How Celebrity Salaries Can Help You Decide What to Pay Your Best Employees
Tom Brady was paid a $15 million salary by the New England Patriots last year. Maybe you think that’s a lot of money for tossing a ball around. And you’re right.
But then again, at least 20 other NFL quarterbacks were paid more than Brady last year.
Then there’s this:
- In 1994, Patriots owner Robert Kraft bought the Patriots franchise for $227 million.
- With Brady at quarterback, the Patriots have played in nine Super Bowls and won six.
- Today, the Patriots are worth $3.8 billion.
$227 million to $3.8 billion? Not too shabby.
Granted, the gain in value can’t only be attributed to Brady. But some of it certainly can.
That’s why superstars—in any business—are worth more money. That’s why Chris Pratt made $10 million for Jurassic World: Fallen Kingdom. That’s why Jennifer Lawrence made $15 million for Red Sparrow.
While $15 million may seem like too much for Lawrence to make for only working three or four months, what truly matters is the value she provides to her employer. And it works the same way at a small business.
Here’s how to use the salaries of the highest-paid celebrities to help you calculate what you should pay your star employees.
Why you need to pay attention to celebrity salaries—even if you’re not paying your employees millions
When an employee is truly outstanding, when an employee provides value that far exceeds the norm, forget pay scales. Forget industry benchmarks. Forget, “I can’t afford to pay my employee more.”
Sometimes you can’t afford not to pay them more. Your best employees are worth a lot more—to your teams, to your customers, and to your bottom line—than average employees.
If they’re truly a star, you should pay them not as if you want to keep them, but as if you desperately need to keep them.
Because you do.
How to calculate the value your star employees provide
Imagine you own a successful chain of appliance stores—and one of your employees is a whiz on the floor. She knows the appliance space. She’s incredibly productive. And customers love her. She’s basically the Jennifer Lawrence of your business.
The value she provides is far, far greater than what your average employee provides.
And that means she should be paid far more.
One way to quantify “more” is to think in sports or entertainment terms.
Sports: The Wins Above Replacement (WAR) statistic
In baseball, WAR is the metric used to evaluate a player’s total contribution to their team. WAR estimates the value a team would lose if it had to replace a particular player with another available player. The higher the WAR, the more valuable the player.
While the formula can seem complicated, in general terms it compares stats like batting runs, baserunning runs, and fielding runs—along with other factors—to determine a player’s value.
An example from 2018:
|Mike Trout’s WAR||10.2|
|Robinson Cano’s WAR||3.2|
That means Mike Trout is “worth” seven more wins per season than Robinson Cano. And it’s one reason Trout earned $33 million and Cano earned $15 million that year.
Entertainment: The movie openers
Movie studios perform similar calculations. Stars who can “open” a movie (attract an audience simply by starring in a film) are worth more; they provide greater value to the movie studio than an equally talented actor who is a lesser draw.
That’s why stars like Jennifer Lawrence, Tom Cruise, The Rock, and Leonardo DiCaprio earn more. Viggo Mortensen, Rami Malek, and Willem Dafoe are among this year’s Best Actor nominees, yet Mark Wahlberg, The Rock, and Vin Diesel were the three highest-paid actors in 2017 (at $68 million, $65 million, and $54.5 million, respectively).
They’re clearly talented—but they also provide much greater value to the studio.
Just like superstar employees provide much greater value to your business.
How the Jennifer Lawrence effect plays out in a small business
Businesses with salespeople can learn a lot from the celebrity salary logic.
Here’s an example. Say your salespeople are under the following commission structure:
|Sales up to $50,000 a month||10% commission|
|Sales over $50,000 a month||No commission|
Plenty of businesses operate under a similar pay structure. Maybe they don’t want their salespeople to earn too much. A salesperson who earns $5,000 a month might be the highest-paid employee in the company. Or maybe your business can’t handle a surplus in sales. (More on that in a moment.)
But what happens when there’s a cap on commissions? Well, it kills your business.
An outstanding salesperson will make sure they sell no more than $50,000 in appliances each month. They could sell more, but what’s the point? If they hit their cap on the 20th, they’ll naturally ease up. Or they might even hold off on trying to close a sale with a hot prospect until the first of the next month—which could put that deal at risk.
Even though you might want your salespeople to sell more, if you’re not willing to pay for more, you won’t get more. The reasoning behind most commission caps is based on some form of, “I don’t want to pay any one person more than that.”
If results are what you want, you need to pay for them. And if you do it right, the commission your salespeople will earn will be a lot less than the profit they’ll be bringing in.
$20,000 in additional sales > Paying $2,000 more in commissions
If it’s not, you shouldn’t be paying commissions at all.
Quick caveat: Say sales in excess of $50k per salesperson results in operational burdens like overtime pay or other increased costs. If that’s truly the case, consider sharing the “pain” and reward incremental sales at a lower rate.
If overtime costs must be incurred to support those additional sales, or variable costs will rise precipitously, fine. But pay commission rates accordingly.
Or allow salespeople to roll some percentage of additional sales into the next month.
And then work incredibly hard to improve your operations—negotiating better supply prices and reducing waste—so you can actually handle additional sales volume.
Because where sales are concerned for most businesses, too much is never enough.
Take a moment to consider your business’s Jennifer Lawrence. Think about the value she provides. Think about the cost to your business—in productivity, in teamwork, in customer relationships—if she left.
Then put aside pay scales and industry benchmarks and objectively determine what she is worth to your business.
While it’s easy to overpay an average employee, it’s almost impossible to overpay a star employee.
Especially when you realize just how much value they really provide.