Chapter 13: Managing Employees

Overview

The eye of the master will do more work than both his hands.

Proverb^[1]

Just because you pay an employee it doesn’t mean you have his loyalty. Rational employees will always put their own interests ahead of your firm’s needs. Consequently, salaries should not be seen as a way of gaining a worker’s allegiance; rather, they should be viewed as a mechanism to alter an employee’s incentives to align his interests with yours.

The great economist Adam Smith described how an invisible hand causes selfish capitalists to act as if they were altruistic. A capitalist produces products not to satisfy your needs, but to make money for himself. Manufacturers can only prosper, however, by making products that consumers want. Consequently, the invisible hand of capitalism causes business owners to care about their customer’s needs. The invisible hand of capitalism, however, does not automatically make your employees care about you. It’s your job as an employer to create a visible salary structure that forces employees to adopt your concerns. No salary structure works perfectly, however.

^[1]Browning (1989), 417.