Co-Opetition - Adam M. Brandenburger [102]
A Feather in Your Cap Just as peacocks and peahens engage in mating rituals, so do prospective employers and employees. Only here, the ritual involves résumés, interviews, callbacks, references, and the like. Prospective employers try to gauge the ability of each job candidate. Job candidates try to convince employers of their abilities.
If you’re the candidate, educational qualifications are a nice feather in your cap. You’ve learned a lot in school and college, and that makes you just the person for the job. That’s one view. But there’s a more cynical view of education: all those qualifications you earned aren’t so much a feather in your cap as they are a peacock’s tail.
Educational qualifications help employers cut through the fog by helping them judge how smart you are. But it’s not that you’re smart because you’re educated. What you actually learned in college is the least of it. More important is the fact that college wasn’t easy. You had to master abstruse academic disciplines. Making it through college is a display of intellectual strength.
This view of education is due to Michael Spence, now dean of Stanford’s Graduate School of Business. So you might expect that Stanford’s business school isn’t easy. Apparently, it isn’t. Snapshots from Hell is the title of the book Stanford graduate Peter Robinson wrote describing his first-year M.B.A. experiences.7
Stanford isn’t inexpensive, either. Annual tuition is more than $20,000, and that’s not counting the even greater cost of forgone salary. This high cost of business school sends another convincing signal to prospective employers. Many people say they’re committed to a career, but going to business school is a way to prove it. It’s an investment worth making only if you’re planning to earn it back.
Spending time and money to earn a degree is one way to send a signal to prospective employers. The sort of compensation contract you’re willing to accept is another way. In the final stages of an interview for an investment banking job, the candidate is usually asked: how much of your salary do you want to be guaranteed, and how much do you want to be performance-driven? A candidate who elects for a high base salary over a potential bonus sends a negative signal. At best, this person is rather risk-averse; at worst, he lacks confidence in his own abilities. From the investment bank’s perspective, that’s bad news either way.
The candidate who opts for a low-base/high-bonus package shows that he’s willing to bet on himself. He signals that he’s confident in his ability to make money for the investment bank—and, in so doing, make money for himself, too. That’s what the firm wants to hear.
There’s another reason that the bonus-driven compensation package is more attractive to the investment bank. It takes the financial risk out of the hire, regardless of the person’s abilities. If the person fails to produce as expected, the firm has to pay the base salary and no more. What if the person ends up earning a huge bonus? That’s fine. This happens only when he’s made a lot of money for the firm, and then a bonus is a good way to reward and keep a strong performer.
Not shy to try out our own theories, we thought of this analysis of compensation schemes when looking for a publisher for this book. Should we focus on the up-front advance? Or should we try to negotiate a more generous royalty rate? The author’s advance is the guaranteed compensation for writing the book, while the royalties are the results-driven bonus. The royalty rate is customarily fixed at 15 percent of sales, with all the negotiation between author and publisher taking place over the size of the advance.8
We thought perhaps it would be a good idea to do things a little differently. We could forgo an advance altogether and, instead, ask for a higher-than-usual royalty rate. That would send a signal to publishers that we were