NBA Summer League Part 1 - The Relative Value of Talent

I'm just back from a great 8 Man Rotation trip to Las Vegas to take in a few days of the NBA's annual Summer League and tournament that features 24 teams of rookies, less experienced veterans, and guys trying either to hang on to their NBA dreams just a bit longer, or ones trying to crack that elite 450 or so of players that get to call themselves NBA ballers. It was a super fun trip with the boys, and I will have more on some of the really interesting things we saw, heard, and talked about during the trip, as well as a amusing in a watching a car accident kind of way, HR Happy Hour Show and Podcast I recorded with the 8 Man crew while having cheeseburgers and beers.

In the run up to Summer League, much of the talk around NBA circles was centered around free agent player signings and player movement in general. Most notably, the league's best player LeBron James made the biggest news when he signed to return to his original NBA team, the Cleveland Cavaliers, which set off a chain of events including his former teammate Chris Bosh re-signing with the Miami Heat for a massive, 5 years and $118M. This Bosh contract led to tons of internet chatter about whether or not in the wake of losing James, that Miami was indeed overpaying to keep Bosh, their next most important player from the last four years, to maintain some semblance of competitiveness in the near term.

The problem with most of the 'Miami overpaid for Bosh' takes, (and there are plenty of them), is that they usually fail to address the context in which the Bosh contract was given, and the set of circumstances that make Miami's decision to pay Bosh near the maximum amount allowed by the NBA's collective bargaining agreement with the Player's Association. This contextual factors, also apply quite often to the day-to-day decisions that HR/Talent pros have to make every day when tackling compensation issues - either offers to candidates, counter-offers, (probably a bad idea to even try them, but still), and the nuts and bolts of annual compensation package decisions for existing employees. In both cases, these are the kinds of questions that HR pros and NBA GMs need to think about, plus I will hit you with some of the rationale behind the Bosh decision from which (hopefully) you'll see some parallels to your comp-related challenges.

What's the 'right' salary?

What, in the classic 'perfect information' kind of economy that academics like to talk about, would be the 'correct' salary' for Bosh? This is close to the market rate, but not exactly the same, as the 'market' for any NBA player, as well as for that Ruby on Rails developer you can't find, is never truly perfect.

What would the market value (and actually pay) for his/her role, skills, and ability to contribute to an organization?

This is the classic, 'What did the last 3-5 players similar as we can find to Bosh actually get paid in their last contracts?' question. These numbers create an interesting set of data points that may or may not be relevant to your team. If that last team that signed a 17 and 10 guy like Bosh to an insane contract, does that mean necessarily that you should? Or maybe another team got a relative bargain for a different player (like a Tim Duncan), who at this point in his career is more concerned about winning titles than maximizing his personal earnings, and thus accepted a 'discount' on his deal. Don't think that applies to you? I bet you have lots of employees that turn down 10-20% bumps in salary from competing firms because their 'transaction costs' (moving, pulling kids out of school, learning a new corporate political game, etc.), seems too steep. These employees are probably already giving you the home team discount like we hear about in the NBA. Bottom line, the 'market' doesn't represent you, or anyone other specific firm for that matter. It is just more data. 

What kind of compensation would this person be likely to get from a specific competitor that might be interested in their services?

This piece of 'market' data is much more interesting (and valuable). In the NBA GMs often have to factor in what might happen if a given player like Bosh were to end up on a specific rival team, and how that move might impact competitive balance (and chances to win). Overpaying to keep a player away from a specific rival can happen, and might be one of the few times in the NBA, (and possibly your business too), that tossing money at a problem makes sense from a business standpoint. This takes more insight and effort than simply looking at the 'market' rate, and knowing the compensation and business strategies of your rivals.

What is this person worth to his/her current company or team?

This is the flip side of the last question - what specific skills, capabilities and knowledge of company-specific operations, products, culture, politics, etc. does the person have that are uniquely relevant to your organization, and need to be factored in to the discussion. With James leaving the Heat, Bosh now assumes the role of the team's #1 star, and the Heat elected to offer him a contract reflective of what #1 stars in the NBA are making. He also knows the city, the coaching staff, the other players on the club, etc. There aren't any 'transaction costs' with retaining Bosh, and there is some value in that. There has been a fair amount of research that suggests that in many fields that employee performance degrades when switching organizations. The amount and importance of local, situational understanding of people, process, and culture can provide employees a performance boost that is immediately lost when they jimp to a new organization.

Simply put, Bosh was probably 'worth' more to the Heat than to many other teams in the league, and while seeming to overpay him, the Heat might have made the smart move for their own team.

With Bosh, and with compensation decisions for just about every other important contributor, context matters. 

Three keys if you want to become a more data-driven organization

So you've bought into it -  Big Data, Moneyball for HR, workforce analytics - all of it. And whatever you call this increased reliance on data, analysis, and more objective information in your talent processes, chances are this represents a pretty significant change to the way you've always done business, how managers and leaders have made decisions, and perhaps most importantly how you evaluate and reward employees.

Of the many tough challenges you have to negotiate if indeed you are the designated numbers geek/quant in your shop, once again the world of sports offers three recent examples, (NOT AGAIN), that help to point out some key focus points or areas of concern as you hatch your nefarious plans.

One - Make sure you as the 'stats' person, knows how to translate the numbers into strategies that are likely to get buy-in from the team. From the SB Nation blog - How and why NBA coaches communicate advanced metric to players, an interesting piece on the Boston Celtics' new coach Brad Stevens and his desire to bring more data and analytics to bear in the organization:

The numbers don't always offer solutions, but they do tend to generate better options and that's all an NBA team can offer with each possession and every front office decision. That's the next step in the analytics movement. What started in blogs has been appropriated by front offices and has now trickled down to coaches. Communicating those ideas effectively to players is the final hurdle.

Two - Make sure the team members know how to and understand the importance of doing more accurate self-assessments in light of the new measurements. It is great when management and leaders make the move towards a more data-driven decision making process, but don't forget the folks on the front lines.

Here is a great example from a recent piece on the WEEI Radio site by former Major League baseball player Gabe Kapler titled STATS 101: Why it's time to re-educate players in meaningful statistics:

To take it a step further, when we discussed our numbers with our agents, it was in the form of the traditional verticals, the ones we used for decades prior. We correctly assumed that our reps were using these statistics in conversations with the general managers of our clubs. We stood in the truth that our value — our worth as baseball players — was wrapped up in these metrics.

Times have changed, but substantially less among players. While progressive front offices have altered the way they evaluate us, we have lagged far behind in the way we grade ourselves. It’s akin to unhealthy communication in a relationship.

Three - Make sure what you are measuring and holding people accountable for, is actually at least largely in their conrol or influence. This really isn't exclusive to a more data-centric approach to business, it applies everywhere. We generally can only control what we can control and penalizing the clever point guard because the slow-footed center can't convert enough of his excellent passes near the rim is not a long-term winning strategy.

More from the Kapler piece:

 If, for example, we taught pitchers about Fielding Independent Pitching — which truly spotlights what a pitcher can control (walks, strikeouts and homers) and removes balls in play, thereby eliminating a fielder’s ability to have an impact on the outcome of a play and consequently a pitcher’s line — we place the responsibility right where it belongs. If we show a hitter how well hit balls and exit velocity/speed off the bat are being examined more and more closely, then the hitter will freak out less when crushing a ball off the pitcher’s forearm and having it ricochet safely into the glove of the first baseman for an out. He may walk back to the dugout thinking, “Ka-ching!” instead of throwing a water cooler and forcing some nearby cameraman to change clothes. 

Let's do a quick review:

One -  make sure you know how to communicate the value and merit of these new statistical approaches to the team. 

Two - make sure the team starts to do their own self-assessments through the lens of these new data-driven approaches

Three - make sure you are holding people accountable for numbers that they can legitimately influence and can they can own.

What other tips or recommendations do you have to transform an organization from one that relies on gut feeling to one that counts on the data?

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?