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Football and Business Pay

How much pay is too much?

In 1979, Trevor Francis became the first £1 million football transfer in the world when he was sold by Birmingham City to Nottingham Forrest. In today’s money, that equates to approximately £5.3 million. Recently Neymar was sold by Barcelona to Paris Saint-Germain for a staggering £198 million.

Unless Neymar is 38 times the player Trevor Francis was, then clearly football transfer fees have accelerated at a rate far above that of inflation (10% per annum increase over 38 years).

In the same year that Trevor Francis became the first £1 million player, Peter Schilton was the highest paid player earning £1 200 per week (Approximately £6 400 per week in today’s money). Neymar, reportedly, currently earns approximately £500 000 per week, 78 times more than Peter Schilton after adjusting for inflation. This means that top football players’ salaries have exploded at more than double the rate of the transfer fees. These weekly wages are guaranteed and do not include, endorsements, goal bonuses, match fees etc. 

 
Traditionally economic theory explains income differences in terms of marginal productivitythe more output is delivered the higher the wage. Conversely tournament theory (coined by Edward Lazear and Sherwin Rosen in 1979) is used to describe certain situations where wage differences are based not on marginal productivity but instead upon relative differences between the individuals. This theory is easy to accept when one sports star has exceptional characteristics versus another one and may be seen in ‘winning’ the tournament.

 
It is interesting to note that the general public (stakeholders in the industry of sport) have not cried out in spite of these exorbitant salaries. The general public seems quite happy to accept that top footballers (and other top sports personalities) deserve these incredible salaries because of the ‘value’ they bring to the club that buys their contracts whilst satisfying their spectators.

 
Moving to the business world, much has been made about the increase in the “top players’” salaries. Lazear and Rosen argue that tournaments are an integral and part of the workplace in which workers are ranked relative to each other and promoted not for being good at their jobs but for being better than their rivals. Around the world, the compensation of CEOs and Executives has come under fire in the media about the rate at which it has grown. It is also criticized for its relative size when compared to the typical worker in the organisation – commonly known as the wage gap. Using a sample of only South Africa’s largest organisations, the CEO earns 46 times more than the typical employee at the median (using guaranteed pay only). Using a football physiotherapist in a top club as an approximation of the salary earned by the typical employee within a football club, this equates to approximately £2 300 per week (£120 000 per annum).

 
Referring to the Neymar example, this means that he earns 217 times more than the physiotherapist used in the example (when comparing guaranteed pay).

 
Although the business and football examples are not directly comparable, football has enough examples of these high levels of pay to tell the story that football players in top clubs have a much higher ratio than South African CEOs when comparing their Wage Gap using guaranteed pay. Presumably the CEOs are bringing equivalent ‘value’ to the table of business, yet the general public decries the high levels of CEO pay regularly (even though guaranteed pay is for just doing your job).

 
It is curious why CEOs and executives are targeted in the media about their high levels of pay when we see the same trend taking place when we watch our favourite football teams on television? Company performance is often a large factor when CEO pay is called into question. If a company is downsizing its staff while the CEO commands a large salary, this often leaves a bad taste in the mouth of the public. Conversely, when a football team is underperforming, the team manager rather than the highly paid players are more often than not the target of the team’s supporters. If the player is called into question, it is usually their match statistics rather than their pay that is criticised. CEOs and team managers seem to have a similar relationship with the media as they are usually the ones held to account by the public eye. In essence they perform very similar roles in that they try to pull the various elements of the business / team together to achieve a common goal. It therefore, makes sense that both football managers and CEOs are held to account for performance but this does not explain why the pay levels of executives are placed under more scrutiny than sports stars?

 
Perhaps it is the real impact on the economy which is the reason why CEOs are placed under more scrutiny regarding the principle of pay for performance than football players? If a football team loses a vital match, the impact on the club is usually loss in revenue and few days of negative press. If a company gets a vital decision wrong and makes a loss in revenue, it can impact the micro and macroeconomic state of the economy. Job losses and economic downturns impact individuals on a more personal and long term level.

 
Witnessing your favourite football team fail often results in a short term feeling of disappointment and resentment but after a few days supporters tend to get over it and look forward to the next game. Similarly, football players are idolised – and often role models to many supporters around the world . Perhaps our admiration and bias is a large reason why we tend to overlook the massive salaries of these players.

 
Whatever the reason may be as to why Executives are met with more criticism around their pay than football players, it is clear that their impact on our daily lives differ. Very few people get excited about the work Executives do, whereas millions around the world are excited by how their favourite players will perform on match day. Conversely in the long term, the public has more of a vested interest in how the CEO and Executives perform due to the effect it has on the economy and individuals ability to earn an income.

 
It may well be that the excitement that we feel for our favourite football stars is our justification as to why we overlook their pay whereas the unexciting job of an Executive is placed under more scrutiny when considering the pay for performance principle and how it affects our economy.

Written by:

 
Bryden Morton
Data Manager
B.Com (Hons) Economics
bmorton@21century.co.za

 
Chris Blair
CEO
B.Sc Chem. Eng., MBA – Leadership & Sustainability
cblair@21century.co.za

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2018-03-27T00:53:48+00:00