Pay for Performance: Would It Work in Professional Sports?

Harvard’s Lucien Bebchuk has done great work to advocate that corporate executives’ pay be linked to their actual performance. His 2004 book, co-authored with Jesse Fried, Pay Without Performance has had a huge impact in the academy, in the halls of government and even in board rooms. Today, I read a New York Times article that reported that the Yankees’ Andy Pettitte is going to return for one season for a measly $5.5 million. His contract is loaded with incentives that could boost his annual salary to $12 million. And this set me to thinking . . . . Why not structure all sports contracts this way, but do so even more aggressively?

After all, we posted earlier about rookies being signed to large contracts so that their teams could avoid having to pay megabucks to keep them later. And one often hears of players working hard in seasons when their contracts are due for renewal and then becoming less focused once the pressure is off. Well, how about paying all players a basic based salary and then giving them huge financial incentives for reaching certain individual and team goals. These goals can vary widely, but there could be standard items on the menu, which would obviously vary from sport to sport. And then there can be some tailor-made incentives. For Alex Rodriguez: clutch hitting. For Shaq: free throw percentage over 55%, over 60%, over 65%, etc. I would advocate paying the Bulls’ Ben Gordon not to shoot at the end of quarters or when the game is on the line. It’s an opportunity to get creative and also an opportunity to motivate players in very focused ways.

[Jeremy Telman]