The Effects of Intrinsic Motivation and Extrinsic Incentives on Employee Performance

Table of Contents

1. Introduction

2. Theoretical Background
2.1. Self-Determination Theory
2.2. Constructs
2.2.1. Intrinsic Motivation
2.2.2. Extrinsic Motivation
2.2.3. Work Performance
2.3. The Effects on Work Performance
2.3.1. The Effect of Intrinsic Motivation on Work Performance
2.3.2. The Effect of Extrinsic Motivation on Work Performance
2.3.3. The Interaction of Intrinsic and Extrinsic Motivation and their Joint Impact on Work Performance

3. Discussion
3.1. Theoretical Implications
3.2. Practical Implications
3.3. Limitations and Future Research 20 Reference list

1. Introduction

The topic of motivation has been widely studied from various researchers in several areas. It represents an essential part in multiple research fields, including the ones of management and psychology. Rani and Lenka (2012, p.14) define motivation as “a process that elicits, controls, and sustains certain behaviors”. Thus, motivated employees are activated to engage in a certain behaviour in an energized way, whereas unmotivated employees may not have any incentive to act (Ryan & Deci, 2000a). Ilardi, Leone, Kasser and Ryan (1993) validate a positive relation between high levels of motivation and positive work outcomes, such as job satisfaction or well-being. The importance of motivation becomes clear in light of the recent Gallup-study, which states that unmotivated workers lead to substantial losses for businesses (Dpa, 2013).

Until now, a significant number of studies have focused on the effects of motivation on well-being or job satisfaction. However, this thesis has a slightly different focus. It examines the effects of motivation on work performance of employees based on the self-determination theory (SDT) from Deci and Ryan (1985). Therefore, it distinguishes between two types of motivation, namely intrinsic and extrinsic motivation, which will be defined later. This distinction allows to separately examine the effects of intrinsic and extrinsic motivation on work performance as well as the interaction of those two variables and the joint impact of both motivational constructs on work performance.

The motivation for this work is a result of several factors. At first, the topics of motivation and work performance represent core areas in the fields of management and leadership with essential theoretical and practical implications. Second, various studies have been undertaken in order to examine the direct effects of motivation on work performance showing the high relevance of this issue. For example, the work of Jenkins Jr., Mitra, Gupta and Shaw (1998) verifies a positive link between extrinsic motivation and work performance. Such performance improvements may be essential for companies trying to bet the competition. However, comparable studies examining the effects of intrinsic motivation on work performance tend to be rare. Thus, another reason for this present thesis is to close this substantial research gap. In order to do so, this work also considers recent studies, such as the meta-analysis of Cerasoli, Nicklin and Ford (2014), which suggests a positive link between intrinsic motivation and work performance. Additionally, the interaction-effect of intrinsic and extrinsic motivation will be discussed in detail here.

To critically examine the aforementioned effects, this work is structured as follows. The first section provides a brief explanation of the underlying theory of self-determination. Thereafter, the core constructs will be defined. Following this, the effects of intrinsic and extrinsic motivation on work performance will be examined separately. Then, the interaction of both motivational constructs will be considered and their joint impact on work performance will be explained. Finally, a brief discussion including theoretical and practical implications, as well as limitations and suggestions for future research, will be provided. The research for this work is based on journal articles, books and newspaper articles.

2. Theoretical Background

In order to provide a framework for the core discussion of this present work, this section will firstly discuss the underlying theory of self-determination. Thereafter, the three core constructs of this work will be defined.

2.1. Self-Determination Theory

The discussion in this thesis is entirely based on the self-determination theory from Deci and Ryan (1985). Within this theory, Ryan and Deci (2000a) distinguish between two types of motivation, namely intrinsic and extrinsic motivation. According to them, intrinsically motivated employees engage in a task out of the inherent interest or enjoyment, whereas extrinsically motivated individuals engage in a task because of some separable outcome (Ryan & Deci, 2000a). More detailed definitions will be given below. In fact, Deci and Ryan (2008a) distinguish several sub-types of extrinsic motivation depending on the degree of autonomy or self-determination. This detailed distinction will be ignored here for reasons of space. The present work only distinguishes between intrinsic and extrinsic motivation. As Ryan and Deci (2000a) state that those two types of motivation may have different effects on work performance, section 2.3 will examine their effects on work performance separately. Then, their interaction and their joint impact on work performance will be discussed.

To continue, the SDT is based on three basic psychological needs that substantially influence the future psychological growth, integrity and well-being (Deci & Ryan, 2000). The need for competence refers to a mastery of challenging tasks and the feeling of being able to perform at a desired level (Deci et al., 2001). The feeling of being self-determined, acting volitionally and having a choice relates to the need for autonomy (Deci & Ryan, 2008a). Finally, the need for relatedness accounts for a sense of belongingness and connectedness to important people in the environment (Ryan & Deci, 2000a).

According to Baard, Deci and Ryan (2004), satisfaction of these basic needs is positively related to intrinsic motivation, which in turn is associated with enhanced work performance and job satisfaction. Thus, the concept of need satisfaction allows to specify optimal social conditions that support intrinsically motivated behaviours (Deci & Ryan, 2008b). Based on this, Ryan and Deci (2000a) developed the cognitive-evaluation theory (CET), a sub-theory of the SDT, which states that factors that facilitate the satisfaction of the basic psychological needs will enhance intrinsic motivation to perform, whereas factors that thwart this need satisfaction will undermine intrinsic motivation.

As a result, the SDT explains the link between psychological need satisfaction and intrinsic motivation, identifies factors that may enhance work motivation and provides a framework for our discussion (Baard et al., 2004; Deci & Ryan, 2008b). However, it does not explain the relation between intrinsic or extrinsic motivation and work performance. These links will be discussed in section 2.3 and validated by suitable findings. To provide a rational discussion, the three core constructs of this work need to be defined first.

2.2. Constructs

The investigation of the present work includes three core constructs, namely intrinsic motivation, extrinsic motivation and work performance, which will be defined below.

2.2.1. Intrinsic Motivation

As mentioned earlier, intrinsically motivated employees engage in a task out of the inherent interest or enjoyment (Ryan & Deci, 2000a). Thus, Deci, Vallerand, Pelletier and Ryan (1991) state that such behaviours are engaged in for their own sake making external rewards unnecessary. Vansteenkiste, Matos, Lens and Soenens (2007) confirm to this by arguing that intrinsically motivated employees engage in an activity because they want to, rather than because they have to. People by nature show a tendency towards self-motivation, curiosity and interest (Deci & Ryan, 2008a). As a result, intrinsically motivated behaviour represents a pure form of self-determined behaviour (Black & Deci, 2000). In this case, the satisfaction of the need for autonomy promotes an internal perceived locus of causality, which has positive effects on the degree of self-motivation and commitment (Ilardi et al., 1993).

Several studies try to examine factors and task characteristics that may enhance intrinsic motivation (Deci & Ryan, 2000). The prevailing opinion is that, based on the CET, factors that facilitate psychological need satisfaction will enhance intrinsic motivation, whereas thwarted need satisfaction will undermine it (Deci & Ryan, 2000). Thus, positive effects on intrinsic motivation can be found, for example, as a result of autonomy supportive work environments (Gagne & Deci, 2005) or positive feedbacks (Deci & Ryan, 2000).

Baard et al. (2004) suggest that, based on the basic psychological need satisfaction, this intrinsic motivation is positively related to work performance. Deci and Ryan (2008a) validate this link by showing a positive relation between intrinsic motivation and performance on complex and heuristic tasks. Further, Cerasoli et al. (2014) argue that intrinsic motivation is related to the direction, persistence and intensity of performance behaviour.

To summarize, intrinsic motivation represents a form of motivation that stems from the inherent value of engaging in the task itself (Deci & Ryan, 2008a). Several studies suggest a positive relation between this form of motivation and work performance (Deci & Ryan, 2008a). Section 2.3.1 will examine this link in detail. After defining intrinsic motivation, the next section will continue with the definition of extrinsic motivation.

2.2.2. Extrinsic Motivation

Contrary to intrinsically motivated employees, extrinsically motivated employees engage in a task because of some separable outcome (Ryan & Deci, 2000a). Abuhamdeh and Csikszentmihalyi (2009) state that extrinsic motivation is characterized by a focus on extrinsic incentives, such as money, feedback or prestige, which are a separable result of the task at hand. Amabile (1993) supports this definition by arguing that extrinsically motivated individuals feel driven by something outside the work. This strong link between extrinsic motivation and incentives is the reason why the terms extrinsic motivation and extrinsic incentives are often used synonymously. Although extrinsic incentives trigger extrinsic motivation, this present work follows the common practice and uses those two terms as synonyms (Abuhamdeh & Csikszentmihalyi, 2009).

To continue, extrinsically motivated individuals perceive their locus of causality to be external depending on the perceived degree of autonomy (Black & Deci, 2000). Controlling factors and constraints tend to result in a more external locus of causality, because individuals feel being pressured (Black & Deci, 2000). On the other hand, factors that facilitate the satisfaction of the basic psychological needs, especially the need for autonomy, tend to result in a more internal locus of causality (Gagne & Deci, 2005). Thus, Deci and Ryan (2000) argue that there are different sub-types of extrinsic motivation, which will be ignored in this work for reasons of space.

In the real world, it is rarely the case that employees engage in a task only out of intrinsic motivation, which makes extrinsic motivation so important (Amabile, 1993). Numerous studies have been undertaken to examine the effect of extrinsic incentives on work performance (Ryan & Deci, 2000b). The general result is that there is a positive effect on work performance (Cerasoli et al., 2014; Condly, Clark, & Stolovitch, 2003; Jenkins Jr. et al., 1998). Further, the incentive contingency and the performance type tend to moderate this link (Cerasoli et al., 2014). Section 2.3.2 will give a more detailed analysis of the effect of extrinsic motivation on work performance.

Another concern of this work is the interaction of extrinsic and intrinsic motivation. Deci and Ryan (2008a) argue that, based on the CET, there is an undermining effect meaning that intrinsic motivation may be undermined when extrinsic incentives are given simultaneously. In contrast, Cerasoli et al. (2014) state that this is not always the case. Only controlling incentives tend to reduce intrinsic motivation, whereas supporting incentives, such as positive feedback, tend to enhance intrinsic motivation by facilitating psychological need satisfaction (Cerasoli et al., 2014). Section 2.3.3 will critically discuss the interaction of intrinsic and extrinsic motivation and their joint impact on work performance.

To summarize, extrinsic motivation is a result of some separable incentive (Ryan & Deci, 2000a). Several studies suggest a positive relation between this form of motivation and work performance (Cerasoli et al., 2014). Nevertheless, there may be a negative undermining effect on intrinsic motivation (Deci & Ryan, 2008a). The interaction of both constructs and the overall effect on work performance will be discussed in detail in section 2.3.3. Before, the construct of work performance needs to be defined.

2.2.3. Work Performance

The objective of this thesis is to examine the effects of the aforementioned constructs on the dependent variable of work performance. The definition of work performance significantly affects this examination. In the real world, employees are often rewarded based on observed performance measures and work outputs (Ariely, Gneezy, Loewenstein, & Mazar, 2009). Cerasoli et al. (2014) state that performance refers to an achievement-related behaviour that can be observed and evaluated. They distinguish two types of performance criteria, quality- and quantity-type criteria, which have different relations to the motivational constructs mentioned above (Cerasoli et al., 2014). According to them, quality-type tasks are typically linked to intrinsic motivation, whereas quantity-dependent tasks are rather linked to extrinsic motivation (Cerasoli et al., 2014). This statement is in accord with Gagne and Deci's (2005) findings that intrinsic motivation results in effective performance on heuristic and complex tasks, but extrinsic motivation leads to a better performance on algorithmic tasks.

On the other hand, Christian, Garza and Slaughter (2011) distinguish between in-role and extra-role performance. In-role performance refers to the performance of task-required duties, extra-role performance refers to behaviours that are beneficial for the social and psychological context. Durham and Bartol (2012) confirm to this distinction by arguing that the identification of performance includes factors beyond the individual task.

As a result, the exact definition of work performance is crucial for the examination of this work. Different studies provide different definitions of performance depending on the context of the respective study. Thus, performance can be defined as grades in a school setting (Black & Deci, 2000) or as supervisor ratings in the work setting (Ilardi et al., 1993). Common to all definitions is that they draw on observable behaviours that can at least to some extent be evaluated (Cerasoli et al., 2014). This present work follows the approach of Cerasoli et al. (2014) by defining work performance as some observable, achievement-related behaviour that varies with the context of the respective studies. Provided with all necessary definitions, the effects of intrinsic and extrinsic motivation on work performance can be examined.

2.3. The Effects on Work Performance

This section will examine the effects of intrinsic and extrinsic motivation on work performance. At first, the link between intrinsic motivation and work performance will be discussed. Following this, the effect of extrinsic motivation will be considered. Finally, this section will investigate the interaction-effect of intrinsic and extrinsic motivation as well as the resulting joint impact on work performance.

2.3.1. The Effects of Intrinsic Motivation on Work Performance

As mentioned earlier, intrinsically motivated employees tend to engage in a task out of the inherent value of the task itself and the positive feelings that stem from the satisfaction of their needs for autonomy, competence and relatedness (Deci & Ryan, 2008b). Further, several studies argue that, based on this need satisfaction, there is a positive link between intrinsic motivation and work performance (Deci et al., 1991; Gagne & Deci, 2005; Ilardi et al., 1993).

However, these studies do not validate this link with reliable data. In fact, studies that investigate the effect of intrinsic motivation on work performance are rather rare resulting in a substantial research gap. In their early work, Kasser, Davey and Ryan (1992) validate a positive link between intrinsic motivation and performance of chronic psychiatric patients. In their opinion, this finding is based on a high degree of participation (Kasser et al., 1992). In accord to this, Baard et al. (2004) confirm a positive relation between worker's intrinsic motivation and their performance in two work settings. They argue that intrinsic need satisfaction on the job results in job satisfaction, internalization of external factors, adjustment and high levels of intrinsic motivation, which in turn leads to enhanced work performance (Baard et al., 2004). As a result, satisfaction of the basic psychological needs tends to be the basis of the positive link between intrinsic motivation and work performance (Baard et al., 2004). Black and Deci (2000) support this suggestion by showing that, in an educational environment, autonomy support is positively related to students' course performance. Deci and Ryan (2008b) state that this link also holds for the work environment by showing higher performance ratings for employees in an autonomy supportive work environment. Thus, facilitated need satisfaction tends to result in enhanced intrinsic motivation, which in turn predicts better work performance (Baard et al., 2004).

[...]