Where would this company be without this individual?

By | People, Success

(Excerpt from Monday Musings 6 Dec 2021 by David Perell)

…what if pay is determined by asking: “Where would this company be without this individual?” The higher the number, the higher the pay should be — no matter how hard they work.

Baseball managers use the Counterfactual Theory of Value (as opposed to the Labor Theory of Value) all the time, using a statistic called “Wins Above Replacement.” It predicts how many more wins a player gives their team, compared to whoever would replace them.

Elon Musk provides another example. Today, Tesla is worth more than $1 trillion. Without his will and personality, Tesla probably wouldn’t exist. It certainly wouldn’t have such cheap cost of capital and so many passionate brand advocates. If Elon resigned tomorrow, the company’s value would likely fall by hundreds of billions of dollars. Taken together, Musk is worth almost $300 billion because the counterfactual would be so different without him.

So when determining somebody’s economic value, ask yourself: “What’s the counterfactual?”

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