Monday, January 19, 2009

The Million Dollar Employee

71. The Million Dollar Employee

Several years ago, when the salaries of professional athletes and movie stars first started to escalate dramatically, I was taken by the unspoken truths of these high stakes negotiations.
First, salary is not based on either need or effort (or often, results). Rather, salary is a business decision (made with or without emotion) centered on all-around value to the business. For instance, when Elizabeth Taylor joked that she would be willing to play Cleopatra “for a million dollars,” the producers thought it over, agreed, and picked up well over a million dollars in “free” publicity from a stunned and excited press corps. She in no way lifted 100 times more bricks than a $10,000/year hod carrier, or spoke ten times as many lines as a $100,000 actress, but in terms of the business of making the movie, she earned the million dollars. First insight: salary relates not to work done, but to overall value to the enterprise.
Second, salary can be very psychological. Would she have refused to perform the role for $990,000? What is it about that missing $10,000 that is so powerful that it could have wrecked the deal? As much as we hear about an athlete’s value “on the open market,” this sort of thing is never as obvious and direct as an auction. If he thinks he’s being well-paid, he is. But some rookie gets a better deal somewhere else, and instantly his salary is somehow insulting. Often people’s salaries are only dissatisfying in comparison with someone else’s. Particularly harsh when they obviously don’t do as much work as you do (see above). Second insight: you’re only rich until you meet someone richer.
And finally, the stakes vary. We are really very simple creatures and we don’t like complicated numbers. Can you imagine offering Michael Jordan $35,895,485/year to play basketball? As if an extra hundred dollars would be too much, or thirty-five less would be too little. We like round numbers, but the poker chips vary in value. For Michael, the chips are a million dollars each, and let’s not insult him (see above) by thinking otherwise. For a lot of lesser athletes the chips seem to be one hundred thousand dollars each, but they still get a double handful every year. And so on, down the business ladder, past ten thousand dollar chips, past thousand dollar chips, past dollar an hour chips, all the way to the nickels and the dimes. (Yes, I think we can agree, if your pay raise involves pennies, you are being insulted.) It’s down here that the economy is truly demonstrating its federally proclaimed ‘low inflation.’ For the team owners, the movie-makers, and the pharmaceutical companies, the stakes are always escalating. Still, any expense which returns a profit is a justifiable expense.
Of course, people make mistakes. The eight figure salary to the superstar whose movie flops, the two million dollar advance to the author whose memoirs fail to sell, the two hundred thousand to the research scientist whose results prove insignificant, or the eight dollars an hour to the janitor who fails to keep the place clean are all deals that might have been brilliant but turned out to be bad business. The stakes vary, but the principles do not.
When we agree to be someone else’s employee each of us agrees to work for a known amount of money, insulting or not. The trick, it seems to me, is twofold. First, to live within those means in a way that keeps us relatively cheerful about both today and tomorrow. And second, to be valuable. To work in a way that makes your presence essential and your salary a bargain. To make it profitable for your employer to pay you more in the future.
For state employees, or employees working under collective bargaining agreements, pay raises can often seem arbitrary, inadequate, and unrelated to actual service provided. Merit raises in certain situations may act to reward those who have been most effective in their jobs, but there are no guarantees. The fact remains that for each employee, in every occupation, the money (and the raise) is either enough or not. You are free to seek employment elsewhere, or to become self-employed and take your income (insulting or not) directly from your customers. A raise is designed to encourage you to stay, because having you stay is a convenience to your employer. It also conveys respect. And if it weren’t for practicalities like food and shelter, the only thing wages really do is convey respect. Be careful not to demand more respect than your efforts are actually worth.

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