This outcome asks you to tell intrinsic rewards from extrinsic rewards and to choose a suitable reward system for a given situation. The examiner likes it because every scenario can be answered by asking where the reward comes from and what can actually be measured.
The rule
Intrinsic rewards come from doing the work itself: responsibility, challenge, variety and a sense of achievement. Extrinsic rewards are separate from the work and are tangible and controlled by the organization: pay, bonuses, cars and pensions. Intrinsic rewards tend to last longer, while extrinsic rewards work only while they are paid and can lose their effect as people come to expect them. When choosing a reward system, link the reward to what can be measured fairly: individual output suits individual schemes, while collaborative output suits a group bonus.
Worked example
A toy firm lists six rewards for its managers: (1) pay rise, (2) leading a new project, (3) company car, (4) cash bonus, (5) pension contribution, (6) sense of achievement after a hard task.
Step 1: ask whether the reward comes from the job content or is handed over by the employer.
Step 2: (2) is responsibility built into the job, and (6) is the person's own feeling about the work. Both are intrinsic.
Step 3: (1), (3), (4) and (5) are tangible items given by the employer. All are extrinsic.
Result: intrinsic = 2 and 6; extrinsic = 1, 3, 4 and 5.
Now the assembly team's output is joint and individual contributions cannot be measured. Use a group bonus on team output and quality, not individual commission or piece rates.
Remember: classify a reward by whether it comes from the work itself (intrinsic) or is separate from it (extrinsic), not by who provides it, because the employer designs both.
Where candidates lose marks
Treating a reward as extrinsic just because the employer provides it, which wrongly puts job redesign or a new responsibility in the extrinsic group.
Classing a cash bonus as intrinsic because the employee earns it through effort; it is still a tangible reward separate from the work.
Choosing individual commission or piece rates when output is collaborative and individual contributions cannot be measured, instead of a group bonus.
Try it: 4 questions
Jolly Bricks Ltd, a toy maker, has an assembly team that builds and tests toy sets together. The finished output is collaborative, and each member's individual contribution cannot be measured separately. Management wants to introduce a reward linked to performance. Which reward type is most appropriate?
Answer: B. When output is collaborative and individual contributions cannot be measured, the reward should be based on what can be measured: team output. A group bonus links reward to team results and encourages cooperation and shared effort. Why the others are wrong: individual commission on estimated output (option A) requires measuring something that cannot be measured fairly and invites disputes. Rewarding only the highest-ranked member (option C) sets members against each other, which damages cooperation. A piece rate per person (option D) again assumes individual output can be measured and could encourage members to focus on their own units over the team's quality.
Hopewell Trading Co runs a network of charity shops. It offers its area managers the following rewards: (1) an annual pay rise, (2) being trusted to lead a new community partnership project, (3) a company car, (4) a cash bonus awarded by the director for meeting sales targets, (5) an employer pension contribution, and (6) a sense of achievement after completing a difficult stock-take. Which of the following correctly classifies these rewards?
Answer: C. Intrinsic rewards come from doing the work itself. They are the psychological satisfaction a person gets from the content of the job, such as responsibility, challenge and a sense of achievement. Extrinsic rewards are separate from the work itself. They are tangible rewards controlled and given by the organisation, such as pay, bonuses, cars and pensions.
Classification: (2) Leading a new project is responsibility built into the job content, so it is intrinsic. (6) A sense of achievement is the person's own feeling about the work, so it is intrinsic. (1) The pay rise, (3) the company car, (4) the cash bonus and (5) the pension contribution are all tangible rewards given by the employer, so they are extrinsic.
The correct grouping is intrinsic 2 and 6, extrinsic 1, 3, 4 and 5.
Why the other options are wrong: Option A treats the project as extrinsic because the employer assigns it. However, the reward is the responsibility within the job content, not something separate from the work. Option B treats the bonus as intrinsic because it is earned through performance. A cash bonus is still a tangible financial reward decided by someone else, so it is extrinsic. It also wrongly treats responsibility as extrinsic. Option D correctly treats responsibility as intrinsic but makes the same mistake as B by classing the performance-linked cash bonus as intrinsic.
A hospital trust is deciding how to motivate its ward teams. Option A is a cash bonus for meeting patient-throughput targets. Option B is a redesign of the teams' jobs to give them more variety and responsibility. Which of the following statements best compares their effect on long-term motivation?
Answer: D. Job redesign (B) offers intrinsic rewards such as variety, responsibility and achievement, which come from the work itself and tend to be more durable. A cash bonus (A) is extrinsic. It works only while it is paid, staff can get used to it, and its motivating effect often fades. Option A reverses this by assuming cash always lasts longer. Option B confuses who provides the reward with its type. The classification depends on whether the reward comes from the work itself or is separate from it. Option C swaps the labels: the bonus is extrinsic and the job redesign is intrinsic.
Harbourside Shipyard Ltd is reviewing how to motivate its welders. Four statements were made at a management meeting:
Statement 1: A competitive salary removes a source of dissatisfaction but does not by itself create commitment to the work. Statement 2: Interesting, responsible work creates positive motivation. Statement 3: Raising pay always increases motivation in the same way as giving more responsibility. Statement 4: Interesting work only prevents dissatisfaction, whereas pay is what creates positive motivation.
Which combination of statements fits the view that pay and job content act on motivation differently?
Answer: C. This is the two-factor (hygiene and motivator) view. Pay is a hygiene-type factor: if it is inadequate it causes dissatisfaction, but improving it only prevents dissatisfaction and does not create lasting positive motivation (Statement 1). Job content, such as interesting work, responsibility and achievement, is a motivator that creates positive motivation (Statement 2). So Statements 1 and 2 fit. Why the others are wrong: Statements 1 and 3 mix the correct view of pay with the false claim that pay and responsibility act in the same way, which is the trap of assuming more pay always motivates like more responsibility. Statements 2 and 4 get the roles of pay and job content the wrong way round for the view. Statements 3 and 4 are both inconsistent with the view: Statement 3 treats the factors as identical, and Statement 4 reverses them.
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What is the difference between intrinsic and extrinsic rewards?
Intrinsic rewards come from the work itself, such as responsibility, challenge and achievement. Extrinsic rewards are separate from the work and are tangible, such as pay, bonuses, cars and pensions.
Which lasts longer, intrinsic or extrinsic motivation?
Intrinsic rewards tend to be more durable because they come from the job itself. Extrinsic rewards such as a cash bonus work only while paid, and staff can get used to them so the effect fades.
Which reward system suits a team whose individual output cannot be measured?
A group bonus based on the team's overall output and quality. It rewards what can be measured and encourages cooperation, whereas individual commission or piece rates need individual measurement and can set members against each other.