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International Journal of Business and Management March, 2009
7
Employee Rewards and Motivation in Non Profit
Organisations: Case Study from Australia
John Tippet (Corresponding author)
Centre for International Corporate Governance Research
Victoria University
PO Box 14428, Melbourne 8001, Australia
Tel: 61-3- 9919-1058 E-mail: john.tippet@vu.edu.au
Ron Kluvers
Faculty of Business and Enterprise
Swinburne University
Hawthorn, Melbourne 3122, Australia
Tel: 61- 3-9214-8435 E-mail: rkluvers@swinburne.edu.au
Abstract
This paper is a study designed to understand how intrinsic rewards, as compared with extrinsic rewards, are perceived
as sources of motivation by staff of NFP organisations.
Data was gathered through a survey featuring a number of statements about intrinsic and extrinsic rewards. The
small-sample t-test was used to determine the significance of responses, and hence test the hypothesis that employees
are motivated by intrinsic rewards.
The findings of the study are that significant t-test p-values highlighted intrinsic rewards – in particular, the
achievements of employees’ clients, work/life balance, and having fun at work – as being important staff motivators.
Keywords: Intrinsic rewards, Extrinsic rewards, Motivation, Context, Not-for-profit organisations
1. Introduction
The aim of this study is to understand what motivates employees to work in Not-for-Profit (NFP) organisations; in
particular, to consider the importance of intrinsic factors in the motivation of people to work in and remain in the NFP
sector despite being paid less than their private sector counterparts. The hypothesis to be tested is that employees are
motivated by intrinsic rewards. 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 (see section 5, Table 1), 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. The present study examines both intrinsic and extrinsic rewards in an organisation made up of two
units: one unit paying a performance bonus (an obvious extrinsic reward) and the other unit not, thus providing an ideal
context in which to study the motivational effect of an extrinsic reward compared with the motivational effect of
intrinsic rewards.
Gupta 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.
However, much of the evidence indicating the importance of extrinsic rewards comes from the business sector or was
obtained using an experimental research method in which the context of the task is not considered. In fact participants
in experiments are often required to perform trivial tasks. The focus of the experiment is usually to determine the effects
of changing the level or frequency of rewards rather than what participants are required to do. However, in a human
services context the nature of the task is not trivial and in all likelihood is the reason for the employee being in the
sector (Schepers et al., 2005). 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).
The paper continues (section 2) with a consideration of organisational context. In section 3 the literature dealing with
intrinsic and extrinsic rewards is discussed; followed by section 4, the research method and research question. Section 5
provides the statistical analysis; and section 6 discusses the findings, with conclusions being drawn in section 7.
2. Organisational context
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 organisation in which this study took place provides services for people with disabilities and is divided into two
units: the Employment unit, which finds employment for people with disabilities in the open market; and the Lifestyles
unit, which provides independent living skills for intellectually disabled people. The organisation is regarded as
successful as it has operated for six years, has a staff of about 60 people and has received public recognition for its work.
There is an executive manager for the organisation as a whole and a separate manager for each of the Lifestyles and
Employment units. Each staff member in the Employment unit looks after approximately 20 clients, while Lifestyles unit
staff develop and present programs for individuals and small groups. Staff and management in both units expressed a
strong sense of collegiality, though the two units consider themselves to be operating independently, having different
clients and different sources of funding.
There are two main sources of funding. The Employment unit has, to date, received block funding from the Australian
Federal Government, while the Lifestyles unit is funded by Victorian State Government grants. 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.
3. The literature:rewards in the not-for-profit sector
The literature points to two contrary positions regarding the motivational effect of rewards. One position 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.
International Journal of Business and Management March, 2009
9
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.
Ryan and Deci (2000) point out that the question of extrinsic/intrinsic motivation is a complex issue. 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.
The results of research in the public sector appear to contradict the conclusions of Gupta and Mitra. According to
O’Donnell and Shields (2002) the application of performance-related pay in the Australian Public Service (APS) has
been problematic. 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. This finding is in line with Ryan and Deci’s (2000) idea of assimilation:
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.
Dowling and Richardson (1997) showed that UK National Health Service (NHS) managers were positive about role and
goal clarity, and feedback and support from superiors. Hence, these factors – clarity of goal and support from superiors
– are significant motivators. Redman et al. (2000) found that two-thirds of NHS managers reported that a performance
management system contributed to their motivation. However, the performance-related pay component of the system
was perceived negatively – particularly so in instances of performance pay being given to individuals where
performance was heavily dependent on a team effort.
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. The importance of altruistic values in relation to employment in the third sector was highlighted by
Jobome (2006), who found in his study of management pay in large UK NFPs that intrinsic rewards dominated extrinsic
ones.
Holcombe (1995), consistent with the argument of Ryan and Deci (2000), argues that bringing about a congruence of
individual values with organisational values is creating a sense of mission that is an employee’s personal commitment
to the organisation. In her study of the Grameen Bank in Bangladesh, Holcombe demonstrates how important employee
identification with the organisation’s goals and values is to the achievement of the organisation’s mission. Holcombe
appears to be in total agreement with Ryan and Deci (2000); also with Brown and Yoshioka (2003). However, the latter
found that a perception that pay was inadequate was a source of dissatisfaction, which could lead to a reduction of
motivation. This point was also emphasised by Herzberg (2003), and is implicit in Frey (1997). 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.
In addition, Berry, Broadbent and Otley (1995) point out that organisational control, including such elements as goal
setting, performance measurement and rewards, is pluralistic and people working in the ‘caring services’ may consider
remunerative motivation as less important than the normative reward of ‘doing a worthwhile job’. Similar conclusions
Vol. 4, No. 3 International Journal of Business and Management
10
were drawn by Bouillon et al. (2006) in their study of hospital managers; their research indicates that hospital managers
were not motivated by individual opportunism alone.
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 contact, 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.
4. Research method
The research question is to determine the relative importance of intrinsic rewards in the motivation of employees.
The small-sample t-test was used to analyse the data, constituting employee responses to six statements indicating
intrinsic or extrinsic orientation of the reward. The statements are:
xI am satisfied with my pay
xI believe that bonus schemes can increase work performance
xI would prefer a reward system based on individual rather than team outcomes
xI am motivated by the achievements of my clients
xWorking at the organisation allows me to achieve a good work/life balance
xI have fun while working at the organisation
Participants indicated their opinions to the six statements by circling a number, one to five, on a five-point likert scale.
Response categories ranged from strongly disagreeing to strongly agreeing. Respondents returned 52 useable responses.
The questionnaire was developed in conjunction with a manager of the organisation.
To understand the factors that motivate employees, the null hypothesis to be tested is:
Ho:Employees are not motivated by intrinsic rewards.
5. Statistical analysis
The statistics reported in the tables below reveal staff perceptions, from across the organisation. The response rate was
87 per cent; the relevant p-value is placed immediately below each of tables 1 – 6.
Table 1 to go here
The t-test on the data of Table 1 reveals that employees are ambivalent about satisfaction with their pay. Hence, we
cannot say that employees are solely motivated by extrinsic rewards. This highlights Herzberg’s (2003) conclusion that
pay does not motivate; rather, it is a “hygiene” factor.
Table 2 to go here
The response to the statement “I believe that bonus schemes can increase work performance” (Table 2) is significant.
Employees do believe that bonus schemes can increase work performance. This concurs with Ryan and Deci (2000)
who state that the efficacy of an extrinsic reward is linked with the beliefs of the employee. The apparent motivation of
the extrinsic reward is, in fact, linked with the belief of employees that the task being undertaken is worthwhile.
Table 3 to go here
The result shown in Table 3 is statistically significant– employees do not (a –ve t-value) prefer a reward system based
on individual outcomes. This result further indicates the ambiguous nature of individual extrinsic rewards as motivators.
Table 4 to go here
In addition, the significant result (+ ve t-value (along with p-value)) shown in Table 4 emphasises the importance of
intrinsic rewards as motivators, further evidence in agreement with Herzberg’s (2003) argument.
These results (Tables 3 and 4) clearly emphasise the importance of intrinsic rewards to employees. Table 4 results, in
particular, highlight the importance of the mission of a NFP organisation as a source of motivation for its employees.
Table 5 to go here
The statistically significant result of Table 5 strengthens the argument that intrinsic rewards are important motivators to
employees of this organisation. Obviously, work/life balance is an outcome of the particular employment environment,
and this response of employees adds weight to the hypothesised importance of intrinsic rewards as motivators.
International Journal of Business and Management March, 2009
11
Table 6 to go here
The t-test result for the data of Table 6 is significant. Employees clearly indicate that they do have fun while working at
the organisation – 78.9 per cent of respondents agree that they have fun while working at the organisation.
6. Discussion
The results reported above lead to a rejection of the null hypothesis. 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.
7. Conclusions
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.
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International Journal of Business and Management March, 2009
13
Table 1.
I am satisfied with my pay
23.8 3.9 3.9
14 26.9 27.5 31.4
14 26.9 27.5 58.8
19 36.5 37.3 96.1
23.8 3.9 100.0
51 98.1 100.0
11.9
52 100.0
Strongly Disagree
Disagree
Neutral
Agree
Strongly Agree
Total
Valid
SystemMissing
Total
Frequency Percent Valid Percent
Cumulative
Percent
p = .481
Table 2.
I believe that bonus schemes can increase work performance
35.8 5.8 5.8
815.4 15.4 21.2
16 30.8 30.8 51.9
14 26.9 26.9 78.8
11 21.2 21.2 100.0
52 100.0 100.0
Strongly Disagree
Disagree
Neutral
Agree
Strongly Agree
Total
Valid
Frequency Percent Valid Percent
Cumulative
Percent
p = .011
Table 3.
I would prefer a reward system based on my individual outcomes rather than based
on my team outcomes
59.6 10.2 10.2
18 34.6 36.7 46.9
19 36.5 38.8 85.7
35.8 6.1 91.8
47.7 8.2 100.0
49 94.2 100.0
35.8
52 100.0
Strongly Disagree
Disagree
Neutral
Agree
Strongly Agree
Total
Valid
SystemMissing
Total
Frequency Percent Valid Percent
Cumulative
Percent
p = .023
Vol. 4, No. 3 International Journal of Business and Management
14
Table 4.
I am motivated by the achievements of my clients
23.8 4.2 4.2
47.7 8.3 12.5
22 42.3 45.8 58.3
20 38.5 41.7 100.0
48 92.3 100.0
47.7
52 100.0
Disagree
Neutral
Agree
Strongly Agree
Total
Valid
SystemMissing
Total
Frequency Percent Valid Percent
Cumulative
Percent
p = .000
Table 5.
Working at the organisation allows me to achieve a good work / life balance
7 13.5 13.5 13.5
7 13.5 13.5 26.9
22 42.3 42.3 69.2
16 30.8 30.8 100.0
52 100.0 100.0
Disagree
Neutral
Agree
Strongly Agree
Total
Valid
Frequency Percent Valid Percent
Cumulative
Percent
p = .000
Tab l e 6 .
I have fun while working at the organisation
23.8 3.8 3.8
9 17.3 17.3 21.2
29 55.8 55.8 76.9
12 23.1 23.1 100.0
52 100.0 100.0
Disagree
Neutral
Agree
Strongly Agree
Total
Valid
Frequency Percent Valid Percent
Cumulative
Percent
p = .000
