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Impact of reward on extrinsic motivation in the work place: A case study of XYZ Company.

Impact of reward on extrinsic motivation in the work place: A case study of XYZ Company.


The best way to identify and evaluate the impact of extrinsic motivation in any organization is to analyze its operational environment, and thus this review too goes for that, after covering the important areas like employee reward, and the debate associated with it. Accordingly, the situation commands introduction of some theories on motivation and leadership issues, and this review takes care of that too, before underpinning the key extrinsic drivers (like cash reward) and evaluating their impact on staff behaviour, commitment and performance of XYZ Company

1.0 Overview of Employee Reward

While the basic aim of any organization usually revolves around the issues of sustenance and development, the qualities of their strategy and ability determine the outcome. Thus it is understood that the organizations have to take care of several factors that are embedded with that primary goal. These factors usually have their subsets, which are no less important towards achieving the primary goal. As for example, if one of the major factors towards sustenance and development of a company happens to be the employees’ satisfaction, then the issue of employee reward features under it and

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the organization cannot do without fulfilling it at least to a satisfactory level. In order to fulfil this important precondition, the organization has to have a reward structure that would contain a package of various types of rewards that would consistently motivate the employees to do their best. It is the single word, “motivation”, that appears in manifold to hold the ground for reward issue.

However, before going for the nuances of motivation, it would be appropriate to introduce the types of reward that do rounds in the workplaces, because the reward structure of a company can make it or break it as it is assigned to fuel the employee cooperation, effort and overall satisfaction of all members of the company Cacioppe (1999). A host of other researchers like Hackman (1997) Shea and Guzzo (1987) too have endorsed this view, where they clearly advocated for aligning rewards with group activities.

To formulate such a structure, it is important to know what types of rewards can be effective for the individuals working in a specific environment. Integration of such rewards with the overall company system is desired too; as that would be complimentary to the viewpoint of the management, which would then would be counted as caring management who recognizes the importance of human components within its system.

As for the formulation of a reward structure, the common logic would vote for  the optimization of the group; but in practice, the reward system usually goes in for optimizing the individual (Caudron, 1994), especially where the work patterns are not interdependent. Thus talking with types of reward, one arrives at two options like group incentive or individual incentive. This is important because each option can influence the nature of reward under a given circumstance – that whether intrinsic or extrinsic reward would serve the purpose best. This situation calls for some explanations about intrinsic and extrinsic rewards and thus they are placed below:

1.1. Intrinsic Rewards
According to Deci (1975), intrinsic rewards are the tools to evoke a sense of personal causation – i.e., an inward mechanism serving as the guiding engine for the action, where its elements are usually intangible and working on the plane of one’s perception, where the journey is being enjoyed over the outcome. This kind of rewards too is expected to generate higher frequency of response from the employees.

1.2. Extrinsic Rewards
Extrinsic rewards are supposed to generate perceptions of external causation (Deci, 1975). Here the nature of rewards is mostly tangible in nature – a hike in salary or status, or material gains in other forms.

However, not all researchers like Guzzo, (1979), subscribe to this demarcation of reward system, on the ground of being polemic rather unnecessarily! For them rewards are rewards, meant to bring the change in the frequency of desired response of the employees towards a desired direction. However, no one can deny the fact that the categorization of the types of rewards facilitates one to underpin the efficacy of a certain kind of reward under certain condition.

1.3. The Components of Intrinsic Reward
The elements of intrinsic rewards are mostly intangible; its components can at best be bunched together as a package of signals that deals with the temporal activity of humans. Words of inspiration, public recognition, and stimulus from the examples of achievers – all such elements can generate a sparked response from an individual or from a group, where the response would mostly be free from the desire of material gain, and instead, it would want to be engaged in a cerebral orgy!

1.4 The Components of Extrinsic Reward
This reward lets everyone see what it has in its kitty – it may be a bunch of currency, a new house, car, and promotion letter, access to certain privilege, whatever. However, the significance of external motivation can directly be related to the physical existence of humans – where they decide on how they want to live, or submit to the external conditions that push them to do what they wouldn’t have opted for, had they been in a position to do so!

This state of affairs opens a horizon of discussion, if not can of worms, as extrinsic motivation has a slippery range, where it can go down to bribery or issue other morally destructive instructions for an individual. Ideally the choice of reward lies in the hands of its recipients, though in reality extrinsic reward can become a tool for its activators, who can lure the individuals to get things done the way they want it to be done. However, this study limits itself within the confines of its premise, and thus only takes the clue from the above that rewards need to be customized, as humans are choosy and if the rewards get aligned with their choice, then that should bring a quality outcome.

Yet that would be an understatement if one dangerous issue is not addressed here, which stands between the ideal prescription and the real-life situation, and that is, the level of existence of an individual! There is no dearth of instances where humans exerted themselves to the jobs that they didn’t want to do in the first place, but they had to do for the sake of the survival. Thus, it is not always the case of choice, as not all humans are free from the shackles of real-life situation, where even the possibility of earning a few extra pounds can brush aside any temporal intervention. However, the reactions are personal, and thus that might either be reflected or remain concealed.

Taking cue from the above situation, some researchers like Alfie Kohn (1998) infer that not always a reward can jack up the desired level of motivation, no matter how much an individual shows inclination to it; at the most it can produce short-term results and that too in the level of performing simple jobs. On the other hand, a meta-analysis performed by Cameron and Pierce (1997) on impact of reward observed its negative effects on performance under certain circumstances!

1.5. Cash Reward

There can be no debate on what could be the most effective item of extrinsic reward, as money needs no interpreter. Since it can fetch what one needs for sustenance, security, development and enjoyment, money supersedes all its counterparts. For example, a company can present a car to an employee as a reward, and that might make her happy, but she will be more happy if she gets the cash to buy a car of her choice or to buy any other thing according to her own priority list! It is this flexibility of money has made it number one in any extrinsic reward system; it has made it potent enough to placate the belligerent horses of one’s mind and to drive them in the direction as desired by the reward-giver. Researchers like Locke, Shaw, Saari & Laatham (1981), Pritchard, Jones, Roth, Stuebing & Ekeberg (1988) and others too have subscribed to this view.

1.5.1. Ways and Means of Injecting Cash Rewards

Cash rewards can take many routes, though it works in two planes like group incentives and individual incentives. While packages like bonus, mass pay hike, access to stocks or other financial benefits in the shape of increased travel, medical or other allowances are given to all employees, personal benefits come from hike in perks, additional increment or promotion. However, there are other ways too – advance payments or waiving the interest against loans taken from the company fall in this category. Even group incentives at times are given to a certain team for better performance. In short the distribution of cash reward ranges from individual to collectivity, where the significance of individual or group performance determines its yardstick or nature of distribution (Lawler, 1991). In fact this practice is not new; even in 1949, Deutsch had presented three types of rewards at workplace, viz., Cooperative, Competitive and Independent reward, where cooperative reward would be based on equal footing, competitive reward would raise the ceiling for the deserving ones among others, and individual reward would be a private affair of an employee (Deutsch, 1949).

Figure – 1: Ideal Reward Structure

(Recreation of the version presented by Porter & Lawler 1968, and Hackman, 1973)

1.6. Discussion and debates on Impact of Extrinsic Reward

As it has been mentioned earlier that extrinsic reward can be oddly extended towards bribery or it can indirectly force humans to do what they wouldn’t want to do under normal conditions, this type of reward system has been facing opposition right from its inception. The opposition camp points at the hidden cost of such rewards, and maintain that this extrinsic reward system intends to control the will of the employees, which would eventually hinder the development of an individual and thus in turn would hinder the development of the company.

For the sake of applying the creativity of human mind, they seek more freedom to choose their approaches towards work (Beswick, 2007). On the other hand, researchers like Hull (1943), Skinner (1953) refute such allegations and simplify the extrinsic reward system as a direct link between stimulus and response. No wonder, this view includes punishment as a stimulus too, besides subscribing to the power of stimulus, while keeping the issue of company benefit at the top.

The above state of debate, however, clears the fact that extrinsic rewards impact intrinsic motivation, and reward can reinforce the will to act at times, no matter whether it might decrease future motivation or the performance of the employees. This assumed impact, however, is referred to as hidden cost of extrinsic reward system – where the researchers like Deci and Ryan (1985) put the issue under the light of attribution theories, which suggest that humans constantly reassess the reasons for the behaviours of their own besides others. Lepper et al. (1973) even argue that reinforcement has two effects, like gaining control over the process of activity, where it can speed up the process, and two, the backlash effect, in the absence of reinforcement, where the control vanishes and the process gets much slower, even slower than the speed it had before adopting reinforcement. Simply, the situation could be explained in this manner:

A group or an individual gets a reward of x amount of money for a period y, where x+y=m, m being the increased rate of production. Before that, the situation was y=z where production was z. Now in the absence of reinforcement and with the influence of attribution theory, the situation would stand like y-x = n, where n < z.

This creates the impression that once reinforcement has been made, it has to continue – though it may invoke a fresh debate that reward system would lose its significance and relevance with its regularization.  In all, the discussion boils down to an assumption that somewhere and somehow this extrinsic reward system has to stop, in spite of knowing the fact that such an act would decelerate the proceedings, even lesser than the speed it had before opting for extrinsic reward. To check this view, this study reviews literatures on motivation and leadership issues, because without understanding them, any study on the impact of extrinsic motivation in the workplace would be out of place.

2. Motivation

Motivation is the real driving force of a company that assembles the entire work force of a company into one tireless engine that runs on towards success. However, it is easier said than done to achieve that flow of motivation in a company – because it takes a relentless effort from the management to keep every component of the organization motivated.

2.1. At the Core of Motivation: Consciousness, Inverted and Absent Qualia

The above three together refer to the package of various mental states, where the consciousness has six major identifiable states like

1.      State of awareness: When is aware of being in (Rosenthal, 1986).

2.      Qualitative states: When one senses something out of something like enjoying a meal or experiencing a pain. These are referred to as “qualia”, which are regarded as “intrinsic, private, ineffable monadic features of experience, though modern theories of qualia often reject some of those commitments” (Dennet, 1990).

3.      Phenomenal states: It involves more than sensory qualia, as it covers spatial, temporal and conceptual organization of experience regarding the world and the person’s standpoint in it.

4.      What-it-is-like states: It’s when one associates a sense of experience with another, like if there is something that it is like to be in that state.

5.      Access consciousness: It’s when one deals with intra-mental relations – like one seeing a thing and ideating something and then deciding on something, where there maybe or may not be any apparent relationship among the above-said three stages

6.      Narrative consciousness: It’s when someone is in the “stream of consciousness” that contain an ongoing, series of thoughts from the “perspective of an actual or merely virtual self” (Dennett, 1991).

In short, qualia can be described as a personal package of intrinsic and intricate experiences, with which humans deciphers various external signals and responds to them, where the nature of experience governs the nature of response. Likewise, someone might like pizza and someone not for no apparent reason. Qualia involve perceptual experience, physical sensations, reactions, various moods, etc. The difference in perception causes inverted qualia, like one likes pizza and the other detests it. Here the call is coming purely from within – where the person is unable to define excepting her liking or disliking. Seemingly it has a strong connection with intrinsic motivation.

On the other hand, absent qualia, which speaks about the possibility of functional duplicates of the creatures that consciously perceive something. According to absent qualia, if Mr. X likes baked beans and dislikes garlic, then his absolute clone would also like baked beans and dislike garlic, for which the clone would not need an intricate and intrinsic package of experiences. Towing that line, one can say, if Mr. X happens to be an electrical engineer in Y department and likes to get cash reward, then Mr. Z, who belongs to the same rank and file would also like to get cash reward, and in doing so, he might not have to think twice! This study thus feels about a hidden relation between absent qualia and extrinsic rewards, as majority of people are moved more by extrinsic rewards.

However, humans’ apparently involuntary association with rewards too has its routes in their perception, the deck of which contains a master list of desire and accordingly push them to achieve that list, and both inverted qualia and absent qualia are coloured with those desires. Thus the mechanism of human mind can somewhat be like below:

Figure – 2: Mechanism of Motivation

The above diagram shows that no discussion on extrinsic rewards or intrinsic motivation would be complete without discussing the desire structure of humans. For that matter this study resorts to acclaimed theories on human needs.

2.2. Theory 1: Hierarchy of Needs

Abraham Maslow (1908-1970) provides an outline of human needs, which eventually serves as the guiding engine to human motivation.  Maslow’s model divides the human needs into five broad based categories and they are:

1. Physiological Needs: It speaks about basic needs like Air, Water, Nourishment and Sleep; humans can afford to chase their next need only after attaining this set of needs.

2. Safety Needs: This need deals with safety in both living and in workplace, and success in attaining them provides much needed mental space for humans to pursue the next need, i.e., Social Need.

3. Social Needs: It involves group activities, socialization, or enhanced interpersonal communication, through which humans form bondage with the society and make their way to pursue the next need, that is Esteem Need.

4. Esteem Needs: At this level humans focus on their esteem that involves recognition and social status, which in turn paves the way towards pursuing the self-realization process, which is a unique and an endless endeavour.

5. Self-actualization: Every human life is ideally expected to pursue this need, where one can discover one’s true self. (Maslow’s, 2008).

Maslow’s Model

Self Actualization
This is the most developed stage of human where they realize their potential and engage in temporal quest.
It deals with self and social recognition.
This involves desires related to human interaction, friendship or relationship, love, etc.
The desire to remain protected from dangers of all kinds
Basic needs like hunger, thirst, shelter.

2.3. Theory 2: ERG Theory

Clayton Alderfer has created an improvised presentation of Maslow’s model that looks more flexible and capable of determining the needs of an individual by redistributing the elements from Maslow’s model into three sections like below:

Existence (E) – It involves physiological and safety needs.

Relatedness (R) – It contains social and external esteem needs.

Growth (G) – Self-actualization and internal esteem needs. (ERG, 2007).

Clayton’s model allows to set the order of needs according to the existing need structure of an employee, besides providing the scope to pursue different needs simultaneously. Accordingly, company can separately motivate any individual on any of the E, R or G needs.  This model does more than it meets the eye, because it promotes a frustration-regression principle, which refers to the situation where an individual placates his/her mind with the fulfilment of one need after failing to meet another higher need – like when the company fails to fulfil the safety need of an employee (say, by arranging a decent housing) but makes up for it by recognizing her performance through incentives. However, it is important for the managers to know about such levers of motivation in an employee. For that matter, I would like to introduce Acquire Needs Theory for the managers of Altitude Corporation, because it mostly deals with the dynamics of needs.

2.4. Theory No. 3: Acquire Needs Theory
David McClelland[1], the main propagator of this concept, opines, “motivation of an individual can result from three dominant needs” and they are, “The Need for Achievement, Power and Affiliation” (McClellands’, 2007). This mainly depicts nodal points of human tendencies.

The Need for Achievement:

It refers to the people who want to perform tough and challenging tasks on a high level, where they thrive on continuous supply of success and positive feedback or try to exert themselves while avoiding both low and high risks.  McClelland brands them as the potential leaders, who like to work along with other high achievers.

The Need for Affiliation:

It speaks about the need for networking and good interpersonal communication. Here the persons want to be liked, appreciated and accepted by other people, as they value personal interaction. According to McClelland, “a strong need for affiliation undermines the objectivity and decision-making capability of managers” (McClellands’, 2007).

The Need for Power

This has two segments – personal and institutional, where people want to direct and influence others in the first and want to organize other’s efforts to win the goals of the company. The second category usually enjoys an edge over its counter part.

2.5. Theory No. 4: The Two Factor Theory

In his attempt of further simply the need structure of humans, Frederick Herzberg theory says that “people are influenced by two factors – Satisfaction and psychological growth are a result factor of motivation factors. Dissatisfaction was a result of hygiene factors” (Two Factor, 2008). His motivation theory is based on an investigation of 200 accountants and engineers in the USA. He divides the entire concept of need into two factors like Hygiene and Motivation.

1. Hygiene Factors

These factors should be taken into account to keep an employee free from dissatisfaction. They do not cause higher levels of motivation but without them there is dissatisfaction. These include factors like



Company Safety Status
Interpersonal relations

Working conditions


of supervision

Company policies and administration

2. Motivation factors

These factors are essential to motivate an employee into higher performance, which are supposed to touch the internal chords of motivation in employees.


Responsibility for task

Job Interest

Advancement to higher-level tasks

The advantage of this model is that the states of all these factors can always be identified as high or low to bring out the possible cumulative effect of them on the employees.

2.6. Motivating Tools
Though it is difficult to make a comprehensive list of motivating tools, some elements can be identified as the sources of all other tools. And they are:

1. Rewards 2. Retention 3. Morale 5. Job Enrichment 6. Reinforcement

2.6.1. Rewards System

Rewards or recognition system serves to the emotional need of humans, which in turn motivates them. “Every behaviour comes out of ‘pain and gain’ principle”, says Shiv Khera (p110). There can be many types of gains, ranging from money, vacations or gifts to medallions, or even they can be intangible too – recognition, appreciation, sense of achievement, growth, responsibility, sense of fulfilment, self-worth, accomplishment, and belief are the examples of such gains.

Broadly speaking, reward system separates the elements of motivation into two categories, external and internal. In the first category it lists items like money, societal fame approval, or fear, while in the second, it keeps factors like “pride, sense of achievement, responsibility and belief”. It also takes an important fact into consideration that the inner motivation is actually the inner gratification that might not always depends on the material success – it is an innate desire to feel content with an accomplishment, rather than just achieving a goal (Khera, 2004).

2.6.2. Retention

This is an important aspect of keeping the motivation intact in the company. There should be a retention policy in the company to retain its key employees as “retention is critical to the long term health and success of the company” (Heathfield, 2008).

2.6.3. Morale

Inner motivations are not totally dependent on the outer circumstances and they can boost one’s morale or self-esteem even under adverse conditions. There are thousands of instances of autosuggestions working wonders under a tight situation. The elements like praise, love and faith can rise anytime as the most important element of motivation under a specific environment, they can be instrumental to boost one’s self esteem, or to build a strong conviction to march ahead towards one’s cherished goal.

2.6.4. Job Enrichment

This relates to the in-house grooming of the employees to become an expert in the related field, which activates the hunger for learning further and delivering further in the process.

2.6.5. Reinforcement

Reinforcement is a more precise way of controlling employee behaviour (Positive, 2000), which binds the company activities together.

2.6.6. Motivation and Job Performance
There cannot be any doubt that job performance is directly dependent on the level of motivation of the employees. However, there are three factors that can be instrumental to keep employees motivated. And they are: Job Satisfaction, Goal-setting and Performance appraisals.

2.6.7. Job Satisfaction
The more one’s job is aligned to one’s inner desires the more one would be satisfied with the job. And the criteria of satisfying job varies from person to person, depending on one’s own need structure. It is like backed by a power-packed belief about success, which creates a make-believe condition where the possibility of the success seems as a reality. It is for this reason Dr. Joseph Murphy, writes in his book, The Power of Your Subconscious Mind, “Belief is a thought in your mind that causes the power of your subconscious to be distributed into all phases of your life” (Murphy, 2001).

2.6.8. Maintaining Global Outlook

Globalization has blurred the boundaries of region and now most of the companies run with a multicultural base. Thus it is the responsibility of the management that all employees are treated equally on issue, besides providing all of them the necessary facilities to learn and communicate in local language.

3. Leadership Issue

The history of human civilization is actually a chronology of the instances of leadership across the globe, where there is no dearth of examples like one single decision of a leader changed the fate of millions either towards doom or towards prosperity. In this age of globalization, the mantle of leadership has found its masters in the corporate leaders. However, the complexity of this corporate corner keeps the leadership issue alive and accordingly, new theories are stemming out of new observations that aim to further sharpen the desired outcome of a leadership, thereby evoking hot debates over the efficacy of one mould of leadership over the other.

In general effective leaders are deserved to be equipped with vision, effective communication skills and the ability of application. Leadership is in fact “an art of influencing and directing people in such a way that will win their obedience” (Leadership, 2008), all the while prioritizing “what” and “where” factors regarding the goal (Covey, 1992).

Leadership models evolve out of this premise, before taking their own routes. However, according to Cox (2001), there are two basic categories of leadership, viz. transactional and transformational leadership, though a new avatar of transformational leadership has arrived at the scene and its name is servant leadership.
3.1. Transactional Leadership

Transactional leadership banks on ‘give and take’ principle, which, when decently defined by the experts, is placed like something that “seeks to maintain stability rather than promoting change within an organization through regular economic and social exchanges that achieve specific goals for both the leaders and their followers” (Lussier & Achua, 2004).

According to Bryant (2003), transactional leaders are driven by three characteristics. One, they work with team members to formulate the common goal and ensures rewards for the workers who achieve their part of the goal. Two, they exchange rewards or promises of rewards for the effort of the workers and three, they respond to the immediate self-interests of the workers during the process of achieving the goal.

3.2. Transformational Leadership
Transformational leadership involves ethics and sets long term goals (Northouse, 1997). According to Steven Covey, the author of 7 Habits of Highly Successful People,  “the goal of transformational leadership is to ‘transform’ people and organizations in a literal sense – to change them in mind and heart; enlarge vision, insight, and understanding; clarify purposes; make behaviour congruent with beliefs, principles, or values; and bring about changes that are permanent, self-perpetuating, and momentum building” (Covey, 1992).

The term ‘transformational leadership’ came into being when J.V. Downton coined it for the first time in is book ‘Rebel Leadership: Commitment and Charisma in a Revolutionary Process’ in 1973, which was later introduced as a concept by James MacGregor Burns in his book ‘Leadership’ in 1978. While early studies on transformational leadership were confined to the area of political leadership, it gradually extended its scope into organizational psychology as well (Transformational, 2007).

Influenced by Burns, Bernard Bass, a disciple of Burns went on to further improvise the model by observing the impact of transformational leadership on the followers, who later observed that “in transformational leadership, the leader transforms and motivates followers by making them more aware of the importance of task outcomes, inducing them to transcend their own self-interest for the sake of the organization or team, and activating their higher order needs” (Bass, 1994).

3.3. Servant Leadership

An innate desire to serve the followers is the hallmark of Servant Leadership, where the leader gets as close as s/he can to the followers and gathers maximum input that helps him/her to serve better. Here the focus of the leader remains fixed and untainted with its primary aim to serve others (Greenleaf, 1977). One great example of such leadership remains in the life and work of Holy Jesus Christ (Matthew 20:25-28) as Christ ushered total change from the core of their followers through serving wholeheartedly to them. No wonder then, why modern management is increasingly bending on servant leadership as a proven solution for all situations.

Going by the observation of Stone and others (2004), servant leaders can be termed as Type S leaders under the framework where servant leadership is considered as Theory S and is distinctly different from three other theories viz., X, Y and Z as earmarked by McGregor (1967). The briefest description of them looks like as below:

Theory X: Considers workers lazy and thus need to be monitored and governed.

Theory Y:  Considers workers as self-motivated and responsible and have deep interest in their work.

Theory Z: Applies both the ideas as and when necessary.

Theory S: Takes care of leadership motivation and ensures the creation of a bridge of trust between the leader and the workers, where the workers respond to the situation with a belief that the leader is actually trying to empower them.

It is this gross difference in outlook and execution makes servant leadership as the most revered model among all categories, as here the leader becomes a selfless catalyst for change. Servant leadership is guided by the spiritual knowledge and sense of ethical axioms, which goes beyond the material transaction of the world and seeks to take its followers towards the road of infinite joy and happiness, which is the ultimate desire of humans and which is unattainable only with material satisfaction. Servant leaders try to change their followers from the core, where the said change is the best possible solution under the circumstance, and not driven by any special desire of the leader to gain out of it. In a way, one can say that servant leadership is the best possible form of transformational leadership, where a wholehearted attitude of devotion replaces governance – approach of instruction turns into guidance and benefits are counted as spiritual sparks to start again with a fresh mind.

The essence of the servant leadership can thus be realized through the following powerful set of words:

Figure – 3: Servant Leadership at a glance

However, each of these words deserves some explanation under the context.

Moral Love: The leader has to have a spontaneous fountain of love and care. Going by Winston’s (2002) words, “moral love compels the leader to consider his/her employees in a holistic manner, taking into account their needs, wants and desires.

Humility: Leader will be free from any narcissistic tendencies, or ignoring common materialistic bend of common people. According to Hare (1996), it is the top degree of modesty that engulfs a human.

Altruism: It’s about thorough concern about others’ well being (Patterson, 2003). This idea is conjoined by Kaplan’s observation, that such emotional awareness should be bereft of any thought involving one’s own well being, besides containing tendencies of personal sacrifice”(Kaplan, 2000).

Self-awareness: As Baron puts says, “it is the ability to recognize one’s feelings and to distinguish between them, besides the ability to determine the cause working behind it”. (Baron, 2004).

Authenticity: Refers to the power to know and understand one’s values (Kouzes & Posner, 2002), where it can be seen as a “broad dimension, which includes sub-dimensions of humility, security, integrity, vulnerability, and accountability” (Sendjaya and Sarros, 2002).

Integrity: As Wright would put it, “Integrity denotes the alignment of our voice and touch, the consistent living out of our character intentionally and openly, seeking to become the person we purpose to be” (Wright, 2004).

Trust:  This trait/quality/spirit of the leader makes him/her demonstrating “honesty and openness, which is consistent with values” (Kouzes and Posner, 2003), where the leaders are supposed to “communicate clearly and with all seriousness to fulfil their promises” (Kouzes and Posner, 2003).

Empowerment: Some researchers feel that it is the “responsibility of the leaders to help their followers to become servant leaders themselves” (Stanley and Clinton, 1992). This is the most vital element of servant leadership that makes it look totally different from other styles of leadership – because it sees all followers as servant leaders in the making and calls for fostering each follower towards attaining that status in their lives.

Service: The entire preparation of a servant leader is aimed to excel in this faculty, as the drive to serve has to be the primary engine of this kind of leader. As Greenleaf would put it, “The servant-leader is a servant first” (Greenleaf, 1977).

Therefore it would be pertinent here to compare servant leadership with others.

Servant Leaders
Other Leaders
Use their power to develop the followers
Use their power to control the followers
Prefer inspirational and transformational power as means to influence and transform the followers
Prefer position, political and coercive powers as means to rule with total authority and control the followers
Less stress on control and more focus on influencing the followers.
Maximum stress on control and less attention on influencing the followers
Relation-oriented. Sensitive to individual and situational needs with the urge to serve.
Power-oriented. Sensitive to any loss of power. Taskmasters and directional.
Need a total set of positive inner qualities besides interpersonal skill.
Need to garner total loyalty and to enforce obedience and conformity from followers.
Risk-takers by being vulnerable by trusting and empowering the followers.
Refrains from taking such risks.
Rises to the connotation, servant leadership by serving all the way
Busy in feeding their ego.

Adopted from Wong, (2003), which have been prepared from a large base of literature to compare task-oriented, directive and autocratic leadership and people-oriented, relational and empowering types of leadership, the platform of servant leadership.

Finally the diagram below would brief the differences between transactional and servant/transformational leadership:

Figure – 4

Comparison between Servant Leadership and Transactional Leadership

Armed with the knowledge about motivation, leadership and basics of employee reward, this study now goes for the case study of XYZ Company.

4.0. Case Study: Operational environment of XYZ 2.5 pages

In order to comprehensively cover the operational environment of a chosen section of XYZ Company, this study applies “High Performance Work System” (HPWS), a specific branch of HRM, along with theories of human behaviour to XYZ Company’s Publication Division (PD), where it applies the strategies of HPWS, covering both the external and internal structures of the PD segment of XYZ, with the help of PEST and SWOT analyses.

4.1. A Brief Take on the Company

Nature of Data
Company information
Company’s website

Company’s internal reports

Interview with employees and departmental heads
Internal and External business situations
Legal documents, Web documents, News articles and company’s future target reports
Module of HRM
Books and literature on HPWS on Web

4.1.1. Organisational Background

Starting from 1988, XYZ has gradually established it position in the print and electronic media with its newspaper, magazines and news related television programmes. A British national owns this organization today it is operating in most of the parts of England with a total number of 700 employees, out of which 200 are engaged in the Publication Division, the organization in discussion. It has a vast market comprising of all English-speaking communities across the globe, though its print media circulation is limited in England, France and Belgium. It has already secured an impressive client list and currently holds the third and fourth slots in the print and electronic media among the same players in the respective groups.

4.1.2. Vision & Mission of the Company

In their written statement it vows to serve the humanity with effective information that would “Inform, Educate, Entertain” the readers, besides “Revealing the unknown to them”.

4.1.3. Role of Publication Department

This department processes and publishes the entire content of print media, and its assembly line comprises of five production managers, 95 copy-setters and proof-readers besides other 10 production, marketing, office administration and support staff of various rank and file.

4.1.4. Organisation’s Strategic Plans and Objectives

Strategically XYZ wants to achieve the following milestones:

1.      Achieving the second slot in print media by 2012 by expanding its base and extending the services by adding two more magazines for the teenagers and kids, besides increasing the sales of its current products, “Good Morning” newspaper, “Womanly” magazine and “Market Trend” trade magazine.

2.      The newspaper has a circulation around 300,000, while the Womanly and Market Trend have circulations around 85,000 and 1,25000 respectively.  The company wants to increase it 25% by the next four years.

3.      It has its other aim of achieving the second slot in the electronic media by 2014, by adding entertainment programmes in its news channel.

4.1.5. Role of different departments staff in achieving the objectives

Broadly seven segments categorize the activity of the XYZ:

1.      Policy makers: This is the top rung of the company, comprising the Board of Directors and a panel of Advisors.

2.      Divisional Heads: There are two separate divisions like Print division and Electronic division in the company and they have their separate heads who are responsible for all operational activities.

3.      Administrative Departments: There is a three-tier structure in the administrative segment, where the separate administrative departments of Print and Electronic divisions work under a central administration. They deal with office administration and accounts, besides recruitment, though there is a system of acquiring a final approval of the Divisional Heads.

4.      Creative Departments: Both Print and Electronic divisions have their own creative wings, though they work together as and when needed. Their job ranges from writing to editing besides ideating and planning the contents.

5.      Marketing Department: Marketing department is a broad platform and the staff here work under specific assignment according to the strategy set from time to time. Their job is to procure various advertisements and to maintain a steady relation with clients.

6.      Advertising Department: This department also functions like Marketing Department, where the staffs are utilized for both the divisions. The staffs here create all the promotional and other advertisements for the company and its clients.

7.      Stringers: This department manages the activities of the freelancers who serve under contract.

In order to identify and evaluate the impact of extrinsic reward, HPWS module gathers information about the current human resource policy of XYZ too and finds there is no separate HR department but a section of the central administration performs the jobs of HRM and the other managers are encouraged to help them in this regard. This is an irregular arrangement, though they have a written guideline approved by the management and the unions, which looks like below:

Human Resource Policy of XYZ
Position, Duties, Responsibilities, Personal information, Job specification, Wage scale, Promotional Avenue, Police history,
Recruiting Process
Advertisement, Test, Interview, Agreement to Terms & Conditions.
Employee Compensation
Annual increments, Promotions on fulfilment of criterion, Medical and other benefits, facilities of Employee Cooperative, other permissible benefits from time to time.
Reward Policy
Suggested for all, but in practice it is at the discretion of Administration
Employee Training
Suggested for all, but in practice it is at the discretion of Administration
Integrity Development
Annual Sports, Annual Cultural Meet, Seminars/Symposia
Gratuity and other permissible benefits, Notice of three months in advance from either side in appropriate cases, No Objection certificate under satisfactory circumstance.

The above guideline clearly shows that there is no clear policy of the management regarding two vital subjects like Reward Policy and Employee Training. Instead, both of the items look like two avenues of the management to exercise extrinsic reward according to their will. Now the task stands to identify the impact of such arbitrary usage of two important components of motivation and for that matter, HPWS could help in a great way, besides a brief understanding about motivation itself.

5.0. HPWS in Brief

High Performance Work System, popularly known as HPWS is a specific combination of HR practices, work structures, and processes that maximizes employee knowledge, skill, commitment, and flexibility (Bohlander, 2004). It is understood that systems composed of many interrelated parts that complement one another to reach the goals of an organization, large or small. As for example, System design looks like below:

Work Flow
HRM Practices
Support Technology

In short, this package of strategy aims “create an environment within an organization where the employee has greater involvement and responsibility” (Brown, 2006). According to the researchers, this new avatar of HRM started shaping up in the late twentieth century “amid the crunch period of United States manufacturing environment”, when it felt the heat of global competition and realized the need of rejuvenating their manufacturing process (Barnes, 2001). Thus, much in the mould of ‘necessity is the mother of inventions’, HPWS came into being with a set of fresh practicality based on the nuances of human behaviour.

5.1. Underlying Principles of HPWS

HPWS started with three pillars at the outset, like involvement, training and incentives¸ before adding the fourth, support technology; to take off as a full fledged system.

The first important component of HPWS, “Involvement”, stems from the idea of providing the employees an “increased opportunity to participate in decisions” (Barnes, 2001). This becomes possible by sharing information among the members of the organization. Thus HPWS emphasizes on creating a culture of information sharing, where the employees would share the information for the greater interest of the company.

Second component, “Training”, is visibly a thrust towards developing the knowledge and skill on the subjects employees deal with. Here HPWS prefers a culture of ‘on-site’ or ‘real-time’ training rather than theoretical knowledge, where the employees would be encouraged to apply new approaches or ideas and to enrich the knowledge bank itself. HPWS identifies that the jobs requiring little knowledge and skill are declining and the jobs requiring special skills or knowledge are increasing. This situation demands a constant flow of learning among the employees and HPWS advocates for that.

The third component of HPWS is “Rewards” or “Incentives”. HPWS points at the importance of aligning the goals of the employees with the goal of the organization by utilizing the reward system.  It prescribes to connect the rewards to performance to make both the company and the employee mutually benefited.

The combination of the three in a free flowing manner creates an egalitarian work environment that eliminates the status and power differences, which in turn enhances collaboration and teamwork.

The fourth component is “Technology”, where HPWS wants exploit the advantage of modern technology to make the system further effective.

The Diagram below (Figure – 5) explains the basic structure of HPWS

Figure – 5

In another diagram, application of HPWS at this stage can be defined like below:

Figure – 6

5.2. Critical analysis of HR Policies and Procedures of XYZ

The company runs with an old strategy, where it valued its creative faculty (Editorial, Advertising and Art department) over others, since it believed that the company is dealing more with temporal products. But the HR policies and procedures of the XYZ Company should also have focused on another vital organ, i.e., Publication Division, where a large number of employees work and whose contributions to the sustenance and development of the company are no less valuable than the coveted creative department. Consequently, the HR Policies formulated for creative department contained extrinsic rewards like overseas training and personal incentives or team incentives etc. eventually demotivated the employees of the Publication Division. To find the state of demotivation, this study applies HPWS on two layers of Publication Division, viz., internal and external – where it checks the ‘Internal fit’ and ‘External fit’. Internal fit refers to the situation where all the internal elements of the work system complement and reinforce one another. In the case of External fit, it refers to the situation where the work system supports the organization’s goals and strategies. The ideal condition in both the layers should look like below:

Figure – 7

Taking clue from the above diagrams of HPWS, they study finds that XYZ Company lacks in the field of employee concerns in the external fit while its leadership ignores the guideline of the HR Practice that suggests a reward structure for all.

Accordingly the elements like Competitive Challenges, Company Values and Employee Concerns in the external fit are found to be at low ebb (because of the partisan attitude of the leadership in rewarding the employees), while the work flow design is seriously hampered in the internal fit (because the Creative Department and the Publication Division are at loggerheads), as they are supposed to work in tandem to produce and exchange inputs between them.  Thus the situation depicts a crisis arising out of extrinsic reward policy. However, to underpin the impact of extrinsic reward in the Creative Department (CD), this study resorts to using SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis for internal situation and PEST (Political/Legal, Economic, Social and Technological factors) analysis for external situation.

5.2.1. SWOT Analysis of XYZ Company

1. The brand name of XYZ is well established in its country and in Europe.

2. It has a background of 20 years experience in the Print Media.

3. Print Media is well supported by its Electronic Media wing.

1. Employee retention rate is bad in both CD and PD.

2. Employees of the PD continue to use old technology and are not in favour of upgrading.

3. It has failed to record satisfactory growth since the last three years.

4. The communication gap between creative department and publication division creating erroneous productions.

5. There is irregularity in resource management, selection and training.

6. Publication Division is somewhat alienated with the creative department.

7. States of interpersonal communication in both CD and PD are not up to the mark.

9. Motivation is low in both CD and PD due to routine promotion for most and special treatment to some.

10. No regular Team Meetings held to evaluate performance and formulate the strategy for the future.

11. No individual performance evaluation system.

12. Information sharing and idea exchange do not take place at all levels.

1. Its multicultural base has a definite advantage over its competitors in the environment of globalization.

2. It has a good rapport with decision makers through its women’s magazine.

3. It has more scope with its electronic version.

4. It holds a common fund for its two wings.
1. Competition is getting stiffer as the other players in the league are coming up with quality production at lower consumer prices.

2. Unionism is taking advantage of the discretionary attitude of the management in terms of promotion and reward distribution.

3. The process of Publication needs more communication between CD and PD.

4. Its overall knowledge bank is inadequate.

5.2.2. Analysis of Internal Situation

SWOT brings out the sorry state of the internal situation of XYZ, where its Strengths look abysmally low before its Weaknesses and Threats, in which the impact of the extrinsic reward in CD (Creative Department) can also be seen (employee retention in CD is bad, interpersonal communication is bad and motivation is low). Altogether this analysis highlights the need for fresh planning in its following areas:

1. Data sharing. 2. Enhanced communication. 3. Regular training. 4.Enhanced level of motivation through fresh reward system and 5. Enhanced uses of technology.

Now if XYZ can meet all of these needs of PD and CD, then there will be considerable development internally and both the departments will be able to contribute more effectively to the success of XYZ Company. However, there is more to evaluate from external situation too, and for that matter this study resorts to PEST analysis.

5.2.3. PEST Analysis for XYZ Company

1. Political situation is stable and the company has never violated the Labour Law of the land.

2. Locally, the company has three registered unions out of which the unions run by CD and PD employees have records of involving in serious differences with management.

3. There were instances of libel and defamations suits from both the government and the individual for publishing faulty news.

1. The regional economy is stable and the rate of inflation is low.

2. Though the company is earning good and steady profits but the margin between expenditure and profit has narrowed down considerably in the last three years.

3. Liberalization of the global trade has brought in more opportunities than the company can handle at present with its present manpower and skill level.

4. Unless skill wise developed, the expenditure would rise, especially in the customer expenditure sector.

1. The Magazine segment of the company is facing stiff challenge from the spurt of sleazy magazines.

2. There is a gap of culture between the creative department and publication division due to lack of interaction and less scope of attending cultural functions

1. The days of Quark Express are over; far more sophisticated programmes are being used by the rival companies.

2. There is no instance of regular workshops on knowledge improvement.

3. There is no record of individual analysis of the employees engaged in publication division.
5.2.4. Analysis of External Situation
PESTEL analysis clearly shows that though the external situation of XYZ enjoying the economic stability of the region or volumes of business due to demand in the market, it is suffering from recurrent legal constraints and high expenditure, tough local competition and lack of advanced technological infrastructure, which altogether needs planning in the areas like

1. Data sharing. 2. Enhanced communication. 3. Regular training. 4. Enhanced level of motivation through fresh reward system and 5. Enhanced uses of technology.

Both the analyses show that there is a need for restructuring the reward system in the XYZ Company to life the motivation level of its employees. In other words, the analyses point toward the impact of extrinsic reward over the intrinsic motivation of the employees of both the division. Like motivation, demotivation too can be infectious and the same can be read from the HPWS Plan Sheet that delves deep into the operational environment of XYZ Company

All Components


Publication Division of XYZ Company
Parameters of HPWS
Shared Information
Knowledge Development
Performance-Reward Linkage
Work Flow

Self-managed teams

Supervised Teams

Nowhere near

Selective recruiting

Team decision making

Leadership’s choice
Leadership’s choice
Training for All

Broad skills


Problem Solving

Team training

Selective Training

Leadership’s choice
Leadership’s choice
Leadership’s affair
Nowhere near
Leadership’s choice
Leadership’s choice
Nowhere near


Profit Sharing

Skill-based Pay

Leadership’s choice
Leadership’s choice
Nowhere near
Leadership’s choice
Leadership’s choice
Nowhere near
Nowhere near
Cash Reward for All
Nowhere near

Coaching/facilitators Technologies
Nowhere near

Leadership’s choice
Leadership’s choice
Leadership’s choice
Nowhere near

HPWS Plan Sheet

The above chart provides a clear picture of the impact of cash reward in XYZ Company, where it records a pathetic show of development under the scanner of HPWS.

From all of the analyses above, the following issues become prominent:

The leadership of XYZ operates with the philosophy of transactional leadership.
There is no transparency in evaluating the performance of an individual.
The employees are demotivated due to the arbitrary cash reward system.
The employees are not at all interested in developing their performance through involvement, training and technology.
Employees of CD and PD have no understanding between them.
Employees of CD (where the individual cash rewards are distributed) lack in coordination among them.
Most of the employees are eager to change their jobs.
The unions influence the management for such reward distribution.
The leadership controls unions through such reward distribution.
Individuals go out of the way to gain favour from the leadership.
Leadership takes advantage from the rewarded employees.
The company profit has gone down than what it was before the introduction of the reward system.
This boils down to the inferences like

A.          The Leadership of XYZ Company has adopted Transactional Leadership Model and eventually is being controlled by its privileged satellites.

B.           The Impact of extrinsic reward can be observed in lack of coordination between departments, lack of interpersonal communication among the members of each department, high frequency of resignation, nexus between leadership and unions, zero-thrust in developmental process and finally in degenerative state of production and in declining state of revenue.

These lead to the hypotheses like

Transactional leadership model is not applicable in XYZ Company.
Existing extrinsic reward system (arbitrarily rewarding individuals) is damaging company sustenance and growth.
6.0. Conclusion
The in-depth analysis of the operational environment of XYZ Company with the help of HPWS module has been able to underpin the effect of cash reward on staff behaviour, commitment and performance, which proves to be negative in all respect. However, it is the leadership style, company policy and the existing reward system, which are more responsible for the present operational environment in the company. Therefore, though this study substantiates the fact that the impact of extrinsic reward can be detrimental to an organization, it cannot wholly subscribe to the view that such rewards will always be detrimental to any organization, because it has judged only a single situation.

7.0. Recommendation for XYZ Company
The state of the company primarily points at the faulty leadership style, therefore leadership style should be changed at the outset. Next, it needs a comprehensive human resource policy that would align the employee interest with the sustenance and development of the company. Third, there should be a transparent reward structure that would be consistent and beneficial for the both the leadership and the employees. Thus this study recommends the following package for XYZ Company:

Adopting Servant Leadership model.
Adopting HPWS in HRM.
Adopting a continuous mixture of both intrinsic and extrinsic reward.
4.      Adopting the “process audit” system (also from HPWS) to periodically evaluate the situation with a questionnaire like

Are employees truly working together?
Are employees getting the information they need to make empowered decisions?
Are training programs developing the knowledge and skills employees’ need?
Are employees being rewarded for good performance and useful suggestions?
Are employees treated fairly so that power differences are minimal?
Answers to these questions would help in determining the following key issues of the operational framework:

a)      Are desired behaviours being exhibited on the job?

b)      Are quality, productivity, flexibility, and customer service objectives being met?

c)      Are quality-of-life goals being achieved for employees?

d)     Is the organization more competitive than in the past?


8.0. Summary of the Chapter

This chapter starts with the overview of employee reward where it reviews the relationship between reward and work culture, before arriving at the issues of intrinsic and extrinsic rewards with special emphasis on the later by checking the debated part of it, which boils down to the issues of motivation and leadership and checks their nuances in detail. Thereafter it goes for the case study of the operational environment of XYZ Company with the help of High-Performance Work System to check the impact of extrinsic reward on the employees of the company. The detailed analysis shows negative impact of extrinsic reward, but that impact is situation-specific, where the leadership style has a great bearing over the proceedings.


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[1] American Behavioral Psychologist who improvised and popularized the work of Henry Murray, another doyen of this field.

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