Reality Potions and their Risks

Derek Jeter is one of the most well-known and well-respected players in all of Major League Baseball. This year, at the age of 36, his contract is up for renewal. As the Captain of the Yankees, many fans expected the Front Office to give him whatever he wanted so that he could finish out his Hall of Fame career in pinstripes.

But there's a fly in the ointment: the Front Office does want to keep Jeter but Derek's Agent is suggesting that he be paid $23-25mm per year for the next 5 years. His agent has said that Jeter can't be valued the same way as other shortstops because of his leadership qualities. Why is that a problem?

A Player is "in their prime" between the ages of 29-32. They've got more maturity, they understand how to keep their bodies healthy through 162+ games and they have enough youth still in them to match up against the strength of a 25 year old.
There are only a handful of players making over $20mm per year - the list gets even smaller when you add the filter of being 36 years old or older. Oh, and the stats of Derek don't come close to matching those of the players who are at this altitude.
The 2nd highest paid shortstop in the Major Leagues is Hanley Ramirez who is 10 years younger, hit 30 points higher and hit 21 home runs to Jeter's 10.

How does this situation possibly impact you?

More and more I'm seeing Business Leaders who are making what I believe to be a major mistake: they're hiring people who are currently unemployed and offering them significantly less than what they were previously making. They Leaders are feeling quite proud of themselves because people are accepting the positions. Karl Scheible is a close friend of mine and a Sales Guru. For years he's pounded into my head that people make decisions for 2 reasons:

To run TOWARDS pleasure
To run AWAY from pain

The pain of unemployment is more prevalent than the pleasure of waiting for the perfect role for many people today. Here my words of caution to the people hiring the unemployed at drastically reduced rates from 12, 18 or 24 months ago: THEY WON'T STICK. Why? Because people place a perceived value on themselves that is based on both reality (their top pay throughout their career) and their distorted sense of what they think the market should pay them. As an employer, if you're not within 10% of what they have previously earned, I don't think they're going to hang around because we live in a hedonic society that encourages us to live beyond our means. If that new employee is accepting a 20% pay cut, it's unlikely they're going to be able to reduce their lifestyle costs by that same amount. They'll live in pain and will want to run away from it the second they believe the economy has turned around or someone calls them and offers them even $1,000 more per year to change jobs. Don't believe me? Check out this survey that was conducted 14 months ago (and the trend is going up). It suggests that 67% of people will look for a new position as soon as they think the market shows interest in their skills.

Bottom Line: While you may think that someone is only worth $X, if that person has earned $Y before and takes your job, expect them to be gone within 18 months or less.

Comment by PHYLLIS ROBERTS on December 2, 2010 at 1:37pm: my clients agree, but I don't !! I am just not in favor of lowballing someone's salary or value no matter what the circumstances, not only the poor economy we are in. You get what you pay for, never fails. Pay for good employees, value their worth, and they will be loyal. phyllisroberts@spherion.com

Comment by Jonathan D. Davis on December 2, 2010 at 2:27pm: You're absolutely correct Phyllis. Just because someone will accept your position at a severely discounted salary than what they're used to doesn't mean they'll stay in it for long.

Comment by Rachael McDermott on December 2, 2010 at 3:32pm: I'd be interested to learn if the new employees are getting reduced salaries even though they are in similar function areas and organization type at their new job. If an employer is giving them less money for a very similar role, that is callous. However, if the employee is moving into a different type of role, organization and sector, they may find that the reduced salary is normal for that sector. I would imagine their salary is based on what that particular market will bear. Also, if the employee moves to a different geographic area, wouldn't they earn less if the cost of living is less?

Comment by Ross Clennett on December 2, 2010 at 4:54pm: Yes, agree. All my experience tells me that no matter what earnest statements a candidate says at the time of the offer they will hold some resentment about 'having to go backwards' in money and they will be out the door as soon as they can get an offer at their, perceived, true market value.

Comment by Jonathan D. Davis on December 2, 2010 at 5:04pm: @Ross - you have just effectively summed up the entire intent of the blog post in once sentence. Nicely said.

Comment by Lesley Hardy on December 2, 2010 at 5:36pm: Well, I would happily agree with Ross. He couldnt have said it better. If you devalue someone you are lucky to get a year out of them and only in a slow market.

Comment by Paul Basile on December 2, 2010 at 6:21pm: There is a lot of truth in your blog, Jonathan, and I love baseball insights. But there is also truth of a different kind. Compensation is (correctly) based on the job not the person. Equal jobs, equal work, gets equal pay or it had better. Hire people and pay them correctly for the job according to the pay scales in the employing company and industry - or your new hires will leave. But if I take a job in an organization that isn't an investment bank and expect my prior investment bank pay levels, I am not being underpaid - I am being paid correctly. Of course, I still might leave if I find better compensation. But in my view it would be wrong to counsel people to refuse lower paid and in some cases much-better-for-them jobs that are paid correctly and therefore - no matter what history - not underpaid.

Comment by Lisa Switzer on December 5, 2010 at 1:30pm: Fantastic blog! Thanks Jonathan! Another aspect people need to consider is that not all companies share the same approaches to compensation trends, some very openly choose to lag, match or lead the market when it comes to compensation strategies and few change or alter this approach unless they have no other choice but too - as we saw about 3-4 years ago...a faint memory thanks to the bottomless pit of the recession we've been battling.

The thought and practice of "everyone is replaceable" is a slippery slope, why? Because although "everyone" is replaceable - sure...their skill sets, expertise and tenure may not be so EASILY replaced. There is very much a cost associated with rebuilding a role or team after losing talent or as I like to say "human investment" in an organization. Perhaps that is one of the current challenges, a re-alignment is required for organizations, one that resets the value perception on employees, on their "human investments".

BUT, yes I am well aware of unskilled individuals who very openly argue their weight in gold. Again, my push is that organizations need proper assessments and reviews on where they want to place their investment (money - compensation), for example which talent is a best case for a higher-rate of return. BUT don't try to milk that "higher-rate of return" talent because the market is at a low...why? Because there is no doubt that there is another organization perhaps a direct competitor who would be more than happy to scoop your lack of investment in talent and benefit from your loss.

Comment by James Todd on December 6, 2010 at 5:48pm: Derek Jeters agent has no doubt already figured out what other teams would be willing to pay him. Although it is going to bruise his ego a bit, he is going to get his 3,000th hit wearing pin stripes, because he has more value to the Yankees than any other team.

As a recruiter the most frustrating conversations occur with candidates who have a false perception of there market value. Your value is what someone is willing to pay for you today, not 5 years ago. With 15 million unemployed and GDP in real dollars at the 2005/6 level, market values in some industries have changed. The smart job seekers have figured that out. I cannot tell you how many of my friends and acquaintances in the 45-55 year age bracket are sitting on the sidelines today trying to sustain the $200K lifestyle they have grown accustomed to by burning through savings expecting a correction in the job market that may never come. I would advise a candidate to deal with the world as it is and not where it used to be. From a retention perspective hiring candidates at lower salaries can definitely lead to retention issues, but smart companies make adjustments, when the market changes. Google did not give out 10% raises this year out of kindness.

Comment by Lee K. Candiotti on December 7, 2010 at 7:38pm: Well said. While there are plenty of folks out there who have an unrealistic idea of what they're worth, the bottom line is that you get what you pay for. So if you lowball someone just because they're unemployed and you can get away with it, don't expect them to stick around for long.