Intrinsic vs extrinsic motivation: what really keeps your team engaged?

You can offer a generous salary, ping-pong tables, and Friday drinks, but if your team doesn’t feel trusted, challenged, or inspired by the work itself, they’ll disengage, or quietly leave.

What truly keeps people engaged isn’t the perks. It’s a sense of autonomy, mastery, and purpose. These are the pillars of intrinsic motivation.

This post looks at: 

• The difference between intrinsic and extrinsic motivation.
• Why internal drivers can be more effective long-term than external rewards.
• Practical ways to build a more motivated culture without a bigger budget

If you’re leading a team and looking to strengthen performance, culture, or retention, this is for you.

What is motivation and why does it matter?

Motivation is the reason behind behaviour. It’s what drives someone to take action, persist through challenges, and care about outcomes.

In the workplace, motivation has a direct impact on:

• Productivity and performance.
• Innovation and problem-solving.
• Engagement and wellbeing.
• Retention and loyalty.

However, a Gallup report found that just 23% of global employees feel engaged at work, while 59% are quiet quitting by doing only the bare minimum.

This isn't just a performance issue. It can be a signal that many companies haven’t created environments that motivate people to do their best work.

High performance starts with high motivation. And that requires more than a competitive salary.

Intrinsic vs. extrinsic. What’s the difference?

Not all motivation is equal.

Intrinsic motivation

Doing something because it’s inherently meaningful or enjoyable.

Examples:

• Solving a complex problem.
• Helping a customer succeed.
• Learning a new skill.

Extrinsic motivation

Doing something to earn a reward or avoid a penalty.

Examples:

• Earning a bonus.
• Avoiding negative feedback.
• Chasing a promotion.

Both types of motivation can drive action. But their impact on engagement and behaviour is very different.

Why intrinsic motivation is a better strategy

Intrinsic motivation is more sustainable. It comes from within, so it doesn't rely on constant external triggers.

Research shows that intrinsically motivated employees:

• Are more creative and proactive. 
• Stay longer in their roles.
• Feel greater satisfaction and wellbeing.
• Perform better in roles that require problem-solving or collaboration.

When people are intrinsically motivated, they’re working towards something they care about.

People do their best work when they’re motivated by purpose, not just pay.

“When people are financially invested, they want a return. When people are emotionally invested, they want to contribute.” - Simon Sinek, leadership author and speaker 

The limits of external rewards

That doesn’t mean extrinsic rewards are useless, but they have limitations.

Here’s where they can fall short:

• Diminishing returns. A one-off bonus may excite someone today, but won’t sustain motivation over time.
• Dependency. People start to expect rewards and feel less motivated when they’re removed.
• Undermining intrinsic motivation. Known as the overjustification effect, this happens when rewarding someone for something they already enjoy causes them to enjoy it less.
• Short-termism. Rewards tend to drive short-term effort rather than long-term engagement.

When external rewards become the only incentive, you create a ‘what’s in it for me’ culture, not one built on shared ownership or pride in the work.

The psychology of job design

Motivation isn’t just about leadership, it’s also built into the job itself.

In the 1970s, psychologists Hackman and Oldham developed a model that explained how the structure of a role affects motivation and satisfaction. It’s called Job Characteristics Theory.

They identified five key job attributes that increase intrinsic motivation:

1. Skill variety

People feel more engaged when they are using a range of skills, not just repeating the same task.

2. Task identity

Seeing a task through from start to finish creates a sense of ownership.

3. Task significance

Knowing that your work has an impact, whether this is on customers, colleagues, or society, increases its meaning.

4. Autonomy

Having control over how and when work is done builds trust and accountability.

5. Feedback

Timely, specific feedback helps people grow and understand how their work contributes.

When jobs are designed with these elements in mind, employees feel more connected to their work, and are more likely to perform at a high level.

Other foundational theories back this up. Herzberg’s Two-Factor Theory makes a clear distinction between hygiene factors like salary (which prevent dissatisfaction) and motivators like meaningful work, achievement, and responsibility which actually drive engagement.

Likewise, Self-Determination Theory emphasises the psychological need for autonomy, competence, and relatedness, all of which align closely with the job attributes listed above. 

Flow Theory, by Mihaly Csikszentmihalyi, adds another layer: people are most engaged when they’re immersed in meaningful tasks that stretch (but don’t overwhelm) their skills.

The key here is that you don’t just manage motivation, you design for it. When a role is built with purpose, variety, and ownership in mind, you create the conditions for people to do their best work. 

How to lead with intrinsic motivation

Want a team that’s truly engaged? Focus on building the right conditions.

Here’s how to foster intrinsic motivation:

• Give people autonomy. Let them shape their own workday or choose how they approach a challenge. Trust breeds accountability.
• Make purpose visible. Show how individual roles contribute to the bigger picture. Customer stories, mission updates, or impact metrics all help.
• Invest in learning. Encourage learning through mentorship, side projects, or internal workshops. Recognise improvement, not just outcomes.
• Create space for ownership. Give people responsibility for projects they can truly own from start to finish.

Companies like Buffer and Patagonia build intrinsic motivation into their culture, focusing on trust, transparency, and mission-first thinking. 

You don’t need a Silicon Valley budget to replicate this. It just requires clarity, consistency, and a little courage.

When and how to use extrinsic rewards well

Used wisely, extrinsic rewards can complement intrinsic drivers, especially when they’re seen as recognition, not manipulation.

Smart ways to use external rewards:

• Celebrate milestones. Product launch? Funding round? Recognise collective effort with a bonus or team event.
• Peer recognition. Let colleagues nominate each other for monthly awards or shoutouts. This builds appreciation, not competition.
• Wellbeing perks. Mental health support, fitness budgets, or learning stipends show that you value people beyond performance.

Use rewards as recognition, not a crutch. And make equity part of the mix.

Employee share schemes: a master motivator

Employee share schemes aren’t just a financial incentive. 

Share schemes tap into both extrinsic and intrinsic motivation, offering a future reward and also reinforcing a sense of purpose, autonomy, and shared success.

If employees view their shares as a potential payout, something that might become valuable at exit, equity functions as a performance-based reward. 

This can be motivating in the short term, especially during key milestones like funding rounds or product launches.

But if it’s seen purely as a distant financial windfall, it can also feel abstract or even demotivating if the timeline is unclear or the scheme is poorly explained.

When share schemes become intrinsic

Equity starts to tap into intrinsic motivation when it reinforces:

• Ownership and autonomy. People feel more responsible for outcomes when they’re genuinely invested
• Connection to purpose. Share schemes align individual success with company success, deepening the team mindset
• Long-term thinking. It encourages people to act like founders, not just employees.

In other words, equity can strengthen internal drivers like responsibility and identity, especially if the company builds a culture where everyone understands their role in the bigger picture.

When share schemes are used as a tool for inclusion and shared ownership, not just reward, it becomes a powerful source of motivation.

Make share schemes meaningful, not just transactional

To maximise the motivational impact of equity:

• Explain the value clearly. Don’t assume everyone understands how share schemes work. 
• Connect it to purpose. Show how individual contributions impact company value. Equity should feel earned, not handed out.
• Use it to build trust. When employees see that leadership is willing to share ownership, it signals long-term commitment.

Platforms like Vestd help businesses do this by making employee share schemes transparent, fair, and easy to understand, so it motivates meaningfully, not just financially.

The key is that employee share schemes are most powerful when they motivate both hearts and wallets. 

Final takeaways: Motivation that lasts

Motivating a team isn’t about handing out bonuses or praise. It’s about creating work that matters and giving people the autonomy and support to do it well.

Let’s recap:

• Intrinsic motivation (purpose, mastery, autonomy) drives long-term engagement.
• Extrinsic rewards can support this but not replace it.
• Job design and leadership both play a critical role.
• The most motivated teams feel trusted, challenged, and connected to something bigger.

If you’re scaling and want to build a team that’s aligned, engaged, and in it for the long haul, motivation should be part of your operating model, not an afterthought.