“Is a high salary the only solution to retaining top talent?” While many companies try to solve motivation issues with 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 giving money.
Recently, I quit my job to start my own business. 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 was no easy task. Currently, aside from a few key personnel I brought over when I switched jobs, we’re constantly bringing in fresh blood. Not long ago, I found some truly capable young people. I offered them a competitive salary. I even promised to grant them stock options 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 a team 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 do the trick—but I just can’t understand why they’d turn it 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 people to the cities, urban areas became overcrowded and unemployment skyrocketed. 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 strict punishment, the British government enacted harsh laws at the time. Anyone who stole an item worth one shilling (equivalent to about $100 in today’s purchasing power) faced 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 them. The United States, previously used as the final destination for prisoner deportation, had declared independence, leaving many prisoners with nowhere to go.
In 1770, Captain Cook discovered Australia and submitted a report to the British king 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 was somewhat isolated, making it ideal for releasing convicts. King George III designated Australia as a penal colony.
On January 26, 1788, a fleet consisting of 11 ships transported 548 male convicts and 189 female convicts to Australia, and 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 transported. However, once the captains received their payment, they 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 medicines, many died during the voyage. Some captains even withheld sufficient water and food to save costs, and prisoners often lost their lives because they could not receive immediate medical treatment. Consequently, the death rate among prisoners rose sharply even before they reached Australia.
On one occasion, more than a third of the prisoners died during the journey. By the time the remaining prisoners arrived at their destination, they were extremely exhausted and starving, and suffering from the agony of disease. One first mate, observing these criminals, remarked cruelly:
“Let’s send these monsters to hell as soon as possible. After all, we’ve already been paid in full for transporting them, so it doesn’t matter.”
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 Council passed a law stipulating that food and water rations be improved during transport, and that sufficient light, air, and necessary medical care be provided.
Still, the mortality rate did not improve. No method proved effective until an economist made a new proposal. What was the proposal put forward by this economist?
The economist suggested that instead of settling the costs for all prisoners at the time of departure, the shipping fee should be paid based on the number of prisoners disembarking upon arrival in Australia.
In 1793, a new decree was issued, and the prisoners’ survival rate immediately rose to 99%. A shrewd commentator assessed the incident as follows:
“Economics has triumphed over mercy and love!”
This incident demonstrates that people’s reactions differ depending on the method of motivation. If prisoners paid the captain after boarding, it effectively encouraged the captain to mistreat them. Some captains even withheld necessary supplies and food from the prisoners, only to sell them upon arrival in Australia and pocket massive profits.
However, when the law was changed so that payment was only made if the prisoners arrived alive at their destination, the captains’ attitudes shifted. Whereas they had previously profited from the prisoners’ deaths, they now transformed into people who “showed deep remorse over their deaths.”
Even if they didn’t 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 prisoners 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, making such incentives effective in a complex market is not so straightforward.
Incentives Create a Positive 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, and housing 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 love or benevolence 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 extraordinary phenomena discovered in economics. Under the right conditions, incentives bind individual interests and societal interests together. The goods in a supermarket 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 observing the distribution process behind the fresh vegetables that appear in the market every morning. At the vegetable farm, workers rise at 5 a.m. to deliver their produce to the wholesale market. The truck driver receives the various vegetables at 6 a.m. and delivers them to the supermarket. Supermarket staff display all the products by 7 a.m. and welcome the early-rising shoppers. The fact that early risers can reap greater profits serves as the very “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 driven not only by direct material incentives but also by various other motivations. Prestige, power, honor, desire, and love can all serve as significant motivations. Even acts of kindness can be a response to a form of motivation. Economists say it is not at all unusual for charitable organizations to boost the reputation of donors and promote them. Of course, there are those who donate anonymously without revealing their names. However, even on a university campus, it is nearly impossible to find a building named after an “unknown donor.”
Institutional economics discusses the concept of “path dependence.” This refers to the phenomenon where past choices do not easily change due to inertia. 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 range of new employees. They can then freely adapt to that culture. This maintains a virtuous cycle where self-development and growth occur along established paths. There is no risk of being hindered by an outdated corporate culture or stalling growth. When founding a company, it is crucial to establish innovative business models and robust technology. For a startup to survive in the long run, its systems must be well-established. In particular, the role of “motivation” systems must not be overlooked. In the early stages, establish a corporate culture and set up motivation mechanisms that encourage employee growth. You must build a healthy competitive environment and an innovative system that drives continuous development. Only when these mechanisms operate effectively internally can a virtuous cycle be established, allowing the company to navigate the “fast track” of progress.
Talent Cannot Be Bought with Money Alone
Let’s return to the main topic. If you wish 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 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 capabilities 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. My friends in Silicon Valley were motivated by a sense of inner fulfillment, even in the face of enormous financial rewards. They took immense pride in the results they created 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 they struggle to recruit talent. Interviews with Silicon Valley professionals revealed that over half of them spend their free time researching technology-related projects, stating that they do so “for the sheer enjoyment of it.”
Accenture, the world’s largest management consulting firm, also released 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 if they are motivated by the work itself—even if it means earning less money—and if that work contributes to their professional growth.
When speaking with today’s “Gen Z and Millennials,” 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. Even though 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, beyond 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 with innovation and cohesion can go further and reach greater heights.
Perhaps your company already has such a corporate culture in place. If so, be sure to highlight that when recruiting talent. Today’s “Gen Z and Millennials” are 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 fully unleash their innovative ideas. A work environment that is free, equal, conducive to self-actualization, and brimming with innovation may be far more appealing to them.
