What Do You Want Your Employees to Want?

Imagine you're wealthy and looking to hire someone to manage a pool of money. What should you want this person to be motivated by? For simplicity, assume your objective is to maximize the expected value.

First, your employee must have a near-linear preference for money—they need to consistently prefer more money to less, even at higher amounts. If someone is spiritually enlightened and sees little difference between making $500,000 and $5 million, you have a problem. There's a hard ceiling on how much you can motivate them through financial incentives.

Second, they must be competent in a way that translates motivation into value creation. Raw desire for money isn't enough—they need the skills to convert that motivation into better investment decisions. A portfolio manager who desperately wants to make money but lacks investment skill will likely destroy value in their attempts to create it.

Third, their actions must have a direct, measurable impact on value creation. When a trader makes a decision, the P&L impact is immediate and clear. This creates a tight feedback loop between decisions and outcomes, allowing precise measurement of value added.

Finally, you must be able to capture enough of the value created to sustain the incentive system. If your manager creates $10 million in value but must be paid $11 million to do so, the system breaks down. You need sufficient margin between value creation and compensation to make the arrangement worthwhile.

When all four conditions are met, you can create near-perfect incentive alignment by giving them a percentage of profits. They make more money when you make more money. (Though even here, the alignment isn't quite perfect—since the manager's downside is limited to their job while your downside is your capital, they might be incentivized to take larger risks than you'd prefer.) This elegance is rare in—most jobs break down on one or more of these conditions.

Consider how different this is from most corporate roles, where the link between individual decisions and value creation becomes increasingly diffuse. A trader's decision has immediate, measurable impact. But in most jobs, value creation requires complex coordination across teams and time. Even obvious value creators like salespeople operate in environments where their success depends on product quality, market conditions, and support teams. The further you get from direct market activities, the harder it becomes to maintain that clear line between individual decisions and outcomes.

Incentives drive culture. The trader who obsesses over their P&L and the quant who treats markets like a complex puzzle are both drawn to an environment where success is objective and atttributable. They’re here because it’s one of the few parts of corporate America that will keep them intellectually engaged and not bog them down with soul crushing meetings and manager speak, where you’re comfortably abstracted away from the value creation process through layers of management and hierarchy.

You should want your employees to want what you can actually deliver. In trading, pure financial incentives work because firms can offer high compensation, money drives better decisions, and they can pay more for better performance. But if you're running a non-profit or an early-stage startup, you need employees motivated by what you can uniquely provide.

But this reveals a subtle problem in organizational design. A company's unique value proposition might be an excellent static motivator—getting people through the door—without being a strong dynamic motivator that drives continuous performance improvement. Consider a climate tech startup. The mission of fighting climate change might attract passionate employees willing to accept lower compensation. While this solves the immediate hiring problem, it doesn't necessarily create the ongoing performance incentives you need.

What you need are dynamic motivators—things that create virtuous cycles of performance and reward. A dynamic motivator has this key feature: when employees deliver more of what you want, you can give them more of what motivates them, which in turn drives them to deliver even more value. Money works perfectly this way in portfolio management. Professional growth can work similarly—high performers can be given more challenging projects and responsibilities, feeding their desire to learn and grow. But static motivators like work-life balance or mission alignment, while valuable for attraction, can't easily scale with performance. In fact, selecting heavily for these static motivators might mean hiring people who are inherently less responsive to the dynamic motivators you have available.

This is what great company cultures do when they work well—they create a system of incentives and norms that both attracts the right people and keeps them motivated to perform. But not all cultures achieve this alignment.