The Key to Motivating Employees

Q: What issues should I anticipate when I hire my first employees in terms of how to motivate them?

A: You introduce the “agency” problem into your workplace. Employees as paid agents will not care as much about your business as you will. Employees get paid no matter how much (or little) work is accomplished. Without creative compensation programs, their pay is not connected to how much they produce or how much value their work generates or how well the business performs.

It’s the issue Jesus spoke about in John 10:12-13: “But a hireling, he who is not the shepherd, one who does not own the sheep, sees the wolf coming and leaves the sheep and flees; and the wolf catches the sheep and scatters them. The hireling flees because he is a hireling and does not care about the sheep.” NKJV

That said, there are infinite ways of crafting bonus programs tied to productivity or profitability to create more alignment with you. The key to motivating employees is to pay them for performance and provide for them a clear purpose for what they do and what the company does to make a difference. That can be a tough balance.

Ideally you would only pay for the work performed, to the standard expected (as in outsourcing to a contractor, also known as “Pay for Performance”), but also ideally, the employees share your passion and purpose for the business as much as a family member would. Again, it’s a difficult balance to achieve the more arm’s length type of compensation, but a heart-bond for delivering great value to customers while trying to change the world.

See the “Pay for Performance” video in the Venture Academy in the Human Resources principles section. In that video I described the three ladies that worked in the water bill processing department in the first company I acquired and how changing their compensation plan from a base salary to a variable “Pay for Performance” format completely changed their behavior.


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About Wade Myers

Wade has founded or co-founded, invested in, and been a director of over 25 companies and has completed 55 financing and M&A transactions. His previous work experience includes the Boston Consulting Group and Mobil Corporation. Wade also served as an Airborne Ranger in the US Army where he was a decorated veteran of the Gulf War. He is a Baker Scholar graduate of Harvard’s MBA program and is married with five children.

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