OA633 Managing Organizational Change

Intrinsic and Extrinsic Rewards

For this assignment, imagine that you are an organizational change consultant who has been asked to propose intrinsic and extrinsic reward plans to an organization (of your choice). In your proposal, you will not only formulate the plans but also analyze their worth to the organization as part of the firm implementation of a new social responsibility change plan. That change plan will task employees with new or additional duties; thus the reward plans should aim to support employee attitude and behavior including increasing creativity and problem-solving skills.

Spector (2013) says this about reward plans: “Incentive pay, regardless of the specific design, is an extrinsic reward: a reward external to the individual and provided by the organization. Money is the most obvious and prevalent example of an extrinsic reward. Motivational theory tells us that extrinsic rewards, although powerful, may not be terribly effective in driving long term behavioral change.

Introduction

Motivation is a powerful method for increasing productivity, satisfaction, and discipline in employees. To achieve the organization's goals, many corporations motivate their employees through rewarding them. There are two types of reward methods used by companies for motivating their employees: Intrinsic and Extrinsic rewards. An intrinsic reward is intangible award of acknowledgment; it cannot be viewed or touched by the employees. An intrinsic award includes achievement, individual growth, responsibilities, admiration, or sense of self-esteem. An extrinsic reward is a physical award given to the employee for the accomplishment of a goal. Generally, an extrinsic reward includes a monetary value such as an increase in salary, bonus or gift.

An organization should adopt the most suitable reward system for their employees to increase their productivity and satisfaction. Various factors should be considered by an organization before implementing a reward system. The reward’s system of AirAsia Company will be considered as an example of this report. Further, this report will recommend the appropriate plan according to the advantages and disadvantages of both plans.

Incentive plans

An extrinsic reward is physical or tangible award of acknowledgment. Usually, monetary awards such as salary hike, bonus or gifts are considered as extrinsic rewards. Generally, these are given while the performance of an employee is in a surplus of the work assigned to him. The extrinsic award is directly proportionate to the surplus work done, higher the surplus, higher the reward and vice versa (Allen 2001).

According to Cameron (2002), an intrinsic reward is intangible award of acknowledgment; it cannot be viewed or touched by the employees. The performance of employees directly correlates with their intrinsic rewards, meaning rewards will increase along with their performance. An intrinsic award includes achievement, individual growth, responsibilities, admiration, or sense of self-worth.

According to the research of Griffin (2011), while selecting a plan, the company should consider that whether it requires, a team-based or individual based plan. If company’s performance is growing with individual working method then the company should adopt the individual reward based plan. On the other hand, if a team based plan is working for them, the team based reward plan should be adopted.

Disadvantages of Extrinsic Incentive Plan

Many studies proved that the employees using extrinsic rewards to pursue an objective have less chance of achieving the objective and are less satisfied even after accomplishing them. The main motive of the employee, while providing extrinsic reward is to acquire the reward, the employee does not consider the quality of work he is performing. The company uses the money to motivate their employees because it is the most obvious choice. But this system is suitable for short-term goals only. In long-term goals, the money cannot satisfy the requirement of the employees (Govindarajulu 2004).

In several cases, money is the most powerful method of motivating the employees, but job satisfaction cannot be achieved by this method. An intrinsic reward system can assist in achieving job satisfaction to the employees. A company can achieve their long-term goals, by adopting the intrinsic reward system.

Reward Plans for the Company

AirAsia considered as a popular low-cost airline, established in 1993. It primarily hosted low-fare flight for people, resulting in faster growth of company financially, as the majority of people considered low-cost travel over expensive flights. The company has more than 17 thousand employees (O’Connell 2005). To increase the growth of the company, the motivation of employees is necessary. Various internal and outside factors can be used, in order for employee’s motivation.

The company should increase communication with employees to get a better insight of their needs and requirements, helping in motivating them. In the case of AirAsia, a hybrid plan of intrinsic and extrinsic rewards should be adopted for the motivation of employees (Baroto 2011). The number of employees is high in the company, making it difficult to apply a single plan across the organization. Following points should be included in the organizational plan for motivating their employees:

• The company should empower their employees by providing them authority, responsibility, support, and inspiration. This approach is part of intrinsic reward plan and is more suitable for top-level executives. The company should increase responsibilities, along with authorities, of their employees.
• The employees of a company get demotivated due to their same daily routine. The company should change the environment of the workplace and provide a better working condition for the employees. The jobs of employees should get redesign before they get demotivated from their routine. The job redesign process should consider the behavior of employees, before changing their working conditions.
• The working environment should be flexible inside the organization. Providing the employees enough time for their personal life motivates them. By setting the most suitable working hour for employees, the company can increase their productivity.

AirAsia consider all their employees as an essential part of their organization, therefore, equal treatment between employees is necessary. By setting monthly meeting for the inspiration of their employees and giving them chance to speak regarding their issues, the organization can motivate them. The company can organize entertaining programs or parties for their employees. Providing monetary incentives is an essential part of the motivation. The company could offer stock choices, efficiency and performance-based incentives to their employees, which is a part of extrinsic reward plan (Piew n.d).

The intrinsic reward plan should be adopted for top and medium level employees. Intrinsic rewards such as public appraisal, an increase in responsibilities or sense of self-worth, are more suitable, to motivate top-level executives of the company. The extrinsic rewards are more suitable for low-level executives, for providing them motivation to achieve their objective (Van Yperen 2003).

Suitability of Plan

In the modern times, people are now attracted towards intrinsic rewards. The jobs of people have changed from hard labor to skilled work. The employees now required to use their intelligence to perform their jobs, such as programming, engineering, technical support or scientific research. A study conducted by a scientist named Sam Glucksberg, demonstrations the power of incentives (Pink 2011). The study proves that process of rewarding people with money has changed because it works in jobs with the narrow objective. The mental ability of an employee is required now to perform their duties. Money can motivate employees for a small period or for a specific goal, but in order for overall motivation, intrinsic rewards are necessary for employees (Podmoroff 2005).

In the case of AirAsia, the company received many complaints from their customers regarding bad services from employees, flight postponements, and needless charges. The employees of the company are demotivated due to their same daily routine, lacking creativity and problem-solving skills. An efficient motivation plan can solve these problems of employees. AirAsia can motivate their employees to do creative activities such as blindfold camping, balloon building and contributing their ideas business plans, to enhance their teamwork abilities.

Conclusion

The above report concluded that the main reason for adopting a reward system by an organization is to motive their employees, to increase performance and productivity. The extrinsic rewards, such as money, have been used by the organization for many decades, in order for motivating their employees. But in modern time, employees are required intelligence and skills, in order to perform their jobs. The use of extrinsic rewards cannot provide job satisfaction to the employees. AirAsia should adopt an intrinsic reward system for their employees to enhance their job satisfaction. They can introduce other training exercises and programs to increase their creativity. This will assist AirAsia in motivating their employees and it will sustain their future growth.

References

Allen, R. S., & Kilmann, R. H. (2001). The role of the reward system for a total quality management based strategy. Journal of Organizational Change Management, 14(2), 110-131.

Baroto, M. B., & Abdullah, M. M. B. (2011). The application of cost, differentiation and hybrid strategy in business operations: will hybrid strategy become the new competitive strategy?. International Business School (IBS), Universiti Teknologi Malaysia.

Cameron, J., & Pierce, W. D. (2002). Rewards and intrinsic motivation: Resolving the controversy. Bergin & Garvey.

Govindarajulu, N., & Daily, B. F. (2004). Motivating employees for environmental improvement. Industrial management & data systems, 104(4), 364-372.

Griffin, R. W., & Moorhead, G. (2011). Organizational behavior. Cengage Learning.

O’Connell, J. F., & Williams, G. (2005). Passengers’ perceptions of low cost airlines and full service carriers: A case study involving Ryanair, Aer Lingus, Air Asia and Malaysia Airlines. Journal of Air Transport Management, 11(4), 259-272.

Piew, M. C. T. Leadership and The Management of Change Airasia Bhd.

Pink, D. (2011). Drive: The Surprising Truth About What Motivates Us. Riverhead Books. New York City.

Podmoroff, D. (2005). 365 ways to motivate and reward your employees every day--with little or no Money. Atlantic Publishing Company.

Van Yperen, N. W., & Hagedoorn, M. (2003). Do high job demands increase intrinsic motivation or fatigue or both? The role of job control and job social support. Academy of Management Journal, 46(3), 339-348.