An extrinsic reward is a tangible form of compensation or recognition given in exchange for achieving something. Examples of extrinsic rewards are:
Cash awards for cost savings
Certificates of achievement
Post letters from customers that praise specific employees
Promotion to a more advanced position
Extrinsic rewards can be applied to virtually any situation, including tasks that are not of any particular interest to an employee. As an example of an extrinsic reward, an employee is offered a bonus if he can produce 100 widgets by the end of the day; the work may not be overly satisfying, but the bonus represents a significant motivation. Other examples of extrinsic rewards are piece rate pay (where compensation is based on the number of units produced), team-based compensation, and pay rate upgrades based on the number of new skills acquired. There can be a definite cause-and-effect relationship between extrinsic rewards and desired outcomes. However, these rewards can be overused, causing employees to become accustomed to them, which minimizes their motivational impact. To maintain their effectiveness, consider varying their nature and timing. For example, a positive reinforcement for meeting a sales goal could be a message from the president once every five or six months, while a reward could vary from a local vacation to business-class airfare to Las Vegas for a weekend of partying.