Employees very get quickly acclimated to a raise in their compensation. In fact, in the many companies that offer yearly raises, a raise is just expected and employees only worry about the amount. But once their pay check increases a bit that raise no longer becomes motivating, if it ever was. And many people tend to live up to their income, so they quickly become accustomed to their new salary.
What really motivates people is the opportunity to have an impact, to make a difference that makes a difference. That’s the allure of a startup. I still remember being shocked at hearing Ray Ozzie, then at Software Arts with me, later the developer of Notes and Chief Software Architect at Microsoft, explain why he left Data General to join Software Arts: he’d worked on six projects at Data General and none of them ever shipped!
What’s motivating is to be rewarded for making an impact, with a bonus of stock options or cash. And just as important, to be recognized for that impact by management, most critically, the founders and their peers. Unlike yearly performance reviews/salary increases, a performance bonus can and should be given any time and could even be given multiple times in a year.
Typically startups and tech companies reward performance; government and unions reward longevity, or “seniority” as they call it. And I know whereof I speak, having been a member of AFSCME, the American Federation of State, County and Municipal Employees, when I was a librarian back in the late 1970’s.
How you reward performance and how you motivate staff are key components of your company culture and will determine the success of your venture. Don’t follow the large old corporations or the unions down the useless path of expecting a yearly raise as a percentage of salary to motivate your people to exceed your expectations.