The average age of a CEO in the S&P 500 is about 53. The average running back is done well before turning 30 years old. While these two professions seem wildly different, they actually share a few key traits.
No NFL team wins consistently without a good running attack. No company can beat its peers without a good CEO. Both positions take a lot of punishment (albeit very different types) while they are in their respective positions. Both have fairly short careers that often end after playing for just one team.
Skillsoft just released data from a poll of over 500 CEOs. 83% of those polled said they expected their company to replace them within five years. At larger companies (those with more than 1,499 employees) the average expected term was 2 years for about one out of three CEOs.
Is it any wonder we pay star athletes and CEOs similarly? There are only a few “jobs” in the US where someone can EXPECT to make at least a million of dollars. CEOs make an average of around $10 Million. NFL Running backs make about $1 Million. In return, they must perform in the public spotlight. Every error is analyzed, criticized and can cause the loss of their job. Every success is over-celebrated and can result in comments like “best ever”, “genius” or “game-changing.”
The crowds generally support you, your coach (or board) are often deep enough into the game to understand that a mistake or two should be expected from this demanding position.
The commentators are far less forgiving. They are able to immediately provide 20/20 hindsight. They explain how someone else would have “never” made the same mistake. They talk about the good old days when some, now retired, player or CEO could do the same thing, only better.
Five years is seldom a career. Five years as a compensation professional and you are essential still a neophyte. Five years as a lawyer, you are probably not a partner. Five years as an engineer, you might be the inventor of some new product that changes the world and be worth $Billions. OK, that’s a bad example, but you get the point.
The point is we can’t simultaneously tell people that they are an irreplaceable component to the success of many, and hold them responsible for the failure of a few, without paying them well. When we consider their very short shelf life, we find that pay multiplies to cover both the rarity of the skillset, the inherent risk and the relatively short-term nature of the investment.
Now, I am not ignoring the fact that there are many CEOs who are paid astronomical, and sometimes indefensible, sums of money. I am not saying that failure should come without consequence. I am simply saying that, like the occasional running back drafted in the first round who gets a multi-million contract only to never start a game, the anomalies in CEO pay are just that. We should expect these people to make a lot of money or we have to reevaluate how we pay every other high visibility, high-risk position around.
What we should be focused on is building our teams from within. With a strong internal development program we can promote from within and avoid the need for risky, expensive “draft picks” when our star player has to be replaced.
Dan Walter is the President and CEO of Performensation an independent compensation consultant focused on the needs of small and mid-sized public and private companies. Dan’s unique perspective and expertise includes equity compensation, executive compensation, performance-based pay and talent management issues. Dan is a co-author of “The Decision Makers Guide to Equity Compensation” and “Equity Alternatives.” Dan is on the board of the National Center for Employee Ownership, a partner in the ShareComp virtual conferences and the founder of Equity Compensation Experts, a free networking group. Dan is frequently requested as a dynamic and humorous speaker covering compensation and motivation topics. Connect with him on LinkedIn or follow him on Twitter at @Performensation and @SayOnPay
I never thought of it this way. Thanks for sharing.
Posted by: Lisa J. Williams, SPHR | 07/03/2012 at 02:23 PM