Yep: The Oakland (soon to be Las Vegas) Raiders are expected to announce that Jon Gruden will be their new head coach later today -- for an ten-year deal worth approximately $10 million a year.
Even I can do that math: Gruden will earn about $100 million over the life of his contract.
Is an NFL head coach worth that much?
Is any employee worth that much?
The glib answer to the first question is, "Yes," simply because Raider's owner Mark Davis appears to be willing to pay him that much. The true value of anything is what a ready, willing, and able buyer is willing to pay, and Davis is clearly all three of those things.
But the second question, the larger question, is one that every business owner -- and every outstanding employee -- must deal with: What is a truly exceptional employee worth?
For example, can a superstar salesperson make too much?
Generally speaking, no -- unless you also think your business can make too much.
Applying an arbitrary constraint, like capping sales commissions or limiting the total amount a salesperson can earn in a year, often does more harm than good. But lots of businesses do, like this owner of a $20 million company:
"After a salesperson reaches $80,000 in earnings we apply a sliding scale to commission rates, and we cap any salesperson's total income at $95,000 per year," he told me.
"Why?" I asked.
"Because that's fair compensation for the job they do," he replied.
"Maybe so, but isn't that shortsighted?" I asked.
"Absolutely not," he said. "Shortsighted would be allowing salespeople to make more than our top executives."
"But if a salesperson sells more, doesn't your company make more?"
"Yes..." he replied, "But there still should be limits to what salespeople can make."
No, there shouldn't be limits.
Not if their earnings are based on their performance.
Say you pay a 10% commission on sales. (How did you arrive at 10%? There are a number of ways to determine an appropriate commission rate, so assume you assessed fixed and variable costs, calculated and targeted margins, and decided what your business can afford to pay in commissions and still make a reasonable profit.)
A salesperson who generates $500,000 in sales earns $50,000. You're satisfied with $500k in sales because it makes your operating budget work, but you'd really like $700k and are happy to pay $70k in commission.
But what if your top salesperson generates $1,000,000 in sales? You love the impact $1mm makes on your top line... but paying a salesperson $100k makes you feel a little queasy, especially if that amount is near (or over) what you make.
"Wait," you think, "I'm running this place. I have the most responsibility. Why should she make more than me?" Then you think some more. "Plus, we simply can't afford to pay a salesperson $100k. That's crazy. So we should cap total compensation... or better yet drop the commission rate to 3% after $700k in sales, and 1% after $800k."
And that's when just lost the plot.
Not only can you afford to pay a 10% rate on $1,000,000 in sales, in reality you can afford to pay more than 10%. Your fixed costs -- and some of your variable costs -- are no longer part of the equation because they were offset by the first $500k in sales. Incremental sales are more profitable because they only get offset by direct variable costs: Product costs, shipping, sales commissions, etc. If your business nets 20% on $500k in sales it should net even higher margins on $1,000,000 in sales.
That's why you can afford to pay sales superstars more, not less. When sales pay is based on performance, too much is never enough.
And that's why you should be willing to pay your best employees more. Remove arbitrary constraints, especially constraints based on emotion rather than objective analysis.
How much would you have paid Michael Jordan? More. How much would you pay LeBron? More. How much would you pay Bill Belichik? More.
And that's why you should pay your best employees more.
And if you're a truly outstanding employee, you deserve more -- and if you don't get it, you owe it to yourself to find a place to work that recognizes your true value.