Major League Baseball has a relatively new statistic called Wins Above Replacement, or WAR. WAR attempts to quantify the value of each individual player by determining how many team “wins” that player is responsible for relative to a replacement player whose statistics and metrics are the league average for that position. For a player, any WAR number that is +1 or above is good because it means that player is better than the average player. If you are a player and your WAR is +5 or more for a season, then you are likely one of the top 30 players in the league: an All-Star or an All-League player. Other sports have similar metrics, but it is most advanced in baseball.
I was speaking with a good friend who just visited me, and we were discussing how companies value their employees, and that while some employees are overcompensated, others, especially employees who develop new ideas that result in higher profits and/or lower expenses for the company, are undercompensated, sometimes vastly so. My friend provided an example of a company that had a Suggestion Box and paid $25 to an employee whose suggestion was implemented. That’s a great “bang for the buck” way for that company to get good ideas from the workers in the trenches!
WAR for Business
That conversation made me think of WAR in baseball. The idea of WAR is to quantify the value of each player. Is there such a thing in business? Can each employee of a company have a “Value Above Replacement” quantity that clearly states how well this employee has performed, or how much better or worse this employee is relative to an “average” employee in the same position? At this point, the answer is that there isn’t such a quantity, but I would not be surprised if we move in this direction, because other businesses, especially sports and entertainment-related businesses are moving in this direction. MLB players whose WAR is 5 or above sign contracts worth $10’s of millions or more. Actors whose films or shows have higher ratings or box office numbers can command much higher contracts for their ensuing work. If an employee of a company can definitively demonstrate that their work has resulted in more revenue or fewer costs for their employer, why shouldn’t they have the right to share in the increased net profit?
Stock Options and Profit Sharing Plans
Some companies already do have plans to share profits through stock options and/or profit sharing plans. For public companies, stock options have been a thing for many years, but recent regulations have made it more difficult and costly for firms to issue some types of options. For private companies, profit sharing is still done, but such a plan requires the willingness of the employer to offer the plan. Also, plans such as 401k matching and bonus plans also work toward sharing corporate profits, and Performance Review grades are a way of assigning numbers to employees. However, Performance Review grades are good in that company but may not translate to another company.
The point that I want to make here is that each employee should think in terms of the concept of WAR, meaning how do I, as an employee, do a better job than another “average” employee off the street would do? If you approach your job with the mentality of “how can I do a superior job?”, then you will do things like take ownership of problems your company may face, or try to make your direct boss’s job easier. It will also hopefully raise your mental state above just going in and doing your job every day into thinking about how you can be a superstar. In terms of financial planning, there is no financial plan better than attempting to do your best at work and to try for the highest salary, bonus, stock options, or other profit sharing concept your company might have. Because, as well as you do this year, you will then probably build on it next year and thereafter, and before you know it, you will have exceeded your financial expectations that you had when you started out.