What is the proper way to pay your team for a game development project? For example, how would you pay to a graphics artists or a musician for their work, especially in the context of today's app marketplaces like the Apple App Store or the Android Market?
It is better to pay in advance, or to share the incomes proportionally as an app becomes successful?
Each project will be different, and you may also find that your potential employees have a variety of expectations.
For example, many folks may prefer a salary because they have a practical personal need to pay rent/mortgage and put food on their table. Especially if there is a need to hire them for a lot of hours (e.g., 40 hours per week for 6 months), your employees will probably be more comfortable with regular paycheques.
If the jobs are really small (e.g., less than a week's work), then paying on a per-project basis may work better. They may wish to get partial payment up front, with the remainder after the project is completed (and with larger projects there could also be a number of payments in between as the work progresses).
There may also some employees who are willing to agree to a "hybrid" of these two ideas, such as in the form of a base salary plus a percentage of the profits after the game is released ("profit sharing" which is similar to paying royalties, except that you'll probably want to be the owner of the work they've done for you). The risk is, of course, that the game never turns a profit and they don't get to realize the potential benefits of profit sharing (you'll want to make sure this is explained clearly in the contract -- the "Advice from professionals" section below recommends getting legal advice).
The positive side of this "profit sharing" approach is that it can provide a subtle long-term marketing advantage because those who get a share of the profits [as long as, or whenever, the game is profitable] will likely feel motivated to do "word of mouth marketing" for you by telling people "I contributed to that game; you should try it!"
Advice from professionals
Hire an accountant (a CGA designation is highly recommended) to make sure you get all the payroll and taxation aspects of your employment arrangements set up correctly.
Hire a lawyer (one with experience in both contract law and employment standards is preferred) to make sure your employment and/or profit sharing contracts are set up correctly.
For the profit sharing arrangements, you will probably need to have one short meeting with both your lawyer and your accountant at the same time.
I'd think you have two approaches: you can hire them as contractors, or as partners.
As contractors, you are paying them one time for what they do - e.g., "I will pay you X for a total of 4 music tracks" You own what they make outright, and it's yours to do with as you please.
As partners, they may (or may not) be paid for their work on the project, but at the same time they also are given some kind of royalty or income based on the sales of your game.
My personal opinion is that if the artists are not deeply involved in your game's design, hire them as contractors. Pay them once, and never worry about it again. If they an integral part of the design process, then bring them in as partners so they feel a greater sense of pride (and ownership) in what they do.
