How to make giant strides in remuneration strategy

Salary reviews regularly make New Zealand news, like the widely-reported signing of New Zealand basketball star Steven Adams to a four year, $NZ140m contract at his Oklahoma City Thunder NBA team, starting this year.

The deal puts the 6 foot 11 inch Adams, brother of Olympic gold medallist Valerie Adams, as New Zealand’s top earning professional sportsman, ahead of yachtsman Russell Courts who pulls in a paltry $13 million annually. Adams will be earning around $820,000 for each hour he plays, and it would take him approximately 11.5 hours to earn New Zealand’s annual average wage.

It also compares well to Australian basketball players in the NBA, with Andrew Bogut being the highest paid Aussie at $17 million per year, compared to Adams’ $35 million.

Pro sports is possibly the purest in performance-based remuneration models, with the players delivering the best results for their team or organisation typically getting the top pay. For OKC, they needed to offer Adams the contract to ensure he didn’t depart to a rival team.

His pay, remarkable as it is, is in line with similar recent deals with players of the same quality – deals for $144 million, $139 million and $136 million being signed in recent weeks. Adams possibly could have got more if he had chosen to put himself on the open market next year instead of agreeing to the extension.

Relativity is also important in the real world you and I operate in, but it is only one in a number of factors that have to be delicately balanced to effect a good remuneration strategy. In our experience, there are typically four foundation elements to building an effective approach to remuneration for most organisations:

1. A firm and clear philosophy

Nothing undermines your remuneration strategy more than inconsistency. Organisations that have a clear and shared understanding of their approach to rem are most successful. That involves factors like fiscal position of course, but also retention strategy, package flexibility and brand position in a market.

2. Market relativity

Realistic market rates can be easy to determine in a pro sports environment, but confirming it in other sectors can be more a mix of art and science. While there is usually plenty of market data available in most sectors, factoring in regional and other variations is often important.

3. Internal equity

This is something that even the pro teams struggle with, as very public salaries can undermine the ability of teams to work together effectively. If your worth is closely connected to your points per game, that can be your focus over and above the greater good. In the real world, getting your job sizing right, and having a clear picture of future workforce demand are key factors in achieving an equitable, team-focussed approach.

4. The individual

While the money does seem to overpower all other factors, Adams does genuinely seem to like the team he plays for and the city in which it is based. An individual’s needs and wants are a crucial ingredient in getting rem right: personal values, cultural influences, family situation etc. can all influence the kind of salary package that works for a particular person.

In sports they often love “playbooks”. We’ve developed the equivalent for organisations looking at their remuneration strategy. “Don’t show me the money: thoughts from the field about building effective remuneration strategies,” explores the ideas above in more detail and how you can apply them in your business. Download your copy here.