Managers in organisations will undertake activities in order to ensure that all employees are doing their job properly and to the best of their ability, to achieve that goals of the organisation. Motivational incentives are put in place to motivate staff to perform to a degree that is expected. According to various theories, motivation may be rooted in the basic need to minimize physical pain and maximize pleasure. This paper will undergo a discussion to evaluate the two sources of motivation in the context of intrinsic and extrinsic rewards and the role they play in organisations in managing performance of staff. One position of the paper argues that extrinsic rewards will be a source of motivation, while the other argues that intrinsic rewards have greater impact, particularly in a non-commercial setting. In the light of these two positions, the focus of the present paper is the motivational effect of intrinsic rewards.

Motivation is to provide a person with a motive to action with positive energy and determination. It's a state of mind that moves one individual into action. The best way to recharge the battery of your motivation is to create desires. An inner drive inherent in all, Motivation plays an important role in intellectual, emotional, and professional success and is alsothe activation or energization of goal-oriented behavior. Motivation is said to be intrinsic or extrinsic. Intrinsic motivation is a process of arousal and satisfaction in which the rewards come from carrying out an activity rather from a result of the activity thatcomes from the person themselves.Rewards may be "intrinsic" therefore provide the individual with opportunity for achievement, challenging responsibilities, opportunity for advancement or opportunity for growth in stature and peer recognition. Each of these must be timely, appropriate, worthwhile, offered sincerely and done in public. Intrinsic motivation tends more to be appetitive, new information arousing a slight interest leading to an appetite for more. where as in contrast, Extrinsic rewards come from others andare said to be pay, working environment or conditions, status and security with the constant potential for special training, promotion, and pay raises. Experiments have led theorists to believe that extrinsic rewards when associated with outcomes of interesting tasks tend to suppress the operation of intrinsic motivation. it is also believed that if people are paid to do something they would otherwise have done out of interest they will be less likely to do it in future without being paid so therefore there is evidence of reduced motivation. An American pshychologist named Herzberg found that accomplishment, challenge, added responsibility, and belonging are the strongest intrinsic rewards in companies. He also showed that intrinsic rewards are stronger than extrinsic rewards, and that extrinsic rewards "zero out" or lead to the expectation of a repeated reward next time and it will become less and less satisfying if not de-motivational.

Frey (1997), whilst essentially concerned with the crowding-out effect extrinsic incentives may have on intrinsic work motivation, suggests that when employees' income rises above subsistence level,they seek meaning in work; that is to say, intrinsic motivation becomes more important. Since employees in the organisation that is the subject of this study are not dissatisfied with their pay, it may be inferred that they consider their pay to be above subsistence level; and therefore that intrinsic motivation is likely to be more important to them.According to Ryan and Deci (2000), the term, "extrinsic motivation" is the attainment of a separable outcome from the performance of an activity; whereas "intrinsic motivation" is the performance of an activity for the inherent satisfaction of the activity itself.

and Mitra (1998) argue that money is an important motivator, although the NFP literature indicates that intrinsic rewards are important to staff in NFP sector organisations and that classical agency theory is inadequate to explain the motivation of employees in this sector. Extrinsic rewards, such as monetary bonuses, are incentives provided by others and are external to the recipient. Herzberg (2003) argues that money is a "hygiene factor", and cannot be a source of motivation. However, if the hygiene factor (in this case, pay) is perceived to be inadequate then the employee will be dissatisfied. Intrinsic rewards are personal, "internal" responses, such as satisfaction or pride in an accomplishment.

Vol. 4, No. 3 International Journal of Business and Management 8 According to Ryan and Deci (2000) fun and challenge are of greater significance to an intrinsically-motivated person than external pressures and rewards.The debate about the influence of extrinsic and intrinsic rewards on motivation appears to be cast in dichotomous terms.

The fact that an individual is working in a NFP organisation is indicative of a set of values in which extrinsic rewards are not the first consideration (Weisbrod, 1983; Preston, 1989; Roomkin and Weisbrod, 1999).

Employee motivation cannot be examined in isolation from its organisational context since it is the activities undertaken within an organisation that are being considered; and in particular it is human motivation that encourages the individual to remain with the organisation (Berry, Broadbent and Otley, 1995; Schepers et. al., 2005). In this study the context is particularly relevant as it defines the activities and rewards (Jobome, 2006).

The relationship between the Federal Government and the organisation is defined contractually and reflects the introduction of business ideology into the NFP sector. These changes were seen as potentially disruptive requiring the organisation to adopt a more business-like approach in an attempt to maintain performance. The Federal Government has decided to fund open employment agencies on the basis of the number of clients they find employment for rather than by a set grant (block funding) paid irrespective of the number of clients who had been found employment. This change had been mooted for a number of years and management decided to improve Employment unit staff performance by offering a bonus if they were able to increase the number of clients placed in employment. However, management did not extend the bonus to Lifestyles unit staff as it was considered to be inappropriate. Hence, staff in the Employment unit can participate in the bonus scheme, while staff in the Lifestyles unit cannot. Of particular significance is that any intrinsic rewards staff receive are closely linked to the type of work they do.

In a study undertaken by Graffam, Noblet, Crosbie and Lavelle (2005) it was found that the employee turnover rate in the open disability employment industry was 27.3 per cent, in comparison to the all-industries average of 12.4 per cent (ABS, 2002). The higher than average employee turnover is problematic for the industry. According to Graffam, Noblet, Crosbie and Lavelle (2005) the costs and unnecessary disruptions to the industry, including the recruitment of replacement personnel, administrative, advertising and screening costs are significant. Other costs include interviewing, security checks, the processing of references, lost productivity, the cost of training, and costs associated with the period prior to departure when employees tend to be less productive. Therefore the issue of workforce motivation is important for the sector.

The literature: rewards in the not-for-profit sector

The literature points to two contrary positions regarding the motivational effect of rewards. Agency theory suggests that people are motivated by extrinsic rewards and that employees will only perform tasks for which they are rewarded (Jensen and Meckling, 1976; Eisenhardt, 1989; Baiman, 1990). This means that people will only work to the best of their abilities if they consider the reward to be adequate. According to Jensen and Meckling (1976) agency theory states that individuals are wealth maximisers. Altruism is not considered to be a part of the principal/agent relationship.

They suggest that some forms of extrinsic motivation may appear to be intrinsic. In particular, they speak of "regulation through identification", which reflects a conscious valuing of a behavioural goal so that the action is accepted or owned as personally important. Thus, the significance of an extrinsic reward is related to the values of the employee; in other words, the efficacy of the extrinsic reward is linked to what the employee believes to be important. Gupta and Mitra (1998) using meta-analysis found that financial incentives are strong motivators. They found that financial incentives were particularly powerful with respect to performance quantity. However, results were uncertain when regarding performance quality - an important consideration in the human services sector.

Similarly the research of Marsden and Richardson (1994) found that performance-related pay had limited motivational effects. O'Donnell (1998) found that the attempt to apply performance bonuses to senior officers of the APS did not contribute to an improvement in performance. Also, the OECD (1993) questioned the motivational effects of pay increases and bonuses, particularly for senior public service managers. According to Gaertner and Gaertner (1985), performance appraisals that placed emphasis on the development needs of managers had the potential to increase the performance of the manager. the assimilation of the organisation's demands with one's own values and needs. Gaertner and Gaertner's finding suggests that extrinsic rewards coupled with training or feedback that could assist the individual to improve performance have greater significance than extrinsic rewards alone.

The findings of Gaertner and Gaertner (1985), Dowling and Richardson (1997), Redman et al. (2000) and O'Donnell and Shields (2002) are supported by Frey's (1997) contention that, once pay exceeds a subsistence level, intrinsic factors are stronger motivators; and that extrinsic rewards by themselves are problematic and staff motivation also requires intrinsic rewards such as pride at doing a good job and a sense of doing something worthwhile. People working in the third sector do so despite generally lower pay because they consider the task to be important. Williams (1998) points out that people have different values, motives and perceptions and are not passive recipients who will automatically respond to work systems as management wishes. In keeping with the findings of Etzioni (1988) and Larson (1977), values are considered to be important in the development of an individual's commitment to an organisation.

Thus, the values and the mission of an NFP organisation are an important source of motivation, but extrinsic rewards cannot be ignored. Most agency models of motivation are only concerned with financial rewards (Frey, 1997), but Almer, Higgs and Hooks (2005), Etzioni (1988), and Larson (1977) argue that there are factors other than pay that motivate individuals to work in NFP organisations.

Brown and Yoshioka (2003) state that many individuals in NFP organisations conceptualise money as a means to accomplish larger objectives and not as an end in itself. Therefore financial incentives and controls may not be effective motivators in NFP's.

Speckbacher (2003) believes that NFP organisations may attract committed employees precisely because the absence of owners is a signal to such employees that their selflessness will not be enriching someone else. This position has been supported empirically by Weisbrod (1983), Preston (1989), and Roomkin and Weisbrod (1999). Schepers et al. (2005) argue that employees working in third sector organisations would be motivated predominantly by social , working for and with people, altruism, personal growth, all of which are intrinsic factors, the motivational importance of which is the focus of the present research.

Employees of this organisation do appear to be motivated by intrinsic rewards. Our results question the conclusions of Gupta and Mitra (1998) that extrinsic rewards are good motivators.

Employees are ambivalent about satisfaction with their pay. If employees are unsure about whether or not they are satisfied with their pay, then pay cannot be a prime source of motivation for them. This is in line with Herzberg's (2003) argument that pay is a "hygiene" factor, and does not satisfy.

Employees, though, do agree that bonus schemes can improve performance. However, whilst a bonus is an extrinsic reward, this does not diminish the importance of intrinsic rewards.

As Ryan and Deci (2000) state, extrinsically motivated behaviours are the outcome of individuals believing that the activity for which the bonus was received is socially significant, and valued by their colleagues, and leads to a sense of belonging. Thus, the real value of the bonus as a motivator is that it reinforces the intrinsic reward of feeling connected, of having done something worthwhile. The response in the affirmative to the statement, "I am motivated by the achievements of my clients" is particularly indicative of the importance of intrinsic rewards. Most staff reported being motivated by the achievements of their clients, indicating the importance of the mission of the organisation as a source of motivation.

This supports the findings of Holcombe (1995) in the case of the Grameen bank. It also supports the argument of Ryan and Deci (2000), Frey (1997), Etzioni (1988) - who state that individuals may derive utility from non-economic factors or rewards - and Larson (1977), who argue that serving the public good and control over the work environment can modify the behaviour of individuals.

The survey data support the contention of Deckop and Cirka (2000), that intrinsic rewards have a greater impact in NFP organisations. The results also support the contention of Berry, Broadbent and Otley (1995), that people working in the caring services are more concerned with doing a worthwhile job than they are with remuneration.

Further, the results support the suggestion made by Brown and Yoshioka (2003) that money is perceived as a means to an end and is a secondary matter to NFP staff since the majority of respondents reported being not dissatisfied with their pay. The apparent predominance of intrinsic motivation in this organisation supports Herzberg's (2003) contention that pay is a "hygiene" factor and not a real motivator; and Jobome (2006), who found that intrinsic rewards dominated extrinsic rewards in UK NFPs. This is supported by the findings regarding having fun at work (Schepers et al., 2005), and the importance of the work/life balance. These two statements received considerable support from the survey respondents, which support seriously questions a widely-held belief that extrinsic rewards are the single-most important motivator.


The present study was undertaken to answer the question of the value of intrinsic rewards as motivators for employees in the NFP sector. Intrinsic motivational factors have been found to be significant, in both the presence of an employee bonus scheme and in its absence. This finding of the motivational importance of intrinsic factors is across the whole organisation, irrespective of the quite varying conditions under which employees of the organisation work; and is in support of Jobome (2006) who argues that in UK NFPs intrinsic rewards dominate extrinsic. Extrinsic motivators do play a role, but not to the extent that classical agency theory suggests. The findings of this paper support the contentions of Etzioni (1988) and Larson (1977), that people are motivated by non-economic rewards.

The results indicate that classical agency theory cannot adequately explain the motivation of staff in the NFP sector. In addition, the importance of intrinsic motivators highlights the importance of context in the motivation of staff, and the need for further research into this aspect of motivation. Human behaviour is complex and explanations of motivation need to consider carefully the organisational context (Jobome, 2006). It is through the organisation that staff are able to work with clients and witness their successes, achieve a good work/life balance and have fun at work. The results reported in this paper are gained from one NFP organisation and therefore the conclusions must be tentative. However, the findings do indicate the direction of future research.

Having looked at both the intrinsic and extrinsic motivation, it could be said that intrinsic motivation is far stronger than extrinsic motivation when it comes to motivate employees in the long run. This is because the intrinsically motivated employees will continue to perform better day after day as long they find the work interesting and satisfied. It doesn't mean that extrinsic motivation should not be used, but this is not the ideal way to long motivate the employees. To say, extrinsically motivated employees will only find what they do to interesting as long as they receive the rewards which can either be positive or negative. And hence in order to motivate them to increase performance, then they will have to be given more rewards than before. If not, they will only be de-motivated. Not only that, but once the employees are given extrinsic rewards they will no longer be intrinsically motivated, but rather depend on rewards to keep them motivated therafter. That is why it is vital to try and motivate employees intrinsically by trying to explain how it will help them to develop and encouraging them by offering more challenging work, giving responsibility and recognition for the work done etc. This will in turn lead to enhance performance by motivating them to meet the long term success.

Once the basic needs according to Maslow�s pyramid are achieved such as physical needs eg: food, water etc, there are some "extra" needs that enables employees to be ready to contribute above and beyond their call of duty.

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