Media Curmudgeon

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October 23, 2007

Moonves, Yes. Torre, No.

Last week CBS Chairman Sumner Redstone offered CEO Les Moonves a new contract that included a $2.4 million pay cut and some significant performance bonuses tied to the CBS stock price. Moonves accepted it with pleasure and gratitude. The same week NY Yankee owner George Stenbrenner’s minions offered Joe Torre a similar contract that included a $2.5 million pay cut and performance bonuses tied to the Yankees getting into the World Series. Torre politely turned it down. Why did Moonves say yes and Torre say no? And why was the CBS offer smart and the Yankee’s dumb from a management perspective?

Even though Mooves agreed to a pay cut, he was given the option to buy five million shares of CBS stock as a signing bonus and he could make more money via his performance bonuses than he could under his old contract. By offering him a generous new contract before the current one expires, CBS signaled to Moonves that it wanted him back. CBS is a public company, so tying compensation to stock price is smart. Wall Street looks at earnings and profits, not ratings. Therefore, tying compensation to stock price makes sense, because if comp were based on ratings, a CEO could spend billions on expensive programs, talent, and promotion and advertising to get ratings but not produce profits.

Furthermore, such an offer communicates management’s philosophy—that business managers are motivated by money and will perform more effectively to get it. By willingly accepting CBS’s offer, Moonves affirmed this assumption. Also, tying compensation of an executive to outcomes that they can control makes sense. As CBS CEO, Moonves can control his destiny—he makes the decisions on whom to hire to run programming, sales, operations, etc. He approves expenditures, so he can control costs. He is has the final responsibility and authority.

On the other hand, the Yankees kept Joe Torre publicly dangling before they made him an offer. And when the offer came, it was clear that it was one he wouldn’t accept…and everyone knew it. The Yankees thought they were being clever and could hoodwink Yankee and Torre fans into making it look like they were being nice and giving him an offer, but that it was his decision to turn it down. Typically manipulative and naïve of the Yankees, nee Steinbrenner. He’s getting senile and there is no one there to stop him—certainly not his fawning son or son-in-law.

The irrational Yankee management telegraphed its assumptions with the Torre offer—that money motivates athletes and their coaches and managers and that they’ll perform better and win if they are paid to do so. That’s stupid and projects management’s (Steinbrenner’s) lust for money, not the athletes’ or managers’. Moonves can make his own decisions on all matters that affect CBS’s performance. Torre couldn’t. Torre could only manage the talent he was given by Yankee general manager Brian Cashman and Steinbrenner and his cadre of cronies who make many personnel decisions. Plus Torre had no control over injuries; therefore, Torre was not in control of the team’s performance, so to offer him a performance bonus is silly. Does Yankee management believe Torre can make Alex Rodriguez hit with men on base in the post season?

Corporate management makes similar irrational incentive decisions all the time by structuring bonuses based on elements employees can’t control. A typical example would be giving salespeople bonuses for making sales quotas that management assign based on corporate profit goals, not based on rational sales forecasts. Salespeople can’t control the economy, the quality or popularity of a product, a product’s advertising and promotion, or a customer’s budget or purchase timing. All they can control is how hard they work, how many calls they make, the quality of their presentations, and the effectiveness of their negotiating and closing techniques. And it is these things salespeople should be paid for, not for things they have no control over. Organizations should design incentives and pay packages based on their strategic goals, not on tradition or management convenience.

Furthermore, when organizations hire people to manage, they should give them the responsibility and authority to do so and not interfere. How can top management, Steinbrenner or Bewkes at Time Warner (who apparently hired the AOL head of sales), make major personnel decisions and then hold their managers accountable for results? If results are poor as a result of their bad personnel decisions, are Steinbrenner or Bewkes going to fire themselves?

What happens too often in too many organizations is that people are hired, paid, and promoted based on loyalty (often family loyalty), not performance--a hallmark of a corrupt, irrational, and, thus, dying organization.

Posted by Charles Warner at October 23, 2007 9:21 AM

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