With my customers I am continuously negotiating goals, milestones, expectations, costs, and risks. I want my customers to understand what they are paying for and what I am committing to. As much as possible I try to charge for deliverables rather than for my time, but sometimes customers prefer to pay by the hour, or on a retainer. However we work that out I try to always make sure my customer and I are clear about what they expect from me and how much time that will take and what it will cost. That comes down to communication, and generally we iterate on their goals.
Measuring productivity is a hard problem, and even harder for creative people who may have large variations in their own productivity over time, and aren’t directly comparable to other individuals. I would start with setting clear goals and measurable deliverables and then getting the employee to commit to those. That means breaking the work down into measurable pieces, which will happen one way or another, so it’s probably best to do that work up front so no one gets surprised.
Communication is something you can set clear expectations about. For example I commit to my customers that I will answer routine emails the same day, and urgent emails or phone calls immediately. I ask my customers to respect my time and if everything turns into an emergency with them we’ll have to talk about that.
You should have some idea of what fair pay or market rate looks like for the people you employ. Personally I don’t believe it’s fair to pay people less because of where they live — everyone should get paid according to the value they add, whether they live in London or Bangalore. If you don’t pay people enough they will take on other jobs, or look for a job elsewhere.
I would not sign a contract that obliged me to inform my employer or a customer about other work. Sometimes issues of competition and intellectual property come into play. If someone is inclined to act unethically or break the law a contract clause isn’t likely to stop them. If you ask employees to agree to inform you of outside work, what do you agree to in return? Do you inform your employees about all of your customers? How much the company gets paid by customers? Whether the founders have other business commitments?
Bottom line is you pay people for their work, period. You can’t expect loyalty or openness or trust, especially if it’s one-way in the company’s favor. People are loyal to employers who treat them well. They trust employers who trust them and treat them with respect. How open someone is with their employer is really up to them — they don’t owe that to their job.