“Is a high salary the only solution for retaining top talent?” While many companies try to address motivation through financial rewards, top talent wants more than that. What is an effective way to motivate employees?
Motivation
Motivation is not a simple matter of just paying people.
Recently, I quit my job to start my own company. Perhaps because of the knowledge and skills I gained from working in Silicon Valley, I secured two rounds of venture capital funding shortly after launching the company. The total amount exceeded $100 million.
Securing startup funding went smoothly, and technology development didn’t pose any major challenges either. However, hiring employees proved to be no easy task. Currently, aside from a few key personnel I brought with me when I switched jobs, our company is constantly bringing in fresh blood. Not long ago, I came across some truly talented and capable young people. I offered them a competitive salary. I also promised to grant them stock and stock options, but in the end, they turned me down.
I’ve always focused solely on technology, so my management experience is limited to leading teams at best; I have no experience in structuring the company as a whole. But the principle I follow is simple. In economics, they say money is the universal key that solves everything, right? So I thought that when hiring people, offering a higher salary would be the solution—but I just can’t understand why they turned me down.
The Importance of Motivation Methods, as Revealed by History
People respond to different “motivation” methods. Each method yields different results. Sometimes, even very minor details can completely change the overall outcome. Institutional economics argues that “good institutions turn bad people into good people, but bad institutions turn good people into bad people.”
The following famous historical story vividly illustrates this point.
In the late 18th century, Britain was undergoing two major transformations. As the Industrial Revolution drove large numbers of rural residents to the cities, urban areas were overflowing with people, and unemployment soared to astronomical levels. People flocked to London, Manchester, Birmingham, and other cities, but struggled to make ends meet. To survive, many turned to theft.
To ensure the effectiveness of severe punishment, the British government enacted strict laws at the time. Anyone who stole an item worth one shilling (equivalent to about $100 in today’s purchasing power) was subject to imprisonment or exile, while those who committed robbery, prostitution, murder, or arson were immediately executed.
Second, vast tracts of land were needed to put prisoners to forced labor. However, the cramped British mainland lacked the space to accommodate such a large number of people. Since the United States—which had previously served as the final destination for prisoner deportation—had declared independence, many prisoners were left with nowhere to go.
In 1770, Captain Cook discovered Australia and submitted a report to the British monarch regarding the discovery of the new continent. This was what is now New South Wales, the most developed state in Australia. In the name of the British Empire, they proclaimed sovereignty over the eastern coastal region of Australia.
The region’s somewhat isolated location made it ideal for releasing convicts. George III designated Australia as a place of exile for criminals.
On January 26, 1788, a fleet consisting of 11 ships transported 548 male convicts and 189 female convicts to Australia; by 1840, a total of 160,000 convicts had been transported to Australia.
In the early days, the British government paid captains based on the number of convicts being transported. However, once they received their payment, the captains paid no attention to the prisoners’ survival or numbers as soon as they left the British coast.
Due to the excessive number of prisoners and the long distance of the voyage, large quantities of water and food were required during the journey. Furthermore, because of poor medical conditions and a shortage of medicine, many died during the voyage. Some captains even failed to provide sufficient water and food in an effort to save money, and prisoners often lost their lives because they could not receive immediate medical treatment. As a result, the death rate among the prisoners rose sharply even before they arrived in Australia.
On one occasion, more than one-third of the prisoners died during the voyage. Ultimately, by the time the remaining prisoners reached their destination, they were extremely exhausted and starving, and were suffering from illness. One first mate, upon seeing these criminals, remarked cruelly:
“Let’s send these monsters to hell as soon as possible. It doesn’t matter anyway—we’ve already been paid in full for transporting them.”
The British public also showed little interest in these criminals. However, the problem was that the criminals were not being sentenced to death. Media outlets such as newspapers and magazines began calling for improved transport conditions, and religious organizations also argued that captains should act in accordance with humanitarian principles. The Legislative Committee passed a law mandating improved food and water rations during transport, as well as sufficient light, fresh air, and necessary medical care.
Even so, the mortality rate remained unchanged. No method proved effective until an economist put forward a new proposal. What was the proposal put forward by this economist?
The economist suggested that instead of settling the costs for all convicts at the time of departure, the shipping fee should be paid based on the number of convicts disembarking upon arrival in Australia.
In 1793, a new decree was issued, and the convicts’ survival rate immediately rose to 99%. A shrewd commentator assessed this incident as follows:
“Economics triumphed over mercy and love!”
This incident demonstrates that people’s reactions differ depending on their incentives. If the captains were paid by the prisoners after they boarded, it effectively encouraged the captains to mistreat the prisoners. Some captains even withheld necessary supplies and food from the prisoners, only to sell them upon arrival in Australia and pocket enormous profits.
However, when the law was changed so that payment was only due if the convicts arrived alive at their destination, the captains’ attitudes shifted. Whereas they had previously profited from the convicts’ deaths, they now transformed into people who “showed deep remorse over their deaths.”
Even if they didn’t actually mourn their deaths, they at least shed tears of deep remorse over the fact that they couldn’t make money because of those deaths. After all, if the convicts were alive, that meant money.
At first glance, this change in the incentive structure seems simple—it’s merely a shift from “prepayment” to “postpayment.” However, ensuring that incentive structures are effective in complex markets is not so straightforward.
Incentives Create a Virtuous Cycle in Society
Incentives exist everywhere around us—in organizations, within companies, and in the business world. When you go to a supermarket, you see shelves filled with products. People take this for granted. Every day, we rely on food, clothing, housing, and other necessities provided by others. Why do so many people serve our interests? Adam Smith explains this in *The Wealth of Nations*:
“It is not from the benevolence or good will of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”
This is one of the remarkable phenomena discovered in economics: under the right conditions, incentives align individual interests with the interests of society. The goods in a supermarket’s warehouse are supplied from countries all over the world—through this incentive mechanism. The business profits generated here serve to bring together and coordinate the private interests of tens of millions of people with the overall interests of society.
You can see this simply by looking at the distribution process for the fresh vegetables that appear in the market every morning. At vegetable farms, workers wake up at 5 a.m. to deliver their produce to the wholesale market. Truck drivers pick up the various vegetables at 6 a.m. and deliver them to the supermarket. Supermarket employees display all the products by 7 a.m. and welcome early-rising shoppers. The fact that early risers can earn greater profits is precisely what serves as the “motivation to wake up early.” Based on this mechanism, people strive to secure their own interests and naturally fulfill each other’s interests as well.
Economists argue that people act in predictable ways based not only on direct material incentives but also on a variety of other motivations. Prestige, power, honor, desire, and love can all serve as important motivations. Even acts of kindness can be a response to a certain kind of motivation. Economists say it is not at all unusual for charitable organizations to promote and highlight the reputation of those who have made donations. Of course, there are also people who donate anonymously without revealing their names. However, even just looking at a university campus, it is hard to find a building named “Building of an Anonymous Donor” no matter how hard you look.
Institutional economics discusses the concept of “path dependence.” This refers to the phenomenon where past choices, due to inertia, do not change easily. Once you fall into “path dependence,” it is difficult to escape that particular “quagmire.” Of course, if you choose a good path, “path dependence” can also serve as a catalyst for moving forward.
The same applies to corporate culture. By fostering a positive and progressive corporate culture, you can discover and recruit a diverse pool of new employees. They can also adapt freely to that culture. This maintains a virtuous cycle where self-development and growth occur along established paths. There’s no risk of being held back by an outdated corporate culture or seeing growth stall. If you’re founding a company, it’s crucial to establish innovative business models and robust technology. For a startup to survive in the long term, its systems must be well-structured. In particular, the role of “motivation” systems should not be overlooked. In the early stages, establish motivation mechanisms that shape the corporate culture and encourage employee growth. You must build a healthy competitive environment and an innovation system that drives continuous progress. Only when these mechanisms operate effectively internally can a virtuous cycle be established, allowing the company to accelerate along the “fast track” of development.
Talent Cannot Be Bought with Money Alone
Let’s return to the original story. If you want to use “incentive” mechanisms to attract talent, relying solely on high salaries has its limitations.
According to Maslow’s “Hierarchy of Needs,” human needs progress in order from basic physiological needs to safety needs, belongingness needs, esteem needs, and finally, self-actualization needs. The first four stages represent basic needs, while the highest-level need is classified as the need for growth. Talented individuals with strong innovative abilities tend to have a high level of self-awareness. Their needs are not limited to merely physiological, safety, or belonging needs; their needs for esteem and self-actualization are far greater. The friends of mine in Silicon Valley were motivated by a sense of inner fulfillment, even in the face of enormous material rewards. They also took immense pride in the results they achieved on their own. People working in Silicon Valley prioritize the growth of their intellectual abilities, boldly take on challenges, and solve problems with innovative ideas. When you think about it, this explains why companies struggle to recruit talent. Based on interviews with Silicon Valley professionals, more than half said they spend their time outside of work researching technology-related projects—and they do so “for the sheer enjoyment of it.”
Accenture, the world’s largest management consulting firm, also published similar survey results. Most Silicon Valley IT professionals acknowledge that earning money is a very important issue for them. However, the survey also revealed that most people are willing to create value for a company—even if it means earning less—as long as they are motivated by the work itself and it contributes to their professional growth.
When talking with today’s “Generation MZ,” it becomes clear that they prioritize corporate culture over working for large corporations or financial security, and they place particular importance on “work-life balance.” In other words, there has been a shift in their pursuit of professional values. They are a generation of digital natives who grew up in a relatively free and affluent era. While there aren’t many “super-rich” among them, they have no worries about meeting their basic needs for food, clothing, and shelter. Many of their friends own homes, but even if they don’t, they don’t feel a strong need to buy one. Therefore, while money is important to this generation, it is not the sole criterion for evaluating their quality of life.
Consequently, in addition to generous financial compensation, it is crucial to offer them challenging work and a free, innovative corporate culture and atmosphere. A company driven by a sense of mission is truly a “company with a soul.” Companies that possess both innovation and cohesion can go further and reach greater heights.
Perhaps your company already has this kind of corporate culture in place. If so, be sure to highlight that when recruiting talent. Today’s “Generation MZ” is not satisfied with simply working for a well-respected company and receiving a high salary. They want to live, work, and grow in an environment where they can freely express their innovative ideas. A work environment that is free, egalitarian, conducive to self-actualization, and brimming with innovation may be far more appealing to them.
