How to Pay a Superstar
[Image: photobyae]
What Defines the Market for Superstars?
We talk about market-based pay a lot in the HR business. By that, we generally mean that market-based pay = median pay. On top of that, we define the “market” as +/- 20 percent of the median. It’s about being in the ballpark.
A-Rod Makes More Than The Florida Marlins Team
Well, some ballparks are bigger than others. And some salaries are a lot bigger than others if you do it right. Dig if you will that Alex Rodriguez — A-Rod — the New York Yankees shortstop, will make more money in 2008 than the entire Florida Marlins baseball team. The whole team.
How Would You Explain Market-Based Pay to the Best Player in Baseball?
Now, the market median for baseball player is $1 million. That’s a lot of money. If you were in HR at a baseball team, how would you handle that discussion with A-Rod? Would you try to reassess his peer group? (Side note: I once worked with a consultant who said, “I don’t need to do a peer group analysis. I don’t have any peers.”) Would you explain to him that $1.2 million is well above the median?
How to Pay a Superstar
So how do you pay a superstar? Practice, practice, practice. (No, that’s the answer to “How do you get to Carnegie Hall?”) With lots of money, that’s how.
Market-based pay is for others. It’s not for superstars. High leverage variable pay programs can deliver as long as the differentiation is huge. An A-Rod wouldn’t be around long if you told him that 50 percent better than the median is excellent. It’s gotta be big. And you have to be successful. A-Rod works for the New York Yankees, the most valuable team in baseball.
Do You Have an A-Rod on Your Team?
Here’s the deal: Wouldn’t it be cool if there were a separate pay pool and pay rules for superstars? I mean, if you put people in the high-potential/high-performing category, aren’t they there? And wouldn’t it be cool to be able to be able to pay them the big bucks if they perform?
Do you have an A-Rod on your team? If not, why not?
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One Response to “How to Pay a Superstar”
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In my experience many companies define market-based pay as median minus 10-20%. Once they get really desperate, it becomes “a little bit more than whatever the competitors are willing to pay”