Luring and Retaining Top Talent – The Compensation Game
The entries in this blog have always pertained to current issues and management trends of the 21st Century business environment. This bi-monthly entry will address an interesting activity which has been highlighted in both the business world and the sports world with much anticipation and fanfare – LeBron James and the creative incentive packages this star athlete has been offered. These salary packages and perks can readily be compared to the salaries and perks offered to “star” executives and top talented employees at numerous corporations.
Similarities and Differences in Management Approach
Some of the reported salary terms and perks presented to LeBron - also known as LBJ - were $30 million/year in salary; a lifetime supply of beer (not sure if there are many people who make $30 million/year that can’t already supply themselves with enough beer for a lifetime); and a personalized episode of a cartoon show called Family Guy. These were some of the “goodies” the Cleveland Cavaliers offered in order to keep their top talent. There was no mention if there was any communication between the organization and LeBron James to see if these were the types of compensation and perks that he was looking to receive.
According to the Wall Street Journal (July, 2009), some of the biggest banks (who also received federal financial assistance) offered multiyear/multi million packages, not only to retain their own talent, but to also lure top talent from competitors. This trend of offering salaries at the top or above the “normal” pay scale has drawn additional scrutiny for a couple of reasons. First, when major banks and lending institutions requested federal financial assistance, was compensation for luring and retaining top talent the primary intent? Second, it is one thing for profitable and successful organizations to offer hefty compensation packages. It is something different for unprofitable and unsuccessful companies to also offer similar types of salary packages and perks. However, the attitude and behavior is almost necessary by the smaller and less profitable organizations if they want to try and remain competitive. In the sports world of the National Basketball Association (NBA), this is equivalent to currently unsuccessful franchises like the New York Knicks or the Los Angeles Clippers offering LeBron James $30 million/year.
The notable differences observed between offering huge salaries in the business world and the sports world is the business world’s concept of a hefty salary is $2-3 million/year, whereas the NBA is offering $20-30 million/year. In the business world, the leader’s integrity is questioned for making such offers. In the sports world, the leader’s sanity is questioned. A final observation is the federal government is paying close attention and is considering a means to regulate compensation in the business world. The federal government has not considered regulating compensation in the sports/entertainment world – yet.
Pay to Play
From another perspective, organizations that choose not to compete for top talent with large salaries and exorbitant perks stand to lose out. In the business world, loss of top talent may result in poor productivity and effectiveness. Loss of talented employees may also mean a loss of investors or a lower valuation of the company’s stock. In the sports world, the loss of top talent could result in a loss of fan support or maybe a relocation of the sports franchise. In both cases, a leadership decision of opting not to play along can be just as costly as conceivably overpaying a highly talented star.
There are no guarantees that bringing in top talent from another organization will result in success. The environment and surroundings that helped the star in the prior environment might not be in place in the new environment. Establishing a cohesive and highly productive unit occurs over time by working together with other teammates; not in the negotiation or selection phase which is conducted by the organization’s leader(s).
Nonetheless, the ultimate winner or loser will be the customer and/or sports fan. Some way, somehow, the organization will devise a means of relaying the expense to those who use, view, or enjoy the organization’s products and services. Compensation entails a number of components: base salary; short-term incentives; long-term incentives; employee benefits (i.e. health, medical, tuition reimbursement, etc.), and perquisites or perks. Because the organization’s objective is to make a profit, the employee compensation expense is transferred to the customers/fans by raising the price of the goods and services offered.
Final Thoughts
Based on one’s ethical values and beliefs, offering large salary packages to talented “stars” may be inappropriate management behavior. How can a company justify hefty salary increases and bonuses, especially if the company is not profitable? However, some may view the tactic of offering large salary packages and bonuses as a savvy business decision, or as a necessary evil. Organizational leaders in today’s business environment must carefully walk that fine line and make choices.
First, a leader must decide if they are going to actively engage in the competition to lure and retain top talent. Second, a leader must decide to what extent (or just how much) they are willing to offer and invest in a talented player. But most important, a leader must determine how to COMMUNICATE their decisions to the rest of the organization and its stakeholders in order to ensure the desired productivity and effectiveness of the team is not diminished. It is a very challenging task to navigate. On the one hand, it can be very successful and result in a championship or increased profits. On the other hand, the decision has the potential for chaos, low morale, and team dysfunction. It can be a distasteful, unsavory situation to be in. Those on the outside looking in will have mixed emotions; some will like the decisions; some will not. But in the words of my sons’ generation, “don’t hate the player – hate the game.”
More information on the selecting and retaining top talent can be reviewed in Corporate Leadership Selection: Impact on American Business, Employees, and Society (Authorhouse Publishing).
Feedback to this blog entry is always welcome.
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I find the comparison between management and professional sports intriguing. Like professional sports organizations, business companies are willing to do anything to abet the top leaders to join their companies. The wooing of leaders and players include engaging in cosset activities such as; lavish sums of money, utilization of company’s assets, vacation expenditures, and even preponderance over the company. The amount of time and consideration invested in leaders can be described as a last minute shot before the shot clock runs out. Management and employees are sanguine about their chosen leader making the final shot, or being able to good decision that will benefit the company. However what happens if the shot does not go in; or if the decision made becomes detrimental? The outcome of chosen the wrong leader can leave a business in debt or dysfunctional. I feel management should have more consideration on analyzing and evaluating, whether a leader can actually complete the task at hand, rather than on compelling to join their company.
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