Better (financial) motivation for a developer: percentage or fixed salary?

Question

Until now, I worked on projects with fixed salary, receiving it at each period (monthly). But I would like to know, what if the workers should receive their salary with a percentage of the project's value? Would it be more motivating to finalize it as well as is possible?

I see now three payment possibility, as rewarding a project from financial approach:

• fixed (periodic) salary
• percentage of the project's value
• the combination: a smaller amount, fixed salary plus a percentage.

Which is the better solution?

Answer 1

I was working with a similar setup and it wasn't that bad at all. We knew what to expect, and somehow we felt that our work has a purpose, because we needed the money at that time.

Unfortunately, when one brings up the money based motivation topic up, the other immediately pulls Daniel Pink's book, which is excellent book, but how one interprets is very important. Dan doesn't say that the money based motivation is evil, he simply proves with scientific methods that it is not effective with knowledge workers under certain circumstances.

The book mostly talks about cases when something has to be done, and the leader needs to motivate people to reach a certain deadline or threshold. In those cases the money serves as a short term motivator, which takes away the focus from the joy of the work etc.

The title of the book doesn't say anything about money: "Drive: The Surprising Truth About What Motivates Us", because it is about motivation. If you agree with people in the beginning about the rules, then this is not a case of motivation. This is how business is going to be done. If you start being behind the deadlines and commitments and you offer money that is a money based motivation situation.

My point is that you should bring this topic up, and talk through with your colleagues and learn as much as possible about their motivations. If it turns out that none of them is interested in money, you can do practically anything and nothing is going to change.

To sum up: use as much time as necessary to figure out what motivates your colleagues and change the rules accordingly. Don't assume anything, do your research.

Answer 2

The key to motivation is to remove the money from the table. So you have to pay enough so the developers don't think about the money, and then to rely on intrinsic motivators such as recognition, self-development, etc. If you use percentage or even mixed model, you focus people on the money, and not on the product. On the other hand, it's great to share with the team how product is going and to share the profit, but those should be extra rewards, and not the base of your payment strategy. Keep in mind also that as a business owner, you are taking the financial risk. Setting the payment as percentage of the profit actually moves the risk to the developers of the product and there's no reason the developer should work for you instead of for himself.

Answer 3

Similar to other answers, they key thing to understand here is that:

1. Money is a motivator, but only up to a certain point.
2. Once people's basic needs are taken care of, money is no longer a major motivator.
3. Other factors (such as esteem and self actualization) become more important progressively.

Contrary to some of the other answers, this thinking is not new at all.

Most of the psychology comes from a 1943 paper entitled, "A Theory of Human Motivation" and is often referred to as Maslow's hierarchy of needs.

This has been taught in business school for decades.

Answer 4

In my opinion percentage has some extra risk:

Money always is motivating factor. If it isn't so important in current moment but who knows about future? Wife will become pregnant, somebody will get married, child will fall sick and so on.

If something goes in not right way it will be huge chance to lose entire team. Because leaving the company will be able to be avalanche-like.

Mixing looks more better but it has some challenges. Team should have possibility to track changes of the project's value. Because people usually make plans and if reward is less then expected it will be serious lack motivation.

Answer 5

While it is true that Daniel Pink's Drive says that monetary bonuses don't work for creative workers, it is not so simple.

There are ways to create "bonus" system that increases motivation while minimizing drawbacks. Jurgen Appelo's Management 3.0 and Management for Happiness attempts this through Merit money practice. It achieves this by sticking to these rules:

1. Don't promise rewards in advance
2. Keep anticipated rewards small
3. Reward continuously, not once
4. Reward publicly, not privately
5. Reward behavior, not outcome
6. Reward peers, not subordinates

Jurgen developed base practice that follows those rules like this :

• At beginning of every month, each person gets some tokens
• During the month, they can give those tokens to other people, as form of reward
• At end of month, money is added to "bonus" pool, based on companie's success
• At the same time, it is randomly (maybe through dice) decided if accumulated tokens could be converted into money from this bonus pool

Of course, this is not exact practice and it can be fine-tuned. But it has many good properties and follows the above rules. If you imagine yourself, you are getting rewarded by your peers who like your behavior. You get small "rewards" continously, instead of big one once or twice a year. It is done publicly. And most critically, you don't know when and how much actual money you will get, which is what disrupts your expectations that result in reduced productivity.