Extrinsic Rewards

What Are Extrinsic Rewards? A Clear Guide With Examples

Extrinsic rewards are tangible and visible incentives provided by external sources as recognition for specific achievements, behaviors, or performance outcomes. These rewards exist outside the individual and are typically administered by managers or supervisors who determine when and how they are distributed. Unlike intrinsic rewards which come from within an individual, extrinsic rewards are physical in nature and often have monetary value.

These external incentives serve as powerful motivational tools, particularly when specific performance targets or outcomes need to be achieved. They function by providing clear goals and incentives for individuals to work toward, even when they may not find the task inherently enjoyable. For instance, a sales representative might not be particularly interested in the product they’re selling but will make additional effort to meet sales targets upon realizing they would receive a cash bonus.

Extrinsic rewards typically fall into several categories:

• Monetary incentives: Bonuses, salary increases, commissions, and profit-sharing arrangements
• Tangible items: Gift cards, merchandise, electronics, and other physical prizes
• Professional advancement: Promotions, better workspace, additional responsibilities
• Rewards and Recognition: Public acknowledgment, awards, certificates, and employee-of-the-month programs
• Benefits: Additional paid time off, stock options, and other perks

While extrinsic rewards can effectively drive short-term motivation and performance improvement, their impact may diminish over time. Research indicates that when individuals become primarily motivated by external rewards, their intrinsic motivation might decrease—a phenomenon known as the “overjustification effect”. This occurs when people begin viewing tasks solely as means to obtain rewards rather than as inherently worthwhile activities.

Additionally, extrinsic rewards may create environments where individuals focus exclusively on achieving the reward instead of enjoying the process or developing genuine interest in the task. This narrow focus on external outcomes can potentially hinder creativity and innovation. Furthermore, extrinsic motivation might create dependency on external validation, making individuals less inclined to take risks or explore new ideas.

Despite these considerations, extrinsic rewards remain valuable motivational tools, particularly for short-term objectives. They work effectively because rewards such as compensation, recognition, and advancement opportunities matter significantly to most workers. Extrinsic motivation is especially useful when work objectives involve lengthy goals or when tasks might not be inherently engaging to all individuals.

For optimal effectiveness, organizations should consider several factors when implementing extrinsic reward systems. First, they must assess whether the rewards are motivating the desired behavior or simply motivating people to obtain the reward. Second, they should evaluate whether increasingly larger rewards will be necessary to sustain the behavior. Third, they need to determine if external motivation is inadvertently replacing internal sources of motivation.

Types of Extrinsic Rewards

Extrinsic rewards can be categorized into several distinct types based on how they are delivered and what they entail. Understanding these classifications helps in designing effective motivational systems across different contexts.

Contingent Rewards

Contingent rewards operate on a straightforward principle: they are provided only when specific conditions are met or particular behaviors are demonstrated. These rewards follow a clear “if-then” structure—if you perform a certain task or achieve a specific goal, then you receive the designated reward. This approach creates a direct link between performance and compensation.

The effectiveness of contingent rewards lies in their clarity. When employees know exactly what they can achieve by meeting certain conditions, it incentivizes them to work efficiently toward those goals. 

For instance, sales commissions represent a classic contingent reward structure where compensation directly correlates with performance metrics. Other examples include bonuses for reaching targets, promotions based on achievement criteria, and recognition awards for outstanding work.

Research indicates that contingent rewards work exceptionally well for straightforward, routine tasks where the path to the goal is clear. However, they may be less effective for complex, creative endeavors that require innovative thinking.

Non-contingent Rewards

Unlike their contingent counterparts, non-contingent rewards are delivered based on the passage of time rather than specific behaviors. These rewards are provided with “no strings attached” and are not tied to performance metrics or behavioral outcomes.

Non-contingent reinforcement (NCR) serves primarily as a preventative measure, helping to avoid problem behaviors before they occur. By regularly providing preferred attention, items, or activities throughout the day, individuals are less likely to engage in problematic behavior to access those same preferences. Common examples include scheduled breaks, regular recognition events, and benefits that all employees receive regardless of performance.

According to research, non-contingent rewards help build positive relationships by associating the reward-giver with positive experiences rather than constant demands or reprimands. This approach proves particularly effective when working with individuals with disabilities and across various age groups from early childhood through transition classrooms.

Explore why the contingency approach makes modern management more effective.

Competitive Rewards

Competitive rewards are those earned through outperforming others. These incentives are central to competitive environments where individuals or teams vie for limited rewards. In sports, athletes receive publicity, awards, and scholarships based on their performance relative to competitors.

In workplace settings, competitive rewards might include employee-of-the-month programs, sales contests with single winners, or promotion tracks where limited positions are available. These systems can drive extraordinary performance but may consequently foster unhealthy competition if not carefully managed.

Studies show that competitive rewards tend to focus athletes and employees on performance outcomes rather than the process itself. Moreover, an over-emphasis on competitive extrinsic motivation may lead individuals to feel controlled by the rewards system rather than intrinsically motivated.

Tangible vs Intangible Rewards

The distinction between tangible and intangible rewards represents another important classification. Tangible rewards involve material goods or utilitarian benefits with clear monetary value. These include cash bonuses, gift cards, merchandise, and other physical items. According to research, 62% of employees prefer tangible incentives, even small ones, over recognition or other intangible rewards.

In contrast, intangible rewards do not offer material benefits to recipients. These include recognition, praise, career development opportunities, and flexible work arrangements. Though lacking direct monetary value, intangible rewards contribute significantly to employee engagement and satisfaction.

Both types serve important functions in comprehensive reward systems. Tangible rewards provide clear, measurable value and immediate motivation, whereas intangible rewards often foster longer-term engagement and personal satisfaction. For optimal effectiveness, organizations typically blend both approaches, recognizing that different individuals respond differently to various forms of recognition.

Examples of Extrinsic Rewards

Extrinsic rewards manifest in various forms across different environments, serving as powerful external motivators that drive specific behaviors and performance outcomes. These tangible rewards and social incentives play crucial roles in shaping actions in professional, educational, domestic, and competitive settings.

Workplace Examples

In professional environments, monetary incentives remain among the most prevalent extrinsic rewards. Bonuses tied to performance metrics, including those for achieving sales targets, serve as direct motivators linking effort to compensation. Salary increases and promotions represent significant career advancement rewards that encourage employee retention and productivity. Beyond direct compensation, organizations implement comprehensive benefits packages including health insurance, retirement contributions, and flexible working arrangements that often hold greater value than simple pay increases.

Additional workplace extrinsic rewards include profit-sharing plans (typically between 2.5-7.5% of earnings), recognition programs featuring certificates or public acknowledgment, and spot awards for immediate performance recognition. Paid time off constitutes another valuable reward, with 92% of employees reporting that paid leave significantly leads to job dissatisfaction. Some organizations also offer improved workplace amenities such as ergonomic chairs, ambient lighting, and dedicated quiet spaces to enhance the working environment.

Classroom Examples

Educational settings rely heavily on extrinsic motivation to reinforce desired behaviors. Elementary teachers commonly employ candy, stickers, small toys, extra recess time, and class parties as incentives. For secondary students, certificates, homework exemption coupons, extra credit points, and semester-end events prove effective.

Many classrooms implement structured reward systems. For instance, third-grade teacher Ms. Smith uses a dual approach: individual students achieving perfect scores place their names in a jar for weekly prize drawings, alongside a group-based system where students earn points for promptness, culminating in an ice cream float party upon reaching 65 points. Similarly, Mr. Brown, an eighth-grade history teacher, exempts students with no missing assignments from final exams and organizes park outings for classes with perfect submission records.

Parenting and Home Examples

Within family settings, parents utilize extrinsic rewards to encourage cooperation and development. Non-monetary incentives typically prove most effective, including allowing children to choose dinner menus, granting extra playtime with parents, permitting additional bedtime stories, or providing extra device time. These choice-based rewards give children a sense of control, which helps build internal motivation.

Parents often implement reward systems for specific developmental milestones or challenging behaviors. For instance, sticker charts during potty training provide visible progress markers. Although some families report that traditional rewards sometimes prove ineffective with certain children who resist perceived control, carefully selected rewards based on individual preferences typically yield better results.

Sports and Competition Examples

Competitive environments naturally incorporate extrinsic rewards as central motivational elements. Athletes receive publicity, awards, and financial compensation based on performance outcomes. College athletes specifically pursue scholarships that provide educational opportunities through athletic achievement.

Professional sports feature numerous extrinsic motivators including MVP awards recognizing outstanding individual contributions, endorsement deals with substantial financial benefits, and record-breaking recognition that brings media attention and sponsorship opportunities. Team-based incentives also play important roles, with group celebrations, player-of-the-game acknowledgments, and team-based bonus structures fostering collective performance.

Public Recognition Examples

Public acknowledgment represents a powerful extrinsic motivator across contexts. Employee-of-the-month programs featuring certificates, plaques, or additional privileges visibly recognize exceptional performance. Media coverage provides external validation for achievements, specifically in sports and professional settings.

Social media recognition has emerged as a contemporary form of public acknowledgment, with likes, followers, and digital engagement serving as measurable extrinsic rewards. Recognition ceremonies and award events provide formal settings for public appreciation, often combining tangible prizes with social acknowledgment to maximize motivational impact.

Benefits of Extrinsic Rewards

Implementing extrinsic rewards yields measurable advantages in various contexts, from workplace productivity to educational achievement. Through structured incentive systems, organizations harness these external motivators to achieve specific objectives.

Studies from Harvard Business Review demonstrate that employees receiving tangible rewards perform 15-22% more efficiently than their counterparts. This productivity boost occurs primarily since external incentives create clear targets for individuals to pursue, subsequently enhancing focus and determination. Indeed, when properly structured, these reward systems improve worker performance by 20% in the long run, as evidenced by McKinsey & Company research.

Retention represents another significant benefit of extrinsic rewards. According to the Employee Benefit Research Institute, 63% of employees satisfied with their incentive programs express stronger intentions to remain with their employers. This retention effect stems from employees feeling genuinely valued, hence developing emotional attachments to their organizations.

Extrinsic rewards likewise facilitate behavioral alignment with organizational objectives. By connecting specific incentives to desired actions, companies effectively shape employee conduct toward achieving corporate goals. This strategic application helps establish expectations, promote positive workplace conditions, and obtain continuous enhancements in productivity.

Notable benefits of extrinsic rewards include:

• Enhanced goal attainment – External incentives provide clear targets, helping individuals maintain focus and motivation toward desired outcomes
• Effective behavioral regulation – Rewards reinforce positive habits and encourage exhibition of desirable behaviors
• Strengthened teamwork – Group-based incentives foster collaboration as employees work toward common objectives
• Immediate motivation – Short-term incentives prove particularly effective for completing specific tasks or achieving time-sensitive goals

The straightforward implementation of extrinsic rewards constitutes yet another advantage. Bonuses, awards, and recognition programs offer clear, understandable motivational tools that demonstrate organizational appreciation. This simplicity makes extrinsic incentives accessible across different contexts and applicable to diverse objectives.

For routine or repetitive tasks where intrinsic motivation might naturally wane, extrinsic rewards provide essential external motivation. This aspect proves especially valuable in environments requiring sustained effort toward lengthy goals. Furthermore, extrinsic motivation often functions effectively alongside intrinsic rewards and motivation, with unexpected external rewards generally not diminishing internal drive.

Ultimately, comprehensive reward systems produce wide-ranging organizational benefits: higher job satisfaction, consistent attendance, improved performance, increased profits, and greater productivity. These outcomes highlight why extrinsic rewards remain fundamental components of effective motivation strategies across educational, professional, and personal contexts.

Limitations and Risks of Extrinsic Rewards

Despite their effectiveness in certain contexts, extrinsic rewards present several significant limitations that can undermine their long-term value and even damage motivation in some situations.

Overjustification Effect

The overjustification effect occurs when external incentives decrease a person’s intrinsic motivation to perform an activity they previously enjoyed. This psychological phenomenon results when individuals attribute their behavior to external rewards rather than to their genuine interest in the activity. In a landmark experiment by Lepper, Greene, and Nisbett, children who were rewarded for drawing with pens—an activity they naturally enjoyed—subsequently showed markedly less interest in the pens during free play compared to children who received no rewards. The effect happens primarily because people retrospectively analyze their motivations, assigning excessive importance to external reinforcements.

Short-Term Motivation

Extrinsic rewards often deliver only temporary motivational boosts. External motivators frequently fall victim to the “hedonic treadmill” phenomenon, wherein the initial positive effect of rewards rapidly diminishes. Research confirms that the “high” experienced from external rewards—promotions, financial incentives, or material possessions—has an exceptionally brief duration. For tasks requiring creativity, cognitive flexibility, or complex problem-solving, this temporary motivation proves particularly problematic as external pressure simultaneously suppresses these brain functions.

Loss of Interest After Reward Removal

When extrinsic rewards are discontinued, motivation typically declines to levels below those observed before the rewards were introduced. This decline occurs because individuals begin to view activities solely as means to obtain rewards rather than as inherently worthwhile pursuits. One explanation for this effect involves the brain’s adaptive coding of rewards based on recent reward levels—when an extrinsic reward disappears, the remaining intrinsic motivation appears comparatively smaller. Educational research suggests this effect has serious ramifications for children’s learning processes, potentially undermining their spontaneous interest in education itself.

Habituation to Rewards

Over time, individuals become accustomed to receiving rewards, necessitating progressively larger incentives pay to achieve identical motivational effects. This diminishing effectiveness creates a problematic cycle wherein maintaining motivation requires ever-increasing rewards. Simultaneously, recipients may develop expectations about receiving rewards for certain behaviors or achievements, resulting in decreased motivation in areas without explicit incentive structures. This habituation effect particularly impacts workplace reward systems, where employees can become dependent on external validation, thereby reducing risk-taking behavior and innovation.

How to Use Extrinsic Rewards Effectively

Effective implementation of reward systems requires strategic planning and careful execution to maximize benefits while avoiding potential pitfalls. Organizations can enhance the impact of external incentives through several evidence-based approaches.

Set Clear Goals and Criteria

Establishing transparent expectations forms the foundation of any successful reward system. When employees understand precisely what is required to earn incentives, their focus naturally sharpens on achieving those objectives. Organizations must create measurable criteria that enable accurate tracking of progress toward goals. This approach eliminates ambiguity, ensuring employees remain oriented toward achievable outcomes. Effective goal-setting includes:

• Defining specific, measurable targets that clearly determine eligibility for rewards
• Implementing data-driven evaluation methods based on quantifiable results
• Customizing goals appropriately for different roles and responsibilities

Studies confirm that when performance targets connected to rewards lack clarity, employee motivation diminishes substantially.

Match Rewards to Individual Preferences

Individual differences in reward preferences necessitate personalized approaches to incentive programs. Research demonstrates that people working in sales roles typically respond best to material rewards, whereas those in consultant positions often prefer experiential incentives. Recognizing these distinctions enables organizations to tailor reward systems accordingly.

For maximum effectiveness, managers should offer flexibility in reward selection. Instead of providing identical incentives to all employees, allowing individuals to choose rewards that align with their personal preferences yields superior results—whether through gift cards for preferred establishments or tickets to events they genuinely enjoy.

Use Small, Timely Incentives

Contrary to common assumptions, research from Harvard Business Review indicates that even modest rewards can significantly boost autonomous motivation. The key principles for effective implementation include:

• Frequency: Delivering small rewards periodically generates greater impact than infrequent major incentives
• Immediacy: Providing rewards promptly after achievement reinforces desired behaviors
• Consistency: Maintaining predictable reward schedules builds trust and reinforces expectations

Combine with Intrinsic Motivation

The most effective reward systems integrate extrinsic incentives with intrinsic motivational factors. Organizations should balance external rewards with opportunities for autonomy, mastery, and purpose. This combined approach prevents over-reliance on external validation while maintaining productivity.

Studies show that when work feels meaningful, recognition has limited motivational effect; conversely, when meaningfulness is lacking, recognition dramatically improves performance. Consequently, organizations must pair financial incentives with career development opportunities, mentorship programs, and leadership training to foster comprehensive motivation.

Key Takeaways

Understanding extrinsic rewards and their strategic implementation can transform motivation across workplace, educational, and personal contexts while avoiding common pitfalls.

• Extrinsic rewards are external incentives like bonuses, recognition, and promotions that motivate specific behaviors and performance outcomes

• Four main types exist: contingent (performance-based), non-contingent (time-based), competitive (outperforming others), and tangible vs intangible rewards

• Benefits include 15-22% productivity gains and improved retention, but risks include overjustification effect and dependency on external validation

• Effective implementation requires clear criteria, personalized rewards matching individual preferences, and timely delivery of small incentives

• Balance external rewards with intrinsic motivation by combining incentives with autonomy, purpose, and meaningful work to prevent over-reliance

The key to successful extrinsic reward systems lies in strategic design that enhances rather than replaces internal motivation, creating sustainable performance improvements without diminishing genuine interest in the work itself.

FAQs

Curious about more HR buzzwords like crisis management, data driven recruitment, or diversity hiring? Dive into our HR Glossary and get clear definitions of the terms that drive modern HR.

Explore Taggd for RPO solutions.