Extract

Awards in the form of orders, decorations, prizes, and titles, are predominantly non-material, but extrinsic incentives. They thus differ from both intrinsic incentives and extrinsic incentives in the form of money. Awards have existed in all centuries, and are used in all countries and in all areas of society, including the private sector of the economy. There are major differences between awards and monetary compensation: _ The material costs of awards, consisting of a certificate or a small trophy, are typically low for the donors, but the value to the recipients may be very high. _ Accepting an award establishes a special relationship, in which the recipient owes (some measure of) loyalty to the donor. This is not true for monetary compensation. _ Due to their vague nature, awards are more adequate incentive instruments than monetary payments when the recipient’s performance can only be vaguely determined. _ Awards are less likely to crowd out the intrinsic motivation of their recipients than monetary compensation. _ Awards are not taxed, while monetary income is.