I got into an argument with my boss this afternoon. He gets his Sports Illustrated delivered to work for a reason I have not been able to fathom, and he was reviewing their list of the fifty highest-paid athletes. I have admitted that I generally don’t read SI until it has been sitting on the coffee table for a week because it often hypes the athletes in ways that defy reality. But anyway, this was a straight-up list of who makes how much - salary, incentives and endorsements.
The second jock listed was LeBron James. He made $56 million last year. For “playing a dam game,” as my boss pointed out. Now I must admit that I am not a James fan in the slightest. I certainly appreciate his gifts and how he has made himself into the best basketball player in the world. Without him his team would be good, but not so good they’d be marching toward their second straight title in June. Does that make him worth $56 MM?
Bill Simmons did a bit of analysis in this column that discusses the worth of James to his franchise. The value of the Heat jumped over $250 million after he left Cleveland for Miami . That’s a solid ROI.
My boss is a solid businessman, but he still could not get his glasses around that “he’s just playing a game”. James may be just playing a game, but he is the singular best player. In the whole world no one does it better. No one in China , no one in Europe , NO ONE. He is a monopoly on basketball talent. How much does a monopoly charge? As much as it can get away with.
Compare that with Forbes top-paid CEOs. Topping the list was a guy named John Hammergren from a medical products company called McKesson. He made a salary of $6.3 million, but got options for $112 million more. I don’t know anything about the guy, but the share price of his company has doubled since 2010, and increased the market cap by over $13 BILLION. That’s some happy shareholders. So maybe they don’t mind if the CEO picks up some options. But is he the singular person in the whole world who could have pulled this off? I doubt it.
Second on Forbes’ list is Ralph Lauren (yes, THAT Ralph Lauren) at $63 million. His company actually did better on share price than McKesson, but with fewer shares outstanding the market cap “only” went up $7 BILLION in the same period. Is Ralphie the only person in the whole world who could have managed this? You could certainly make more of a case for him over Mr. Hammergren, but again I doubt it.
I will grant you that it takes certain gifts to be a CEO, and that the talents required to do the job at Boeing are different than the job at Disney, but I suspect there are thousands of people who could do a decent job at any of these companies. For every Bill Gates, Jeff Bezos and (maybe) Ralph Lauren, who may (only may) have had the singular talent required to makes their respective companies into the well-known juggernauts they have become, there are scores of Dennis Kozlowskis and Ron Johnsons. I’m not so vain to think that I could be a CEO, but I know plenty of solid people who could if given the chance. I’m sure you know thousands more.
I have worked for five CEOs in my career. The first one took over the company from his dad, took a (comparatively) low salary, and made sensible, non-flashy business decisions. When I moved to a different company, my impression of that CEO went from benign to loathing. He tried to move it into the conglomerate model, but in the process weakened it so severely it was taken over by an equity firm for dimes on the dollar. He was a good-looking guy, but dim. He got a golden parachute. The next guy tried to re-make the culture of the now-re-formed company, but he had already retired once and wasn’t interested in staying until his preferred culture was ingrained. He got at least a silver parachute for 24 months of work. The third guy is still there and I’m not. There’s a correlation there. I don’t call it the gulag for nothing. He twisted the culture initiative into something out of Deliverance, promoted people who I wouldn’t trust to run a truck stop into key positions, and laid off over 700 people from places that were actually making money (so much for being a “job creator”). The company is worse off now than when he was hired: the share price today is lower than the IPO price. He makes $4.5 million per year. My cat could do better for a couple bags of kibbles and bits, and she’d still be a cat. (She’s definitely not a singular cat, either.) The guy I work for now seems to be pretty good. I’ve seen him break a sweat, and to me that counts for something.
Of course, therein lies the problem. If market cap is what “counts”, then how do we draw a line from the CEO to the share price? What did he do to account for this “success”? Was he/she the ONLY PERSON IN THE WORLD that could have pulled it off? I venture to say no. Is John Hammergren the LeBron James of the business world? C’mon. Hell, Rudy Gay may be the John Hammergren of the NBA…
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