The Effects of Extrinsic and Intrinsic Rewards on Organizational Effectiveness among the Private and State-owned Enterprises in China
Authors:   Asia-Europe Perspective Association, Liu Liu , Li Jinxi Michelle 
Published: June 2018

After the implementation of reform policy in 1978 and the successful transition of planned economy to a market economy in 1992, China has established various types of enterprises including state-owned enterprises, collective ownership enterprises, private enterprises and foreign-funded enterprises. Among them, state-owned and private enterprises are significantly different in terms of size, organizational structure, human resources management, employment stability and compensation.
This study aims to investigate the effects of extrinsic(money, benefits) and intrinsic(job) rewards on organizational effectiveness(job satisfaction and work effort) among the private and state-owned enterprises in China. Moderating roles of enterprise types(state-owned and private enterprises) and distributive justice between the two types of rewards and organizational effectiveness were also examined. Survey data from 403 Chinese employees(215 private firms, 188 state-owned enterprises) were tested using hierarchical regression analysis, which confirmed significant effects of extrinsic and intrinsic rewards on both job satisfaction and work effort. Intrinsic rewards had a stronger effect than extrinsic rewards on both job satisfaction and work effort. Furthermore, enterprise types were found to moderate the relationship between intrinsic rewards and job satisfaction, extrinsic rewards and work effort as well as between intrinsic rewards and work effort. Specifically, extrinsic rewards had a stronger effect on work effort in state-owned enterprises(than private firms), intrinsic rewards had a stronger effect on job satisfaction in state-owned enterprises(than private firms), and intrinsic rewards had a stronger effect on work effort in private firms(than state-owned enterprises). Moreover, distributive justice moderated the relationship between extrinsic/intrinsic rewards and organizational effectiveness. To be specific, extrinsic rewards had a stronger effect on both job satisfaction and work effort among the group with high distributive justice, while intrinsic rewards had a stronger effect on work effort among the group with low distributive justice. Distributive justice is about extrinsic rewards such as pay, thus the group with high distributive justice is more likely to be attracted by extrinsic rewards, while the group with low distributive justice tends to be motived by intrinsic rewards. Therefore, intrinsic rewards could maximize work effort in the case of low distributive justice. According to cognitive evaluation theory, extrinsic rewards such as pay will reduce intrinsic motivation in a work. In other words, when people are paid for work, it feels less like something they want to do and more like something they have to do. Thus, intrinsic rewards couldn’t function well in the case of high distributive justice because of the extrinsic rewards and the effect of intrinsic rewards on work effort will decrease accordingly.
This study implies that Chinese enterprises need to provide intrinsic rewards as well as extrinsic rewards. The intrinsic rewards that fit Chinese reality are the establishment of learning organization and psychological awards such as “advanced workers”, “technical expertise”, “innovation award”, and “energy-saving award”. State-owned enterprises were inferior to private firms in rewards, distributive justice and work effort. These are all due to the equal reward systems in state-owned firms, and this “average prize” refers to the Chinese Confucian ideology “Do not suffer from oligopoly and suffer from uneven, not suffering from poverty and suffering from anxiety”. State-owned enterprises should increase pay level(extrinsic rewards) for top talents to avoid their turnover. Furthermore, state-owned enterprises need to use scientific indicators to evaluate the performance of CEOs and to select qualified CEOs who used to be dispatched by Chinese government.