For all sports-o-phobics out there, this is really an article about management . . . it’s likely to be a controversial one at that.
Even as a die-hard Red Sox fan, I can’t deny the fact that the New York Yankees are likely the greatest sports franchise of all time, at least as measured by success on the field. George Steinbrenner (the owner of the team for those of you who live in a cave), doesn’t get all the credit for that, of course, but he can take much of the credit for their tremendous success over the last 30+ years. A period that includes 10 trips to the World Series with 6 World Series Championships.
A key part of what Steinbrenner does to build championship-winning teams is to hire the best people, with the cost of those people being, at the most, a secondary factor. The results of such a strategy can be clearly seen in the 2007 Yankees. This year, Steinbrenner recruited Roger Clemens back to the Yankees with a $28M contract, making him the highest paid player in baseball . . . ever. Clemens got that kind of money even though he was going to miss the first two months of the season and, as a pitcher, was only going to play every 5th game. Since coming on board, Clemens is only 6-6 with an ERA of 4.18 (read: not very good). So, you might ask, why does that make Steinbrenner smart? Look at the team’s success before and after Clemens started: before Clemens, 48-44 (.522) and after, 42-22 (.656). The money wasn’t only paid for his pitching arm, but also for his leadership, experience and the message about the importance of winning signing him sent to the rest of the team.
Clemens isn’t the only example, of course, the second and third highest paid players in baseball are also on Steinbrenner’s payroll. Alex Rodriguez ($26M/year) is having one of the all time great years for any baseball player, ever. Derek Jeter ($23M), is another one of baseball’s great players and, like Clemens and Rodriguez, is an easy pick for the future Hall of Fame. Jeter consistently plays outstanding ball and is a fabulous team leader.
As you’d expect, however, it’s not just about spending all the money in the world to bring on the best individual performers. Recruiting and retaining the best management is probably even more critical. And, while Steinbrenner has had very public fallouts with his management team, he has always had some of the premier managers – both on the field and in the back office – of any team in baseball. As you would expect, he pays them a lot, too.
I’m not suggesting that it’s as simple as just offering more money than anyone else to pick up the cream of the crop. In fact, the Yankees carefully foster the culture they have of being the best; the historical significance of playing in pinstripes (the Yankee’s uniforms); and the psychological advantage of playing for a perennial winner. These things and more attract players and management to the team. But, if you look at how free agents move around the sport, you’ll see that the Yankee’s tend to retain their best players and this is greatly because of the money.
Steinbrenner isn’t shy about broadcasting that he pays the best and expects the best. Thus, he has no qualms about firing anyone who isn’t an elite performer. In his first 23 seasons, Steinbrenner fired 20 managers (including one, Billy Martin, five times). There’s a well-known Seinfeld episode in which the character George Costanza, who works for the Yankees says, referring to Steinbrenner:
He fires people like it’s a bodily function.”
Personally, I can’t condone Steinbrenner’s antics nor his public airing of his displeasure with his team or its players, but he has a long track record with proof that his hiring and firing methodology works within the culture of his team. Foster a winning environment and legacy that naturally attracts the best; pay whatever it takes to make them a member of the team; and cut poor performers as quickly as possible. It’s hard to argue with the results.
Yeah, OK, that sounds pretty ruthless (insert your favorite Babe Ruth play on words here), but after years of watching good business teams turning lead into gold and poor teams failing with great products or markets, I can’t help but feel very strongly about the value of having a good team, especially a good management team. And, when you look at things that way, what’s the real cost of paying (the total comp package – base + variable + equity) what it takes to get the best people. I believe that, in most instances, the incremental compensation cost is virtually nothing compared with the opportunity cost of not doing it. A great top-level manager is highly-leveraged and can make an organization much better. If he/she increases the productivity of each of the members of a team by just 10%, does that not make the extra cost worthwhile?
As with the Yankees, to make a strategy of hiring the best regardless of cost work, you need to assume that you’re going to make mistakes. When this happens, you have to be willing to fire the employee, especially if he/she is a manager, as soon as possible. That same leverage that helps a great manager create great teams can also work negatively, running good teams into the ground before you realize it. Finally, it can never be all and only about the money. You have to build a culture that people are interested in working in and in which they are motivated to do there best.
Some of you are saying that paying more is unnecessary because you run a terrific company or group and people want to work with you. Others may be saying that there’s no point in paying for the best because at some point you reach diminishing returns. You may be right. In fact, if you’re running a raw startup, the intangible recruiting factors often overcome the tangible ones. Once your organization begins to mature, though, you’ll start to value wisdom and experience over pure determination and hard work. You’ll always want to be bringing people with varying levels of experience and knowledge on board, especially at the individual contributor level, but keep in mind, you generally get what you pay for. This fact is even more important at the managerial level.
Paying more is obviously no guarantee of getting more. You still need to do all the due diligence you can in order to make sure that a candidate for a position is the right one – on a cost-independent basis. If you find that the best candidate is also the most expensive, don’t be shy about selected him/her. The best people are often known to be the best and are heavily recruited. It’s all about supply and demand, good people will often cost more. They also produce more. Isn’t that worth the incremental cost? George Steinbrenner and the winningest sports franchise in history think so.