How to Motivate and Retain Employees

The great economist Milton Friedman once said, “Unless it is politically profitable for the wrong people to do the right thing, the right people will not do the right thing either, or if they try, they will shortly be out of office.” Regardless of what you think about Milton Freidman and his ideas, I think that he is getting at an extremely important idea in this quote: The incentive matters more than the person.

There are two main ways that business owners and managers can incentivize their employees to do the right thing. They can do this by giving their employees monetary compensation (wages) or ownership compensation (responsibility, not equity in the company).

Daniel Pink, a New York Times bestselling author, agrees with Friedman. He argues that the best use of monetary compensation is to “take the issue of money off the table.” Many business owners have run into this issue: Paying someone more than they are “worth”, only to have that person quit and work for another business.

Why does this happen? Because money is not a great motivator outside of providing for someone’s physical needs. The carrot and stick don’t often work when motivating employees. Clear research indicates that financial incentives can end up harming performance instead of incentivizing it. I am sure that you have encountered this issue in your business. You offer a bonus to an employee to do a task and find that the task was poorly performed, costing the business more money. Holding a reward out to someone may end up harming their performance. Instead, rewards should be given ‘randomly’ (meaning they are given after the fact, not held out as a motivator).

The other compensation that is important to consider is that of responsibility. When an employee takes ownership of a project, he will be motivated to do well. Many business owners are doing too much work in their business because they don’t trust the people they hired to do a good job. How many times have you hired someone to do a job, only to continue to do the job yourself after you brought them on? Instead, why not give the employee the responsibility to do the job well and hold them to a high standard of excellence? Responsibility often incentivizes performance rather than harming it.