The Insider Guide to Careers
Insider information, secrets and tips about getting hired and building careers. For employees and job candidates.
Let us revisit some compensation basics by understanding why some people in some professions get paid more than others. It is undoubtedly not a fairness problem. Doctors and engineers add a lot of value by doing tasks that carry a lot of weight, like saving people’s lives and making products that make life easier. Should sportspeople playing frivolous games for people’s amusement be paid more for just causing an adrenaline rush?
Let us look at some numbers. In the NBA, the minimum salary for players is 1.1 million dollars, with many making above 50 million dollars. In the NFL, average pay is above 800,000 dollars, with quarterbacks making over 7 million dollars. In Major League Baseball, the average salary was 4.9 million dollars.
In contrast, an average executive (Vice President) in the US makes between 207-280,000 dollars per year. The average doctor makes $ 165,000, and an average engineer makes $ 100,000.
Some reasons for these discrepancies are listed below.
1) The sports and entertainment industry is a blockbuster industry where people are willing to spend a lot of money to get entertained. The audience for each match is thousands of people in the stadium and millions on social media. These matches generate much revenue for the organizers, a fraction of which gets to the players. The more the organization makes, the more the individuals get.
2) Hence, if you want to get paid more, understand the nature of the market. For example, a retail or logistics industry thrives by squeezing every dollar and optimizing the existing operating processes. Paying high compensation will squeeze them out of business. It is not wise to expect high compensation in the retail, manufacturing, or operations sectors.
3) People in sports make more money through deals, merchandise, and sponsorships. Fans idolize Sportspeople, and this creates monopoly power for the service provider. Fans are willing to pay a premium, which is great for the person at the center. Your earning capacity increases with a large population of people you can connect with or influence. The larger the number of people you can influence, the larger your earning capacity.
3) Doctors and engineers typically work in government jobs or the private sector with fixed incomes. There is no link to the revenue they generate. In short, their compensation has less of the variable component.
4) Compensation for doctors and engineers is determined by education and work experience. Typically, the more senior you are, the more you are paid. Since this model doesn’t encourage productivity among junior employees, it creates a union-type atmosphere where seniority is given the most importance. Compensation, therefore, takes a backseat to fairness. Most startups and investment banking companies provide more authority to juniors, irrespective of seniority. No wonder that average compensation is much higher in these companies.
5) Life is not about fairness and one’s impact on society. It is about whether you are in a position where the demand-supply gap is acute. Wherever many people are eligible to apply for a job, the compensation will be low. When very few people are eligible to apply for a role, compensation will always be higher. Selectivity is a good indicator of compensation. No one will argue that being a professional sportsman is much more challenging than being an engineer or doctor. Subspecialties in medicine like cardiac surgery or brain surgery can pay millions of dollars because they are a super niche specialty that takes a long time to become trained in.
6) Sportspeople can only play for a small window in their life before they are too old or injured to be at peak efficiency. The money they make will need to be spread out for a long time they are not working. Many professional sportspeople return to college for an MBA to get a regular job because their income potential gets exhausted, and they need a source of income. While the money sportspeople make looks huge, it suddenly looks much smaller once you divide the early income over the decades they cannot work.
7) The career of a sportsperson is full of risk. These people can be injured anytime, or a more skilled person can grab their position anytime. The more risky the job, the higher the pay is. This is why mercenaries in war can be paid very high wages because they are risking their lives.
For more such articles, follow my Community and LinkedIn channels.
