefits, has an impact upon satisfaction in the workplace, albeit a negative impact.


Taking a slightly different look at motivational contributors is Maslow’s Needs Hierarchy Theory. According to Maslow’s theory, people start at the bottom of a “needs pyramid” and move up the hierarchy as those needs are fulfilled. At the bottom lies mostly extrinsic variables such as food and water, then moving up to shelter and security. Without ever meeting the bottom needs, a person can’t move to the higher intrinsic needs such as esteem and self-actualization. In other words, a good salary might give someone the opportunity to move up a level, but without it, she would most likely remain stagnant and feel ambivalent or even resentful towards the job.


Both Maslow’s and Herzberg’s theories have huge implications in the business world. If these theories of motivation are applicable to the business environment, then companies would do well to provide a baseline benefit package so as not to disenfranchise staff, while focusing on intrinsic variables to increase job satisfaction. Accordingly, job satisfaction increases the likelihood of a motivated workforce which, in turn, can lead to higher productivity – a benefit to all.


Literature Review


Existing Research

People are vastly different in many respects, so it would follow that catalysts for motivation also differ. However, Herzberg’s Two-Factor Theory and Maslow’s Needs Hierarchy Theory suggest that those differences can be broken up into two groups, intrinsic and extrinsic factors. Many studies have been performed attempting to verify these theories, showing that intrinsic values are quite often more motivational than extrinsic ones (Lundberg, Gudmundson, & Andersson, 2009; Ahmed, Oyagi, & Tirimba, 2015).


In their study of seasonal migrant workers, authors Lundberg, Gudmundson, and Andersson (2009) examined non-monetary job aspects which positively contributed to worker attitudes and job satisfaction. Among the responses contributing to higher satisfaction levels were meeting new people, responsibility, and recognition. Likewise, authors Ahmed, Oyagi, and Tirimba (2015) found that recognition was among the highest contributing factors to employee satisfaction, showing a high positive correlation between satisfaction and productivity. Furthermore, the authors found that there was a positive correlation between working conditions and training on productivity, reinforcing both Herzberg’s and Maslow’s theories of intrinsic values having a more beneficial impact upon satisfaction and productivity.


It has been demonstrated that intrinsic values lead to higher satisfaction levels, but what effect does a more satisfied workforce have upon motivation and productivity? A study published in the Journal of Happiness Studies found that happiness levels corresponded well with productivity and went a step further in reporting that workers experienced their highest measures of productivity when experiencing positive moods (Zelenski, Murphy, & Jenkins, 2008). This doesn’t rule out extrinsic elements from causing positive moods, only that reportedly happy workers are more productive in their job performance.


Other than rating happiness levels, what are other ways to measure motivation? Non-profit industries usually don’t offer any type of compensation or monetary rewards. It has been theorized that workers in non-profit industries substitute wages for intrinsic values. This theory has been reinforced by demonstrating how cooperation among employees acts as an intrinsic element upon motivation and productivity (Becchetti, Castriota, & Tortia, 2013). Where profit and non-profit industries compete against each other, the lower-wage/no-wage workers in the non-profit sector closely match their competition. This means, that as a measure of productivity, intrinsic factors can, and do, substitute for wages.


It would be difficult to assess motivation if employees didn’t remain employed for long. Therefore, another way to view motivation, productivity, and job satisfaction is through examining retention rates. Among the highest cited reasons for job satisfaction, leading employees to remain with their company, are organizational culture, work-life balance, then compensation (Kumar & Arora, 2012). Additionally, career concerns, such as advancement, opportunities, training, and mentoring are often discussed as growth factors highly correlated with retention (Coetzee & Stoltz, 2015). These results mesh well with the notion that salary only goes so far to keep employees, but nurturing their careers and balancing work with their personal lives has a greater impact on whether or not they remain with the company.


Not only have studies shown the effects intrinsic values have on employee attitudes, but it’s possible that the type of work performed is also significant to the predictive validity of motivation (Cerasoli, Nicklin, & Ford, 2014). Where quality and quantity are concerned, self-motivation through intrinsic rewards is more predictive in the quality of work performed, whereas quantity of output is more likely affected by economic-based incentives, or extrinsic rewards. Accordingly, productivity is shown to have the greatest impact when both needs are met, demonstrating that intrinsic and extrinsic factors are not antagonistic.


If intrinsic rewards have positive effects upon attitude, motivation, and productivity, then the opposite should also be true, that removing esteem-raising qualities from the work environment should decrease job satisfaction and lead to worse productivity. Authors Ims, Pederson, and Zsolnai (2014) found just that when examining intrinsic and extrinsic variables not directly related to the employees. When executive compensation was thought to be excessive by others, it adversely affected performance. In other words, situations seemingly unfair can undo any intrinsic or extrinsic elements used to boost motivation and productivity. This lends credence to the importance the ethical nature of the work environment has upon workers. Just the notion of impropriety or unfairness can destroy the effects of both good compensation and positive attitude immediately.


Where older workers seem to value the qualities inherent in their jobs through intrinsic benefits, younger workers often appreciate economic rewards more (Cerasoli, Nicklin, & Ford, 2014; Kumar & Arora, 2012). This seems to follow the work-life balance cited earlier, that those with established lives and families care more about all aspects pertaining to the job, rather than just the economic benefits which help establish younger workers. Although younger workers may weigh the extrinsic benefits of the job higher than the intrinsic ones, it is not clear how much or little influence growth factors have upon job satisfaction.


Just as recognition can add to a positive attitude and job satisfaction, a lack of recognition is a key factor to de-motivation (Ahmed, Oyagi, & Tirimba, 2015). This seems to comport with the findings how excessive executive compensation can also lead to decreased motivation. As previously discussed, organizational culture has been cited as the main factor regarding happiness in the workplace. Both excessive executive compensation and a lack of recognition are indirect factors present in corporate culture that undoubtedly have a negative effect upon many workers.


Research Designs

When attempting to measure attitudes, motivation levels, and work quality, it’s difficult to use any other method than asking respondents and recording their responses. In almost every study, questionnaires were selected or developed to obtain subjects’ thoughts, feelings, and motivation levels. Yet, in many studies, questionnaires were only one aspect used to retrieve the necessary information.


A good example of using multiple techniques is the study performed by authors Ahmed, Oyagi, and Tirimba (2015), who performed a correlational study between financial and non-financial variables and their effects on productivity. Due to the different departments the workers were in, the authors used stratified sampling of 141 subjects and gave them structured, closed-ended, Likert-type questionnaires to discover motivational factors present in their work. Besides this primary source of data, a secondary source (financial statements) was used to compare against the self-reports of intrinsic values.


Authors Cerasoli, Nicklin, and Ford (2014) performed a large meta-analysis of previous primary studies using between-study correlational analysis and matrix regression. Both published and non-published studies were used to elicit 14,070 data points, which were then coded to fall within certain categories such as extrinsic incentives. This is one of the very few studies which did not use questionnaires in their research, but being that this is a secondary study, it is presumable that much of the material used for analysis incorporated questionnaires throughout the primary studies.


The only prospective study found also used questionnaires which monitored 75 workers over 8 weeks to measure changes in employee attitudes (Zelenski, Murphy, & Jenkins, 2008). Authors Kumar and Arora (2012) also used a questionnaire, but first assessed its validity by creating a pilot study. After, subjects were separated through random sampling and significance levels were determined through the use of t-tests. Every questionnaire used, as reported in the published studies, used a Likert-type scale for respondents to answer.


Advantages and Disadvantages

Questionnaires have their obvious advantages and disadvantages. They are solely dependent upon participation and truthfulness of respondents. For example, one of the unfortunate factors mentioned by authors Lundberg, Gudmundson, and Andersson (2009) in their study of motivational elements in tourism hospitality was that only 43% of possible subjects responded to the questionnaires (263 out of 613). Another disadvantage is in coding the responses, especially when dealing with open-ended questions (Lundberg, Gudmundson, & Andersson, 2009).


Taking this a step further, most of the studies performed on worker attitudes, motivation, and intrinsic vs. extrinsic rewards, don’t examine productivity. Although workers may claim to be happy in their position, how does their work measure against an unhappy worker? It would be beneficial to juxtapose self-reports with longitudinal productivity reports. Of course, there’s a downside to this as well since intrinsic and extrinsic values have been shown to affect different types of work dissimilarly, namely quality performance vs. quantity performance (Cerasoli, Nicklin, & Ford, 2014). Even a partially retrospective study reviewing worker productivity could be used in conjunction with questionnaires regarding employee attitudes. This is ultimately the missing piece of the puzzle linking attitudes to motivation, and then motivation to productivity.


One of the reasons questionnaires are so prevalent is due to their ease in administering. Even though only 43% of surveys sent were answered in the tourism hospitality study (Cerasoli, Nicklin, & Ford, 2014), this is a testament to their far-reaching abilities. It would be very difficult to individually test 613 subjects, not to mention the time and expenses involved, but mailing out the questionnaires makes sampling large pools of people possible. In the study by Becchetti, Castriota, and Tortia (2013), they sent out over 4,100 questionnaires; something highly improbable to do in person.


Another benefit provided by self-reports is their nonintrusive nature. The Hawthorne effect, when subjects change their behavior simply by being observed, is irrelevant through the use of self-reports. Likewise, observers don’t have to worry about whether or not their perceptions of workers’ behaviors are accurate. Simply asking the workers seems to be much more effective.


Appropriateness

Each method reviewed has differing applicability based upon what information the researchers were attempting to ascertain. The retrospective meta-analysis performed by authors Cerasoli, Nicklin, and Ford (2014) is well-suited for their correlational study which attempted to achieve a higher validity by using thousands of data points. In the same manner, authors Kumar and Arora (2012) tested the validity of their questionnaire by implementing a pilot study.


Another savvy way of obtaining outcome information is through examining symptoms related to topic, such as exploring retention rates to discover what factors keep people in their jobs (Coetzee & Stoltz, 2015; Kumar & Arora, 2012). When looking at motivational components, perhaps it’s worth examining the people exhibiting high levels of ambition who seek advancement and promotion.


It would seem the most appropriate type of research design to analyze which has a more powerful effect upon worker attitudes, growth or hygiene factors, is a correlational study in which the two independent variables could be measured against each other. The easiest and most efficient way of doing this would be through a questionnaire asking situational closed-ended questions on a Likert-type scale. First, this method is much easier to quantify through coding the “1-5” responses. Additionally, due to subject availability and proximity to others, it would be difficult to use anything other than a self-report. If it were possible, combining a longitudinal element tied to productivity would greatly increase the usefulness of data obtained.


Unknown

Although many studies have linked intrinsic values to increased motivation and, in turn, productivity, those workers who are more productive often earn more in wages (Becchetti, Castriota, & Tortia, 2013). This confuses the “flow” of whether higher productivity leads to better wages or higher wages also lead to increased productivity (besides intrinsic factors). Furthermore, those already highly motivated in their careers are more likely to value intrinsic aspects of the job – a sort of confirmation bias (Coetzee & Stoltz, 2015). Are happy workers truly more productive (Zelenski, Murphy, & Jenkins, 2008), or does being more productive lead to a happier work life?


Another large unknown element is how large an effect does culture and organizational culture have upon intrinsic vs. extrinsic variables. Most of the research referenced has been performed on cultures throughout the world. It would be presumed that not every culture views work-life balance above that of health benefits. For instance, do the South Africans sampled in Coetzee and Stoltz’s (2015) study on employee retention rank intrinsic qualities the same as the participants from Somaliland surveyed in Ahmed, Oyagi, and Tirimba’s (2015) study of non-financial motivation on employee productivity? More so, each business has its own culture, even those within the same towns. How does one corporation match up against another in regard to how workers view hygiene and growth elements? According to authors Kumar and Arora (2012), organizational culture is the number one determinant to employees leaving their company.


A point of note in two different studies is that older participants showed a propensity for higher intrinsic motivation, as opposed to younger workers who considered compensation a more important factor when dealing with retention (Cerasoli, Nicklin, & Ford, 2014; Kumar & Arora, 2012). It’s logical why this might be, but might there also be cultural factors at play? Also, what is “young” vs. “old” in these studies? Perhaps the type of work performed matters as well, since the quality of work has been linked to intrinsic factors and quantity linked to extrinsic factors (Cerasoli, Nicklin, & Ford, 2014).


Finally, as discussed above, excessive executive compensation has the ability to negate the positive effects of both intrinsic and extrinsic motivational elements (Ims, Pedersen, & Zsolnai, 2014). But what effect does higher-level praise or recognition have upon positive attitudes? If employees feel their CEO is being overcompensated and that can lead to discontent, does that mean recognition from the CEO is also viewed in higher regard? In other words, does acclaim from executive managers have more of an effect upon motivation and positive attitude than it would coming from a direct supervisor (if not an executive)?


Principles and Standards

Due to the nature of the topic, there aren’t many ways to cause harm in performing these studies. The two principles most at play in the American Psychological Association’s (APA) (2010) Code of Ethics, are beneficence and nonmaleficence (Principle A), and respect for people’s rights and dignity (Principle E). There is no evidence that any of the questionnaires used would have caused any harm, and even if they inadvertently did, respondents had the option to not participate. The studies not directly interacting with subjects took a meta-analytical approach of retrospective data, so participants would not be affected in any way, other than asking for consent for the release of information if anything personal was to be used. As for people’s rights and dignity, participants’ rights are often given in their consent agreements. Besides consenting to being a subject, respondents most often used questionnaires which may have been refused if there was even an appearance of personal rights violations.


The only APA (2010) standard that has direct relevance pertains to privacy and confidentiality (Standard 4). Authors Ahmed, Oyagi, and Tirimba (2015) devote a separate section to ethical considerations, where they explicitly ensure confidentiality, state research purposes, and relay a limited debriefing. In their study on retention factors, authors Coetzee and Stoltz (2015) obtained ethical clearance to conduct their study as well as consent forms from all participants in which they stressed the voluntary nature of participation, privacy, anonymity, and confidentiality.


Anticipated Results


The vast body of literature reviewed has come to many of the same conclusions, that intrinsic rewards are more effective when it comes to positive employee attitudes. This study is expected to reveal similar results. Additionally, age will be tested for a significant relationship with the type of reward, as some other studies have suggested younger workers value extrinsic rewards (compensation) slightly more, whereas older workers value intrinsic rewards (recognition) slightly more. With such a small sample size, this may be difficult to determine, but the results would be expected to show a slight favorability.


When comparing the overall means, even if this study reinforces the other literature, the results wouldn’t be expected to be overwhelming in one direction or the other. Using a 5-point Likert scale and a very small sample size, the mean is most likely going to be near the neutral point and, presumably, only slightly in the intrinsic reward direction. In other words, the results are expected to complement the previous literature.


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References


Ahmed, T. M., Oyagi, B., & Tirimba, O. I. (2015). Assessment of non-financial motivation on employee productivity: Case of Ministry of Finance headquarters in Hargeisa Somaliland. International Journal of Business Management and Economic Research, 6(6), 400-416.


American Psychological Association (APA). (2010). Ethical principles of psychologists and code of conduct.


Becchetti, L., Castriota, S., & Tortia, E. (2013). Productivity, wages and intrinsic motivations. Small Business Economics, 41(2), 379-399. doi:10.1007/s11187-012-9431-2


Cerasoli, C. P., Nicklin, J. M., & Ford, M. T. (2014). Intrinsic motivation and extrinsic incentives jointly predict performance: A 40-year meta-analysis. Psychological Bulletin, 140(4), 980-1008. doi:10.1037/a0035661


Coetzee, M., & Stoltz, E. (2015). Employees' satisfaction with retention factors: Exploring the role of career adaptability. Journal of Vocational Behavior, 89, 83-91. doi:10.1016/j.jvb.2015.04.012


Ims, K. J., Pedersen, L. J., & Zsolnai, L. (2014). How economic incentives may destroy social, ecological and existential values: The case of executive compensation. Journal of Business Ethics, 123(2), 353-360. doi:10.1007/s10551-013-1844-6


Kumar, R., & Arora, R. (2012). Determinants of talent retention in BPO industry. Indian Journal of Industrial Relations, 48(2), 259-274


Lundberg, C., Gudmundson, A., & Andersson, T. (2009). Herzberg's Two-Factor Theory of work motivation tested empirically on seasonal workers in hospitality and tourism. Tourism Management, 30(6), 890-899. doi:10.1016/j.tourman.2008.12.003


Zelenski, J. M., Murphy, S. A., & Jenkins, D. A. (2008). The happy-productive worker thesis revisited. Journal of Happiness Studies, 9(4), 521-537. doi:10.1007/s10902-008-9087-4