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    Entries in compensation (16)


    The Celtics, Coaching, and Compensation

    The Boston Celtics shocked the professional sports world earlier this week when they named Butler University Men's Basketball Coach Brad Stevens to be their new Head Coach, replacing the recently departed long time coach Doc Rivers.

    The signing of Stevens as the C's new on-court leader was notable and surprising on several levels:

    • None of the NBA writers or pundits seemed to have Stevens named as a potential replacement for Rivers or even in a fuzzy, 'sources say' kind of way
    • Stevens has no prior NBA experience as an assistant coach or a player, the most common kind of experience possessed by first-time NBA head coaches
    • There has been a recent history of failure at the NBA level for a number of very high profile college coaches, i.e. success in college coaching hasn't not been carrying over to the NBA
    • Stevens, at 36, immediately becomes the youngest head coach in the NBA
    • And finally, while at Butler for the last six seasons, Stevens' teams had success, including reaching the National Title game twice, (losing on both occasions), he had not reached the 'top' of the college coaching ranks reserved for the leaders of most historic and storied programs like Duke, Kentucky, or North Carolina.

    All in all, the announcement of Stevens, by all accounts an excellent coach and still rising star in the profession was one that took nearly everyone off guard. And it may or may not work out for the Celtics and Stevens, but dig just a little deeper into the details of the deal, and the former coach Rivers' contract, and then it begins to make more sense from a pure Talent Management perspective.

    The Celtics are a team that is in rebuilding mode - they recently traded away two of their most highly paid and best performing players Kevin Garnett and Paul Pierce to the Brooklyn Nets, and rumors are circling that their other key franchise player Rajon Rondo might be next to be shipped off. The team clearly wants to build around some younger players and hopes to utilize the increased number of draft picks acquired in the recent trade with the Nets to stockpile more young, (and importantly, cheaper), talent.

    And in essentially trading Rivers, the former head coach who has over 12 years experience as an NBA head coach and led the Celtics to the NBA Championship in 2008, for the much less experienced Stevens, the C's also give us all in the talent game a lesson and reminder of the tradeoffs that organizations have to make when chasing talent, and more importantly, aligning the talent strategy to the business and organizational reality.

    Rivers with his years of experience, demonstrated success in the job, and reputation amongst the players was a very highly compensated coach - he had 3 years and $21 million remaining on his Celtics contract. At $7M per season, that is the kind of compensation that elite NBA head coaches can expect.

    Stevens, by comparison, signed for 6 years and $22 million. Still a lot of scratch, but by NBA head coaching standards not so much. 

    You pay Rivers, or similar, $7 million a year because he is a proven championship coach. These are incredibly hard to find. But the Celtics are not going to be a championship-caliber team next season, and probably for two or three more after that. They are essentially starting over after six or seven years of really high-level, title-contending play. Paying an elite-level coach top of the market compensation in this scenario makes no sense. It's wasted money (not to mention Rivers himself losing interest in the club as well).

    So you make the smart move - bet on a younger coach, hopefully on the rise, at half the salary of the last guy knowing that in the next couple of years anyway, his inexperience in the role won't matter too much because the team isn't ready to contend.  Maybe it works out, and the Celtics look like geniuses for locking up a great coach at a bargain rate.

    But the key here is the Celtics know who they are right now. For all their storied history and many championships over the years, they are not an elite team at the moment. And that fed into the call and the decision to release their elite coach, some of their elite players, and move in a new (and cheaper) direction.

    All organizations say they want to attract and retain the 'best' talent. But sometimes doing what is necessary to land the 'best' talent doesn't make sense from a broader organizational context. And when you need to move off what is needed to land the top talent in terms of compensation, then you also likely need to think more expansively and creatively about who you can bring in. Maybe you place a bet on an up-and-comer. Maybe you don't worry so much about '10 years experience doing exactly the same job'.

    Maybe you find a way to land the next star employee before the competition does.

    You have to know who you are, and make talent decisions accordingly.

    Have a great weekend!


    What should we pay your co-worker? No more questions for you 'Bro

    It can be really difficult to rate your own performance at work as anyone that has stared frustratingly at their annual 'self-assessment' might agree. Trying to navigate that tricky tightrope between honestly, desire to reasonably match your self-ratings with the likely views of the boss, while making sure that a nice blend of ambition, honestly, and subtlety ends up painting a portrait of you in your best possible, (and defensible), light can be one of the most difficult exercises an employee has to deal with all year.

    It's hard enough to be fair, objective, and completely honest about one's own perfrormance, and I think it at times is doubly hard to ask and to expect that same kind of fairness and objectivity when we are asked to participate in the evaluation of peers and colleagues at work as well. Whether it is in the context of a formal 360 degree evaluation, a less formal after-action or project review, or even in casual conversations with the boss about other team members, (the likely most awkward scenario of all), it is not all easy to be fair, accurate, and really honest sometimes. Judging, rating, evaluating other people's performance is an inexact science at best, and when self-interest factors in, ('If I say Steve did a great job, then does that make me look worse?', or, 'If I say Steve is a slacker, does that make me look like a petty schemer?', often resulting in 'I'll just say Steve did a good job in the most vague terms possible so that I can't be responsible for anything that happens.').

    Beyond the difficulty of rating peer performance, when the questions directly or indirectly go to 'How much should your colleague, Joe or Mary be paid', well then the fun really begins. Check out this video clip below, (email and RSS subscribers will need to click through), where Oklahoma City Thunder star Russell Westbrook is asked by a reporter if Westbrooks' teammate James Harden should receive what is known as a 'max contract', i.e., a contract for the maximum salary that league rules allow.

    The question, and Westbrook's answer is essentially a little 360 degree assessment played out on camera. Westbrook is asked to 'rate' Harden as a player in the context that matter most in the NBA, the value of the contract that Harden should have. After a long pause, Westbrook answers in the only way he can, (and likely feels comfortable with), by giving a positive but vague review and endorsement of Harden as a player and team mate, (which is obvious to anyone that knows Harden and is familiar with the team), and completely avoids responding to the contract or compensation area. Finally, Westbrook issues a classic 'No more questions for you 'Bro', an indication that he in no way wants any part of participating in a discussion about another teammates contract status.

    Westbrook shows on camera what many of us and our co-workers are thinking when faced with the same types of questions in the workplace, when 360 time comes around I think. Uncomfortable, generic answers, wanting nothing to do with the hard questions, (like compensation). Don't get me wrong, I think peer reviews and 360s can be really important and valuable, but I also think that you have to remember the at times tough spot you put the team in when asking them to do something, (rate each other), that often, they want no part of doing.

    No more questions for you 'Bro.



    Your latest new hire: Are you paying more for less?

    A quick post today, and in a similar vein to yesterday's post on value pricing of jobs as evidenced by an NFL player's decision to retire fairly young, and the overall maturity in how NFL teams evaluate, compensate, and differentiate talent.  The net-net: in the NFL for some positions, (like running back), it is really easy to cut experienced talent loose as their skills begin to diminish and the compensation they demand rises. There is always another running back available, either one of the reserve players on the team, or a new hire that can be drafted or signed that can offer almost as good, (and sometimes better), production, usually at a significantly lower cost.

    However, for other positions on the team, the differentiation in performance is more significant, and often teams find that bringing in a new Quarterback, (the most important spot on the team), or even a new offensive lineman, doesn't result in a similar blend of performance gain and cost reduction. Often, teams seem to pay more to lure veteran free agents to the team, only to see their performance decline, at least in the short term, as the new player has to assimilate, learn new schemes, adapt to and partner with a new set of coaches and teammates. 

    But as always that might be the case in football, but none of us has the job of managing the talent for an NFL team, (yet). What about in the real world - do 'regular' organizations see this same phenomenon when bringing in higher priced talent from outside the organization?

    Turns out it happens in the real world too, at least according to the results of a recent study by Wharton School Professor Matthew Bidwell titled, "Paying More to Get Less: The Effects of External Hiring versus Internal Mobility."

    The net-net of this study's findings?

    According Bidwell, "external hires" get significantly lower performance evaluations for their first two years on the job than do internal workers who are promoted into similar jobs. They also have higher exit rates, and they are paid "substantially more." About 18% to 20% more. On the plus side for these external hires, if they stay beyond two years, they get promoted faster than do those who are promoted internally.

    The study looked at a data set of external hiring and internal promotions and transfers over a several year period in one large financial services firm, so it's conclusions might not be able to be applied with confidence too broadly, and as we have seen in the NFL examples, even within a company or industry the 'switching costs' vary widely across jobs and job families.  But taken more generally, the study documents "some quite substantial costs to external hires and some substantial benefits to internal mobility."

    The study is fascinating, and I'd encourage you to take a few minutes to dig through it in more detail, there is even some interesting data in their about the effectiveness and performance of new hires based on source of hire that I will have to post about another time, but even if you can't spare the time to read the paper you can at least take a few minutes to think about the implications of the findings.

    Unlike NFL running backs, most of the high-tech, high-touch, high-interaction types of jobs that we need to fill in our organizations carry with them some pretty significant transfer costs. It can often take more than a year, even two in large organizations for external hires to sort out the politics, build the relationships, and simply 'learn' how to succeed in the new gig. And all that time an energy comes with a price, and that isn't even the 'extra' salary costs that you had to pay to lure the new talent out of their old jobs.

    What do you think - what has been your experience when faced with the 'Hire from outside vs. Promote from within' choice?


    Sharing the Wealth - NBA Style

    Yes, ANOTHER sports-related post. 

    Cue the groans from the few readers that have not bailed out. I don't blame you. Just give me another shot tomorrow.

    This piece isn't REALLY about sports, but rather how an organization's distribution of payroll factors in to contract negotiations, employee movement, and even competitiveness.  As basketball fans are aware, the National Basketball Association, (NBA, or the 'association'), is in the midst of an old-school management vs. worker labor impasse.  Well as 'old-school' as you can get when the put-upon workers average seven-figure salaries, and the owners who are mostly billionaires, sit on franchise values that seemingly rise every year.

    But the owners want to further control and restrict the total compensation available to players. They in the past have managed this by negotiating a maximum total percentage of basketball-related revenue that can be paid out to the players in compensation.  The expired labor deal set that figure at 57% of total basketball revenue. Now there are lots of arguments and disputes around the details of the deal, (what exactly constitutes 'basketball revenue' chief among them), and there are more detailed parameters that control how much each team can spend, and even rules around maximum contract values for individual players. 

    But while percentage of gross revenue paid out in player compensation is the big issue, for teams and players individual compensation is equally important. How the 'pie' is spread inside the league, amongst superstars, solid contributors, and new talent trying to prove themselves is also a critically important angle here, both for the NBA and likely for your organization as well.

    The chart below from a piece on Business Insider shows the relative total allocation of league player payroll across salary levels. For example, if 10 players made $4 million, then $40 million would be dedicated to that salary slot. If total payroll was $1 billion, 4 percent of total payroll would go to $4-million players. The higher the bar, the more total league payroll is expended on all talent at that salary level.

    Take a look at the changes in distribution of player payroll by salary level between 1998 (the last year the NBA had labor issues), and 2011:

    Two things immediately jump out on the chart. One, in 1998 a much higher percentage of total player compensation was clustered at the lower ends of the salary scale, i.e. in players making $6M annually or less. By 2011, the 'spread' of payroll spend smoothed out quite dramatically, with more players (and payroll spend), moving up the salary chain, particularly in the $10M - $20M range. But almost as strikingly, there has been almost no growth in the extremely high compensation levels - on aggregate, more salary was expended in 1998 on players making above $20M annually than in 2011.

    In the 1998 contract negotiations, the owners successfully put in place a system that 'capped' individual contracts in a manner by 2011 has kept current stars like LeBron James from reaching the compensation levels of past stars like Michael Jordan, (represented by the lone orange bar on the far right of the chart).

    In the period of 1998-2011, the NBA owners were successful in controlling the extreme high end of the salary scale, but for that, saw salaries at the lower end, and more importantly the middle-range increase dramatically.  Over time, contracts awarded to 'solid but not spectacular' contributors have grown out of proportion to those players' contributions to the team's success (with exceptions of course).

    One of the primary goals for the owners in this current negotiation is to try and get those mid-range, $6M - $14M or so contracts back under control, while still maintaining the grips on the superstar end of the market as well.

    If indeed the NBA owners are in financial trouble, it isn't because the true superstars like LeBron and Kobe make exorbitant salaries, but rather due to the last 15 years of owners overpaying for average performers. Sure, you need quite a few of these 'average' performers to fill out a team, and assembling the right ones with complimentary skills and good attitudes is necessary to actually compete for and win championships, but paying superstar prices for average performance might win you a few games in the short term, but in the long run it will likely tick off the true stars, and might possibly bankrupt the team as well.

    I guess that is the challenge for all HR and compensation pros, knowing you need superstar talent to win, and having to spend what it takes to get that superstar talent, while making sure you have enough of the pie left over for everyone else so they won't jump ship chasing a few dollars.

    Finally - I promise, no more posts about sports for the rest of the week!


    The Free-Agent Machine

    The teams in the National Basketball Association, (NBA), operate under the constraint of a 'salary cap'. Essentially, each team has the same maximum dollar amount that they are permitted to spend on player salaries (with a few exceptions/caveats).  The idea behind the salary cap is two-fold: it gives the team owners some predictability and control over the largest piece of their cost structure (player salaries), while also (at least theoretically), contributing towards increased competitive balance across the league since no team can simply load up on all the best, highest-paid players.

    But recent NBA history, with teams like the Lakers, Celtics, and a few years ago, the Bulls all enjoying extended periods of high performance while operating under the same salary cap constraints suggests that management, coaching, talent evaluation, and support staffs (all not subject to a salary cap by the way), all have a significant impact on overall success.  Said differently, each team can only acquire about $55 million of 'talent', but the resources, support, development, and motivation of that talent may matter just as much to winning games and championships.

    The NBA, in addition to the team salary cap, also has an official start to 'free agent' season, the date from which players that have completed their contracts are free to change teams. This period started on July 1.   On televised analysis and commentary of where the most highly sought after free agents would sign (LeBron James, Chris Bosh, Dwyane Wade, etc), much of the discussion centers around salary cap considerations, as each team only has so much available budget to spend (which varies based on the amount the team already has committed to other players). ESPN on its SportsCenter shows has NBA experts manipulate giant touchscreen displays with the ability to 'slide' free agents to potential destination teams, while calculating the salary cap implications dynamically.  It is a pretty cool technology, especially when you see middle-aged former NBA coaches and executives occasionally struggle to master its nuances.

    But what the free-agent machine can't do of course, is evaluate any of the scores of other things that go a long way to determining team success.  A player's 'fit' into the system of play, the relationship they may have with the coach, how the 'left-over' players will adjust to the new big name signee, and whether or not a player's past success on his former team will be transferable to the new team. And perhaps most importantly whether or not the relationship the player developed with his former teammates was a much larger contributor to his individual success than anyone realized - let's see how Amare Stoudemire fares without Steve Nash to work with.

    I think some of the same considerations have to be taken into account in the 'real' world of organizations where most of us operate. When a 'free-agent' joins the team, often for a better opportunity manifested in more pay, more prestigious title, or a chance to play on a winning team, the simple fact that they scored the big contract, landed the big title, etc. are no guarantee that the 'fit' will be right and that past demonstrated success will continue in the future in the new environment. 

    When free-agents jump to a new team, everything changes for them, the route they take to the office, the people they talk with every day, the basic systems and processes to find information, and hundreds of other things that you or they probably never thought about. The organization may look at bringing in new talent from the perspective of budget, filling in key skills, or enhancing the organization's reputation, but in the short-term the new team member does not care about any of that.  

    They have to first get through the mundane details that matter - where can I get coffee in the morning, who do I speak to when I am confused, and just why do I have to request permission to do some of the things that at my old place I did all by myself for the last 5 years?  

    It is easy to move players around on a cool touchscreen LCD display to make sure the numbers add up.

    It is not easy to make sure everything else adds up.