Business & Strategy
Section 1
Core Idea
The mercenary rule: if you pay people only for output and give them no stake in the outcome, they behave like mercenaries — they optimise for the payment, not the mission. When incentives are purely transactional, loyalty and discretionary effort stay low; when the going gets hard or a better offer appears, they leave. Building and scaling depend on having people who care beyond the paycheck. The rule doesn’t say “don’t pay well”; it says that pay alone doesn’t create ownership. Align incentives with outcomes, give skin in the game where you can, and treat culture as a selection and retention filter, not a poster on the wall.
Free playbook
Get The Business Model Playbook
58 business models, one visual page each: how the money flows, the metrics that matter, and who runs it. Free when you join the Faster Than Normal email.
Free. No spam. Unsubscribe anytime.
Section 2
How to See It
Hiring & Retention
You're seeing the Mercenary Rule when turnover spikes after a competitor raises wages or when key people leave as soon as equity vests — the relationship was transactional and the “mission” was never internalised.
Incentives
You're seeing the Mercenary Rule when sales or delivery teams game metrics (short-term deals, low-quality signups) because comp is tied only to that number and not to long-term value or customer success.
Culture
You're seeing the Mercenary Rule when people refer to “the company” as “they” and opt out of extra effort because they don’t feel ownership — pay and structure have reinforced mercenary behaviour.
Section 3
How to Use It
Design incentives and roles so that doing the right thing for the business is also the rational thing for the individual. Tie comp to outcomes you want (retention, quality, long-term value), not just volume. Give meaningful skin in the game — equity, profit share, or clear upside from company success — so that “we” replaces “they.” Hire and promote for fit with mission and standards, not just skill; mercenaries will optimise for the contract. When you can’t offer big equity, use clarity of impact, growth, and recognition so that the best people stay for more than money.
Decision filter
"Are we paying for output only, or are we aligning reward with the outcomes we actually want? If someone would leave tomorrow for 10% more elsewhere, did we ever give them a reason to stay beyond the check?"
As a founder
Tie comp and recognition to outcomes that matter — retention, quality, customer success — not just top-line or activity. Give real skin in the game (equity, profit share) so key people benefit when the company wins. Hire for mission fit and reinforce it; if everyone is a mercenary, you’ll get mercenary behaviour when it gets hard or offers roll in.
Section 5
Founders & Leaders
Reed HastingsCo-founder, Netflix
Hastings built Netflix around “freedom and responsibility” and a “keeper test”: would you fight to keep this person? He argued that adequate pay is table stakes and that the goal is a team of people who act like owners, not hired hands. By paying top of market and expecting high performance, he made the mercenary rule explicit — if someone is mainly here for the paycheck, they’re not a fit. Founders can apply this by making pay fair and then selecting and rewarding for ownership and alignment so the rule works in their favour.
Section 7
Connected Models
Reinforces
Loyalists vs Mercenaries
Loyalists vs Mercenaries names the two types; the mercenary rule explains why pure transactional incentives produce mercenaries. Use both to design comp and culture so you get more loyalists.
Reinforces
Skin in the Game
Skin in the game means stakeholders share upside and downside. Giving real stake (equity, outcome-based pay) reduces mercenary behaviour by aligning interest with long-term success.
Tension
Incentives
Incentives drive behaviour. The tension: if incentives are only short-term or only cash, you get mercenary behaviour. Shape incentives so the rational choice is the one you want.
Section 8
One Key Quote
— Reed Hastings, No Rules Rules (2020)"We’re a team, not a family. We’re like a pro sports team: we want the best players, we pay top of market, and we expect high performance. If someone’s not a fit, we part ways."
Section 11
Summary & Further Reading
The mercenary rule: pay-only, no-stake incentives produce mercenary behaviour — people optimise for the check and leave when a better one appears. Counter it by aligning incentives with outcomes, giving skin in the game, and selecting for ownership and mission fit. Use it when designing comp, retention, and culture so that “we” beats “they.”
01
Book
Netflix culture, keeper test, and paying top of market to avoid mercenary dynamics.
02
Book
Reimagining employer–employee relationship and tours of duty to align incentives and loyalty.
03
Book
Autonomy, mastery, purpose; why purely extrinsic incentives can backfire.