By now, you know that the Yankees are out of the playoffs, and Joe Torre is out as their manager. Torre said no to a one-year extension that guaranteed him less ($5 million versus the $6.4 million in 2007), but an opportunity to make $8 million overall, if he led the team to the World Series next year. He called the $3 million in bonus incentives “an insult.”
Pay for Performance sure can suck from an employee's point of view, especially when "the man" is trying to down your base and dangle an increased total comp target at you..
Here's the best analysis - first from John Hollon at Workforce:
"Pay-for-performance plans only work when someone is both motivated to perform by the amount of the performance bonus and believes that the performance plan is constructed in a way that is both fair and achievable. But as a Harvard Business School report stated back in 2003, commitment and company culture are also variables that enter into the mix. Pay for performance doesn’t work as well in a company culture that places more emphasis on building “commitment rather than on monetary incentives.”
Joe Torre seemed to make this same point Friday when he said: “If somebody wanted me to
manage here, I’d be managing here. That’s my feeling. Yes, it was a very generous offer, no question about it. It still wasn’t the type of commitment that we’re trying to do something together as opposed to what can you do for me. … It’s not the money that’s going to be the determining factor. It’s the commitment and trust. You can’t have one without the other.”
Pay for performance versus commitment and trust—does one exclude the other? Joe Torre thought yes, while the Yankees’ management thought no. There may not be a right answer here, but one thing is certain: Torre’s decision will fuel more discussion on how compensation systems can be better designed to get both workers and managers to work and sacrifice together to achieve a common goal."
Next up - Jack and Suzy Welch at BusinessWeek:
"We agree that Joe Torre is a star: Who else can claim four World Series rings and 12 straight post-season appearances? He also happens to be a high-integrity, good-hearted, first-class human being, deserving of all the admiration he receives.
But did the Yankees stick him with a raw deal? No way. A very reasonable deal is more like it. The offer accurately reflected the marketplace; with a $5 million base salary, Torre would still be the highest-paid manager in baseball. And with a $1 million bonus for every playoff series won, it reflected the ownership's priorities. If the Yankees won the World Series in 2008, Joe Torre stood to receive an $8 million payday, more than any other manager by a factor of two.
Sure, you can debate the Yankees' choice of performance metrics, given the role luck seems to play in a short play-off series. But in the cold light of day, you really cannot call the Torre deal any of the epithets it inspired, from "raw" to "insulting" to "cruel."
Most of the public outcry in favor of Torre is based on the reputation of George Steinbrenner and the perceived high integrity level of Torre. Put both of those to the side, and it's obvious this was a fair deal, one with a base that remained the highest in baseball, close to the previous base, and gave him an at-risk opportunity to earn more than 2M more than he did in 2007.
Pay for performance sounds great (to Hollon's point), but it's tough to get employees to accept. Especially when you are reducing base pay in any way.
Would you take a 10% cut in base pay for a shot to earn up to 25% more in total comp? That's the question you have to ask yourself to put it in a personal context... Would you do it if your team had unlimited resources and could spend more than 3X than most of your competitors? Hmm.....
