Tangible rewards a great tool to help employers tap into employee motivation.

A team of motivated, high-performing employees is any corporate leader’s dream. While there is no debate that strong teams position a company for success, the challenge of building great teams raises the nature versus nurture dilemma of to what extent employee motivation can be incentivized through tangible rewards. 

This article explores differences between extrinsic and intrinsic motivation, the role of tangible rewards and other strategies to harness employee motivation.

Understanding Intrinsic and Extrinsic Motivation

The first thing to know for this crash course in employee motivation is that there are two primary types: intrinsic and extrinsic. For the purpose of this article, we’ll stick to discussing these two major ones but if you want to dive deeper into the science, there are technically four subtypes of extrinsic motivation, defined by varying degrees of self-determination.

In an article published by Cambridge University Press, psychologists Molly Delaney and Mark Royal explain that intrinsic motivation is, “inspired by experiences that connect with self-concept and personal drive.” It’s the feeling you get when engaged in an activity that’s inherently fulfilling — think learning an instrument, gardening, or playing a sport. Although different activities will be intrinsically motivating for different people, in general, these are things done simply for the sake of doing them. The reward is the process, not the product.

It's important leaders understand the difference between intrinsic and extrinsic motivation.
It’s important leaders understand the difference between intrinsic and extrinsic motivation.

Extrinsic motivation, in contrast, is all about working towards an outcome. Delaney and Royal explain that this type of motivation is, “external to the individual and influenced by the organization and work environment.” Key drivers of extrinsic motivation include social norms, practical utility, and of course, incentives and tangible rewards. Compared with intrinsic motivation, extrinsic motivation has less to do with an individual’s unique preferences and more to do with their environment. As you can probably gather, extrinsic motivation is much easier for an employer to impact.

Intrinsic and extrinsic motivation each come with their own benefits. Intrinsic motivation contributes to more creative, efficient, and effective problem solving and better conceptual thinking. Extrinsic motivation supports improved performance and higher productivity (although it’s worth noting that intrinsic motivation can contribute to these outcomes as well).

Because extrinsic motivation is more within employers’ ability to influence, we’ll start our discussion here.

Types of External Motivators: Cash Incentives and Tangible Rewards

When considering external motivators used by employers, two major types come to mind: cash incentives and tangible rewards. Although intuitively it might seem like employees would be as (or more) motivated by cash, research confirms that tangible rewards pack a lot more punch when it comes to boosting employee motivation.

Tangible rewards are points, credits or vouchers distributed by an employer that can be redeemed in exchange for merchandise, experiences, or other items. It’s up to the employer to determine what their catalog of rewards will include — jewelry, apparel, sports equipment, concert tickets, electronics, charitable donations, custom company swag … the options are vast. 

While these items do have monetary value, people tend not to think of them in the same way as cash incentives. Researchers at the University of Pittsburgh report that tangible rewards yield greater goal commitment and better overall performance compared to the effects elicited by cash rewards. Why? According to the research, there are three major factors at play that make tangible rewards so much motivating:

1. Tangible Rewards Are Considered Separate from Salary

This first point is fairly straightforward. Employees expect to be paid a certain amount of money in exchange for their labor, and when employers try to boost motivation with more money, it isn’t long before employees mentally lump the bonus and the salary together. That’s not to say employees won’t appreciate a cash incentive, but in terms of boosting motivation, tangible rewards drive a bigger impact.

Studies show people tend to think of tangible rewards as distinct from their regular salary.
Studies show people tend to think of tangible rewards as distinct from their regular salary.

Willie Choi and Adam Presslee, the experts behind the research conducted at the University of Pittsburgh, refer to this as a joint versus separate mental frame. Whereas tangible rewards tend to be thought of as distinct from an employees’ usual compensation, cash incentives will quickly come to be regarded as an extension of it and, consequently, feel less exciting.

2. Tangible Rewards Align With Wants, Not Needs

The second point follows naturally from the first: whereas cash incentives are typically used to cover pragmatic purchases (as an employee’s salary might be), tangible rewards are more likely to be spent indulgently. They’re motivating because they say to the employee, go ahead, splurge a little — you earned it.

Tangible rewards tend to be spent more frivolously than cash incentives.
Tangible rewards tend to be spent more frivolously than cash incentives.

It comes as no surprise that employees are also a lot more likely to look back fondly on the home espresso maker they purchased with their rewards points than on the electric bill they used a cash bonus to cover. Thus, tangible rewards also deliver a more salient emotional impact that makes them more motivating still.

3. Tangible Rewards Are Unexpected

The third and final explanation Choi and Presslee give as to why tangible rewards are so motivating has to do with the fact that they typically come as a surprise. Whereas cash bonuses are often promised, tangible rewards tend to be delivered spontaneously right after the recipient does something praiseworthy. 

To test this theory, Choi and Presslee conducted an experiment in which some participants received unexpected tangible rewards while others were incentivized with planned cash prizes. Those in the unexpected condition showed significantly higher goal attainment than their counterparts.

Part of tangible rewards' impact has to do with the fact that they're usually delivered as a surprise.
Part of tangible rewards’ impact has to do with the fact that they’re usually delivered as a surprise.

Choi and Presslee’s findings are consistent with an idea long endorsed by behavioral psychologists: variable rewards yield better, more consistent performance than rewards delivered on a fixed schedule. In other words, someone who receives a reward exactly every 10 minutes they’re engaged in a task will not perform as well as someone who is rewarded every seven to 12 minutes with slightly varied periods passing between each reward. The unexpected nature of a reward appears to be key to unlocking motivation.

These three factors combined make tangible rewards a fantastic tool for employers looking to support extrinsic motivation. But the question remains: can anything be done about intrinsic motivation?

The Power of Praise: Unlocking Intrinsic Motivation

External motivators undoubtedly have an important role to play at work, but the best employees are those who are also internally driven to achieve excellence — that is, employees with strong intrinsic motivation.

High intrinsic motivation is correlated with a range of positive outcomes, including greater persistence, productivity, creativity, and better problem solving. As we discussed earlier, intrinsic motivation is all about fulfilling employees’ internal needs. That might be a need for creative expression, social connection, skill mastery … the list goes on. While tangible rewards probably won’t tap into these inherent desires on their own, when they’re accompanied by praise and words of encouragement for employees, they are more likely to stimulate internal motivators.

Praise can help transform tangible rewards from external to internal motivators.
Praise can help transform tangible rewards from external to internal motivators.

Here’s an example to illustrate the point: Imagine you’re the manager of an employee who did a truly excellent job on their most recent project. From strategy to design to execution, every element was flawless, and you want to send them something to let them know how impressed you are with their work. 

You already know that tangible rewards drive more impact than cash incentives, so celebrating the employee by awarding them points they can redeem for items and experiences (as opposed to cash) is a no-brainer. When the employee exchanges these points for a gift of their choosing, they’ll feel happy and more extrinsically motivated — that is, driven to perform well in the future in the interest of earning more rewards. 

What they might not experience in this scenario, though, is a sense of internal fulfillment. Yes, it’s nice to receive a gift, but that hardly gets to the core of internal motivation.

Now imagine that instead of simply rewarding the employee with points, you also take a moment to write a note detailing all the things you appreciate about them and their work — the employee’s thoughtfulness, creativity, and relentless commitment to bringing a vision to life. 

Tangible rewards are a key strategic tool for leaders looking to build successful teams.
Tangible rewards are a key strategic tool for leaders looking to build successful teams.

When you attach words of recognition to tangible rewards, suddenly it means a lot more. Now, not only is the employee receiving a physical token of appreciation for their hard work, they’re also receiving a message with highly personalized praise. This fulfills internal needs like the desire to feel competent, seen, and appreciated and thus, praise can transform an external motivator into an internal motivator, too.

When both internal and external motivation are supported at work, employees are equipped to perform at their full potential. Tangible rewards accompanied by words of praise are a uniquely effective way to support both types of motivation, and leaders who want to see their teams succeed would be well-advised to make recognition and rewards a regular practice.

The Value of Tangible Rewards at Work

Considering the psychology behind tangible rewards and motivation, it’s easy to make the case for a structured employee rewards programs. Not only do they improve the quality of the employee experience by making work more fulfilling and rewarding for the individual, they benefit the company via direct contributions to stronger performance from employees across the board.

Whether you choose to support employees via an internally managed rewards program or a streamlined third-party solution, it’s essential for leaders to consider the importance of nurturing motivation. Doing so will help both employees and the organization as a whole realize their full potential.

Katerina Mery is a Marketing Specialist at Fond with a background in cognitive psychology and a passion for improving the way people live and work. She especially enjoys learning about how to accomplish this through rewards and recognition. In her spare time, you can find Katerina running outside, admiring art, and exploring the latest and greatest local restaurants.