Compare and contrast the benefits of intrinsic rewards, such as recognition, and extrinsic rewards, such as pay, as forms of motivation.
Organizations are increasingly recognizing that both intrinsic and extrinsic rewards are important. Rewards are intrinsic in the form of employee recognition programs and extrinsic in the form of compensation systems. Intrinsic rewards range from a spontaneous and private thank-you to widely publicized formal programs in which specific types of behavior are encouraged and the procedures for attaining recognition are clearly identified.
Pay, an extrinsic reward, is not the primary factor driving job satisfaction; however, it does motivate people, and companies often underestimate its importance in keeping top talent. No matter how much recognition a top performer gets, he or she will be tempted to leave if the pay scale is much lower than the market and another offer arrives.
Variable pay structures, such as bonuses, are often the best production motivators. When pay is tied to performance, the employee's earnings also recognize contribution rather than being a form of entitlement. Over time, low performers' pay stagnates, while high performers enjoy pay increases commensurate with their contributions.
An obvious advantage of intrinsic rewards like recognition programs is that they are inexpensive since praise is free. However, they are highly susceptible to political manipulation by management. When applied to jobs for which performance factors are relatively objective, such as sales, recognition programs are likely to be perceived by employees as fair. However, in most jobs, the criteria for good performance aren't self-evident, which allows managers to manipulate the system and recognize their favorites. Abuse can undermine the value of recognition programs and demoralize employees.
Research suggests financial incentives may be more motivating in the short term, but in the long run intrinsic incentives will retain good employees if the extrinsic incentives are competitive.