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Interesting Work and a Comfortable Workplace Motivate Employees of Startups

For a business startup to grow and thrive, its employees should have a vested interest in its success. Employee incentives may include bonuses, equity and profit sharing, recognition of accomplishments, opportunities for career development, and flexible work schedules. But being inspired by a new challenge and proud of work well done can motivate people even more effectively, according to Olga Gaponova, Associate Professor at the Department of General and Strategic Management, HSE Branch in Nizhny Novgorod.

Young, high-growth start-ups are of great value for any economy. The more of them there are, the better the prospects for the country's economic growth and prosperity.

Innovation can take many forms, and start-ups can be focused on new marketing and management solutions, as well as on innovative technology or products. They are usually high-risk businesses, and their market success depends almost entirely on the human factor. Consequently, human resources are key to startups.

Gaponova examined some of the core principles of personnel management in young innovative companies, including the types of incentives which produce the best results.

She surveyed 498 founders and employees of 50 startups presenting their projects at the 11th 'Russian Capital for Russian Innovations' Fair.

She studied employee incentives used by Russian startups today, including approaches to motivating employees and whether they are happy with the current approaches and what types of incentives they would prefer. She has summarised her findings in the paper 'Personnel Motivation Systems as a Corporate Planning Tool in Innovative Companies at Early Phases of Development'.

Interesting Work Drives Employee Performance

Gaponova found that intangible incentives often work better for employees of startups. While decent pay and comfortable working conditions are necessary and a lack of these can cause dissatisfaction, these factors alone cannot inspire love for one’s job and contribute little to intrinsic motivation. In contrast, things such as a sense of important accomplishment and a job well done, being given more responsibility, access to promotion and professional development opportunities all tend to create intrinsic motivation and maximise performance.

The most common intangible incentives offered by startups today include interesting work (67% of startups surveyed), democratic management styles (55%), a strong corporate culture (46%), and employee participation in project meetings (40%).

Gaponova's findings suggest that employees of startups appreciate an open and comfortable atmosphere in the workplace ('feeling at home'), ease of communication with management, recognition of their accomplishments, and even constructive criticism. Internal rather than external incentives – such as meeting a self-imposed challenge – often inspire them to reach new heights. Workplace satisfaction is key to good performance for 95% of startup employees, while remuneration and formal recognition are of secondary importance.

Other intangible incentives often used by young companies as an alternative to material rewards include greater freedom in decision-making and flexible work schedules.

Another potentially strong incentive, according to Gaponova, could be workplace mentoring, which 74% of her respondents would like to introduce, but just 16% actually have in place.

Sharing Company Profits Boosts Productivity

While moral satisfaction can sometimes outweigh material perks, financial incentives should not be underestimated, Gaponova notes. Linking remuneration to performance can boost employee enthusiasm. In some companies, employee salaries consist of two components – fixed and variable; the latter, not exceeding 50% of the total, depends on the employee's personal contribution to the company's success.

The variable component of employee remuneration can also take other forms, such as bonuses, high severance pay, use of a corporate car or taxi service, gifts, subsidised club memberships, etc.

Gaponova's survey of startups' employees also reveals that profit or equity sharing is one of the most effecitve incentives. By being the company's shareholders, employees have a vested interest in its success, alongside the company's founders.

Charismatic Leaders Increase Chances of Success

Gaponova emphasises the importance of knowing what can motivate a particular team. Many startups fail only because the young entrepreneur leading the company has no idea what incentives to use and how. It is important, for example, to understand whether an employee is motivated by opportunities for professional development or focused only on higher pay and status.

In addition, for incentives to be meaningful, they should be adopted in consultation with employees rather by the company owner alone; they should also be measurable and transparent, as well as realistic and achievable from the employees' perspective.

The company founder’s personality makes a big difference for startups; some leaders can inspire their teams to follow them anywhere regardless of risks, Gaponova concludes.

 

March 18, 2015