"Freakonomics", Compensation, and Motivation

I recently read "Freakonomics", which talks about human responses to financial incentives. One interesting insight was that telling parents that they cannot pick up their kindergardener late works a lot better if you don't define a financial penalty. This makes a lot of sense, of course - if there is a defined penalty it makes it sounds like it's OK to be late as long as you just pay for it... Another interesting insight was that real estate agents keep their own houses on the market 10 days longer and sell them for 3% more than the houses of their clients. It turns out that their financial incentive for selling for a slightly higher price just isn't enough reward for the extra work that would be involved. "Freakonomics" is overall a good read, as long as you don't look for an overall point or take-away, it's more like an essay collection.

Related, I also recently read "The Seven Hidden Reasons Why Employees Leave" that I stumbled upon in the management book section of a Borders Bookstore. Tremendously valuable book - people managers should go through the checklist of seven periodically to see if their employees are at risk. Unsurprisingly, it says that compensation - while often stated in exit interviews - is rarely the real reason people are leaving. That being said, it recommends paying your employees 7.5-12% above market average which makes a lot of sense to me - as people tend to perform to expectation and as they want to keep a good thing going they'll put in extra effort and are less likely to leave. Given how expensive it is to replace an employee that percentage premium will easily pay for itself. (I've heard it said that no one pulls their weight for up to a year in high-tech jobs with a lot of domain knowledge to be acquired; "Slack" has a good quantification of turnover costs) .

"The Seven Hidden Reasons Why Employees Leave" also talks about the various forms of variable pay that are used. I'm really on the fence as to if variable pay is a good idea for software development engineers at all (outside of a yearly bonus or options/stock grant I mean). The Dilbert cartoon's "I just wrote myself a minivan" in response to being paid per bug you fix in your code comes to mind. It's probably best to stick to slightly above average pay and benefits, and to then focus on rewarding your employees with informal recognition, promotions, work of their choice (a la Google's 20% rule), special time off after an intense deliverable, sabbaticals... but that will all have to be the topic of a future post...