Ask HN: Should we give incentives ? | Hacker News Reader

Ask HN: Should we give incentives ?

4 pointsjoseakle3 comments

I've been thinking how to, or if we should, give incentives at my company.

We are slowly becoming profitable. We are "ramen profitable" since both of the founders live from our salary. But we have three angel investors who would like a reward on their investment. And seven more employees. I've been reading articles by HBS and some blogs.

One possible scheme i've thought of is this one.

First cover all costs including salaries, taxes, credit, etc. Build a 5% reserve for legal or other. As long as profits are 20% of sales or lower, pay them as dividends to investors. Redistribute any profits above 20% of sales to founders and employees.

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This may be more theoretical than you are hoping for, nonetheless, I'd like to suggest Dan Pink's TED talk on The Surprising Science of Motivation http://www.ted.com/talks/dan_pink_on_motivation.html

Pink explains how financial incentives often have the opposite effect on motivation than we would want or expect. He suggests that the causes of true motivation boil down to autonomy, mastery and purpose. The video is worth the 20 minute investment.

Great! I watched it.

So now i'm really thinking if we should have financial incentives ...

The thing is most articles that say incentives don't work area about pay for performance, but the problem is if performance is not measured in money it's kind of hard to compare.

Incentives to employees work best when they meet two criteria:

1) They are directly linked to performance. Giving our random amounts of money (eg, Christmas Bonus because the business had a good year) can backfire because it sets the expectation that such incentives will be standard, not a bonus. Rewarding those employees who meet or exceed their targets - financial or otherwise - encourages them to keep working hard.

2) They should be personal. Most people would rather you spend $x on a personal gift (eg, movie tickets) than give them some multiple of x in cash. It shows you care.

Regarding the angels, I would again ensure you understand their personal motivation and expectations. If they want an equity stake because they think you could be huge, chances are they would rather you reinvested in strategic growth than return a dividend.

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