External and Internal Rewards

Job satisfaction comes in different forms and affects employees in different ways. Rewards, whether internal or external, play a key role in an employee's job satisfaction. Though internal rewards well up from within the employee himself based on his own actions, external rewards are generated from another source and impact employees in various ways. Motivational dynamics have changed dramatically to reflect new work requirements and changed worker expectations. One of the biggest changes has been the rise in importance of psychic, or intrinsic rewards, and the decline of material or extrinsic rewards.

In the past 30 years many things have changed. Automation and off-shoring have eliminated most of the highly repetitive jobs, while global competition has produced flatter, more responsive organizations that require employees to use judgment and initiative to a much greater extent. Over this same 30-year period, the proportion of workers who say that their work is meaningful, allows them discretion, and makes use of their abilities has more than doubled—from less than one third to about two thirds. In addition, younger workers now come to organizations with different expectations than their parents. Raised during an era of rapid technological change and instant access to data, they respond best to work that is more meaningful, allows them to learn cutting-edge skills, and lets them find their own ways of accomplishing tasks.

Most of the motivational models used today were developed in earlier eras, when work and workers were different. However, these models do not reflect the changes in today’s work dynamics. However, intrinsic rewards have become more important and more prevalent in the workplace today.

Extrinsic Rewards

Extrinsic rewards—usually financial—are the tangible rewards given employees by managers, such as pay raises, bonuses, and benefits. They are called “extrinsic” because they are external to the work itself and other people control their size and whether or not they are granted. In contrast, intrinsic rewards are psychological rewards that employees get from doing meaningful work and performing it well.

Extrinsic rewards played a dominant role in earlier eras, when work was generally more routine and bureaucratic, and when complying with rules and procedures was paramount. This work offered workers few intrinsic rewards, so that extrinsic rewards were often the only motivational tools available to organizations.

Extrinsic rewards remain significant for workers, of course. Pay is an important consideration for most workers in accepting a job, and unfair pay can be a strong de-motivator.

Monetary

Monetary rewards are external and are given to an employee by a representative of the company. Whether it's a paycheck, a bonus, accrued vacation days, a gift card or anything else with a cash value, it is considered monetary. In addition, compensation packages are also considered external monetary rewards. Companies that offer child care, flexible spending accounts, and health insurance and wellness programs provide external rewards to employees. External monetary rewards are tangible and can be assessed a value by the employee.

Non-monetary Rewards

Non-monetary external rewards are equally important factors in employee job satisfaction. The advantages of job security, flexible working hours and opportunities for advancement are extremely valuable to employees. Additionally, simple non-monetary rewards can impact an employee's morale and confidence. Praise from a supervisor, receipt of an employee-of-the-month award or the hanging of a blue ribbon on a work desk all instill a sense of pride and accomplishment. The simple act of a manager thanking an employee while shaking his hand can reap monumental benefits on the work front. An employee who feels a sense of accomplishment carries it to his next assignment.

Intrinsic Rewards

Intrinsic rewards are ones that come from within the employee. For example, an employee might decide to take on a task outside of his normal duties. It might be because he simply sees a need and wants to help the company, he might want a new job skill or he might want to show management that he is capable of increased responsibility. The benefit to this type of internal reward is that it originates within the employee; he has a great deal of personal satisfaction when he accomplishes the task. The downside to intrinsic rewards are that the employee might take on a new challenge to prove himself, but feel taken advantage of if he must continue the extra duties without recognition. If the employee is not promoted, given a raise or a bonus, he might decide to take his new skills to another company where he is recognized for the skills.

The following are descriptions of the four intrinsic rewards and how workers view them:

Sense of meaningfulness: This reward involves the meaningfulness or importance of the purpose you are trying to fulfill. You feel that you have an opportunity to accomplish something of real value—something that matters in the larger scheme of things. You feel that you are on a path that is worth your time and energy, giving you a strong sense of purpose or direction.

Sense of choice: You feel free to choose how to accomplish your work—to use your best judgment to select those work activities that make the most sense to you and to perform them in ways that seem appropriate. You feel ownership of your work, believe in the approach you are taking, and feel responsible for making it work.

Sense of competence: You feel that you are handling your work activities well—that your performance of these activities meets or exceeds your personal standards, and that you are doing good, high-quality work. You feel a sense of satisfaction, pride, or even artistry in how well you handle these activities.

Sense of progress: You are encouraged that your efforts are really accomplishing something. You feel that your work is on track and moving in the right direction. You see convincing signs that things are working out, giving you confidence in the choices you have made and confidence in the future.

Basically, most of today’s workers are asked to self-manage to a significant degree—to use their intelligence and experience to direct their work activities to accomplish important organizational purposes. This is how today’s employees add value—innovating, problem solving and improvising to meet the conditions they encounter to meet customers’ needs.

In turn,the self-management process involves four key steps:   

• Committing to a meaningful purpose
• Choosing the best way of fulfilling that purpose
• Making sure that one is performing work activities competently, and
• Making sure that one is making progress to achieving the purpose.

Each of these steps requires workers to make a judgment—about the meaningfulness of their purpose, the degree of choice they have for doing things the right way, the competence of their performance, and the actual progress being made toward fulfilling the purpose.

These four judgments are the key factors in workers’ assessments of the value and effectiveness of their efforts—and the contribution they are making.

When positive, each of these judgments is accompanied by a positive emotional charge. These positive charges are the intrinsic rewards that employees get from work, ranging in size from quiet satisfaction to an exuberant “Yes!” They are the reinforcements that keep employees actively self-managing and engaged in their work.

External Versus Internal

External rewards are given to employees from the company, bosses or even co-workers. But employees experience internal rewards, as well, though they come from within. The satisfaction of knowing he has completed a project, achieved a goal or simply applied his best effort to his work is internal rewards that contribute to job satisfaction. External rewards enhance an employee's internal rewards as they validate his own assessment of his self-worth. For example, an employee who prides himself on achieving a goal experiences validation when given a bonus check for his efforts.

Suggestions

Bestowing external rewards on employees typically garner appreciation. It is prudent to examine the financial ramifications of an external reward before doling it out. Tax consequences on a monetary reward can dilute the value if not measured beforehand. External rewards can be given to individual employees or to teams. Based on the work environment, give careful consideration to the potential impacts of individual versus team awards. Insulting one team member by rewarding another team member can do more harm than good.