It’s the summer of 2009 and the football world is witnessing the biggest transfer of its time. The sweet smiling boy from Madeira tipped for the biggest things in the world of football has just completed a switch from the “red devils” to the “white angels” in a record 80 million pound deal. Florentino Perez, the tough negotiating football executive and construction magnate had finally delivered. It was expected he was going to deliver even amid resistance from then Manchester United coach Sir Alex Ferguson who had vowed that he wouldn’t sell Real Madrid a virus. Perez always delivered. At only the age of 24, considered by many in football to be one of the best and a global brand with lucrative deals with the likes of Nike and KFC among others, Perez knew he had struck the deal of his life and instinctively knew it was only a matter of time before the money started flowing in. In 2010, Real Madrid would top the Deloitte football money league which is an annual report published by Deloitte of the biggest earners in club football. They would continue to dominate it in successive seasons only relinquishing the crown in 2017 to Manchester United. Not only that, they would also go on to have some of their best moments on the football pitch especially in Europe where they won four European cups and three consecutive titles at one point.
First Business Lesson
As a CEO, always endeavour to get some of the best and brightest employees. Sometimes the cost may seem astronomical, but it’s imperative to calculate the marginal productivity value. In the end, if the employee has a proven track record of delivering numbers and can aptly be labelled as a “star performer” whose marginal productivity value is a significant positive value, then you are better-off striking the deal than not. The mistake most managers make here is too subject cost to standalone analysis. Costs should always be analysed in relation to the value proposition attached to them and in the case of employees, that value proposition is their ability to generate significant value for the firm. A “significant” positive productivity value gives the green light while a negative one gives the red light. Always note that star performers are rare breeds who are likely to follow the normal distribution, for every 100, only 20% or so will make the grade and a CEO needs the Florentino “determination” to get the rare germ. The first rule therefore is to always have “star performers” in the team. They eventually more than pay off and their energy and drive is so infectious!
Real Madrid were quick to offer their new star on the block a bumper contract and the status of World’s best paid player at the time with wages of 12 million dollars net per year. Football insiders were quick to gossip that Ronaldo and Real Madrid were a perfect match, a love story that will continue sparking of fireworks forevermore. It was a contract signing that was characterized by smiles, laughter and a toast of wine from both parties. As the French would say “Les affaires sont super”! French for “Business is definitely great”.
Ronaldo simply known as CR7 would go on to justify his enormous price tag by setting outrageous goal scoring records which subsequently led to a first domestic title in a Real shirt in 2011 after a 3 year drought by the club. In 2012, Ronaldo would drop a first bombshell that would send shivers in the power corridors of the club. He declared that he was “sad” and that the club president knew the reasons for his sadness. Word went round in the Spanish capital that this was a big money move by Ronaldo. He was delivering the “goodies” and felt his bank account should be commensurate to his productivity ‘goodies” both on and off the pitch. It was also a way to stamp his authority on the footballing world because in his head, he always felt he was King. In the footballing world, the better you kick the ball, the more money you ought to earn, that’s if you not in China or Abu Dhabi though! Florentino being a veteran businessman was quick to read the signs and was swift in awarding his star man another bumper deal in a three year contract extension signed in 2013. The reported details of the new contract was a whopping 20 million dollars net per year, eventually taking Ronaldo to the top of the pile for the moment.
Ronaldo, the star employee got what he wanted and Florentino the boss kept his man to fulfil more “goodies” on and off the pitch with a reported 40% of all shirt sales by club attributed to his name during his stay at the club according to Forbes. It was a classic win-win situation, both parties achieved what is technically termed as a Nash equilibrium in Economics.
Second Business Lesson
One of the rarest arts to master in the business world is payment for services rendered. Management either pay too little or too much for work done. It has traditionally been very difficult to strike a Nash equilibrium in employee remuneration. Most of the time, HR would take simple industry averages as a benchmark to set their own remuneration for a specific job title. Others would take a much more egalitarian approach in setting their wages where there is equal pay for a given Job tittle. While there are some justifications for all these methods, it is the opinion of this article that optimal remuneration that keeps both employer and employee happy can only be arrived at when it is guided by Marginal productivity value of the employee. Productivity value could be anything from number of goals scored, to number of premiums sold or earnings per share recorded.
It’s all about contextualising an employee’s work into something that can be measured. When that is done, numbers don’t lie. In the case of Real Madrid, it was a real bargain paying 12 million dollars per year considering CR7’s productivity value both on and off the pitch.
With the proliferation of data analytics software, businesses should always invest in analysing employee marginal productivity value and contextualizing their KPIs (Key performance Indicators) into something measurable and consequently paying employees a wage that is commensurate to their value. This boosts morale, reduces employee turnover and motivates those who lag behind to turn on their A game.
It also solves a host of other problems related to performance and promotions. When employee KPIs are not clear and measurable, an organisation runs the risk of side-lining their best talent because HR people may turn into “little kingmakers” with an agenda over who and whom should be promoted up the corporate ladder. There is also the risk of turning performance appraisal meetings into an hour long boring meeting belabouring over things that don’t even make sense. On the other hand, with measurable KPIs, a performance appraisal session shouldn’t last more than 30 minutes because numbers are there to speak and they speak loudest. It’s imperative therefore that remuneration is based on productivity value. Everyone wins. To each man according to his deeds should be the HR remuneration and promotion philosophy.
Optimal remuneration is especially important for star performers who have a much higher propensity to leave if given raw deals. Jack Welch, the award winning CEO in his book, “Winning” makes the case for star performers in organisations. According to him, it’s the CEOs job to take the Stars at any moment in time and reward them with lots of money, promotion opportunities and a compelling vision. You want them saying, “I got recognised, the company is taking care of me and pushing me up”. Jack nailed this one right on the head, he couldn’t have said it any better!
This is a two part series of three business lessons we can learn from the Real Madrid-CR7 love story. Look out for the third business lesson under the title “When the Music stops”!
Contact the author at Katandula.firstname.lastname@example.org
The author is an Economist, Writer and a Corporate Executive. All views expressed in this article are solely mine and do not represent the views of my employer, church and any other organisation am affiliated to.