IDEAS home Printed from https://ideas.repec.org/a/eee/jbfina/v88y2018icp330-346.html

Do players perform for pay? An empirical examination via NFL players’ compensation contracts

Author

Listed:
  • Kim, Seoyoung
  • Sarin, Atulya
  • Sarin, Saagar

Abstract

How to properly compensate and incentivize players is an important question in the realm of professional sports, and more broadly, is a central question in contract design. With the increasing use of performance-based compensation packages and tax law favoring such compensation design, a natural question arises as to whether workers do indeed perform for pay. We examine this question in a setting that is not fraught with the typical measurement and identification problems found in many pay-performance settings. Specifically, we examine changes in a NFL player's Win Probability Added (WPA) and Expected Points Added (EPA) in response to his compensation-contract design. Overall, our paper provides evidence that players do indeed perform for (properly designed) pay, and has important implications for future work on compensation and incentive-based contract design.

Suggested Citation

  • Kim, Seoyoung & Sarin, Atulya & Sarin, Saagar, 2018. "Do players perform for pay? An empirical examination via NFL players’ compensation contracts," Journal of Banking & Finance, Elsevier, vol. 88(C), pages 330-346.
    • Handle: RePEc:eee:jbfina:v:88:y:2018:i:c:p:330-346
    DOI: 10.1016/j.jbankfin.2018.01.004
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0378426618300098
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jbankfin.2018.01.004?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Denis, David J. & Hanouna, Paul & Sarin, Atulya, 2006. "Is there a dark side to incentive compensation?," Journal of Corporate Finance, Elsevier, vol. 12(3), pages 467-488, June.
    2. Brian J. Hall & Kevin J. Murphy, 2003. "The Trouble with Stock Options," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 49-70, Summer.
    3. Jerker Denrell & Christina Fang, 2010. "Predicting the Next Big Thing: Success as a Signal of Poor Judgment," Management Science, INFORMS, vol. 56(10), pages 1653-1667, October.
    4. Jensen, Michael C & Murphy, Kevin J, 1990. "Performance Pay and Top-Management Incentives," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 225-264, April.
    5. John Core & Wayne Guay, 2002. "Estimating the Value of Employee Stock Option Portfolios and Their Sensitivities to Price and Volatility," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 40(3), pages 613-630, June.
    6. Brian J. Hall & Jeffrey B. Liebman, 2000. "The Taxation of Executive Compensation," NBER Chapters, in: Tax Policy and the Economy, Volume 14, pages 1-44, National Bureau of Economic Research, Inc.
    7. Brian J. Hall & Kevin J. Murphy, 2003. "The Trouble with Stock Options," NBER Working Papers 9784, National Bureau of Economic Research, Inc.
    8. Murphy, Kevin J., 1999. "Executive compensation," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 38, pages 2485-2563, Elsevier.
    9. Brian J. Hall, 2003. "Six Challenges in Designing Equity-Based Pay," NBER Working Papers 9887, National Bureau of Economic Research, Inc.
    10. Brian J. Hall, 2003. "Six Challenges In Designing Equity‐Based Pay," Journal of Applied Corporate Finance, Morgan Stanley, vol. 15(3), pages 21-33, March.
    11. Adams, Renée B. & Ferreira, Daniel, 2008. "Do directors perform for pay?," Journal of Accounting and Economics, Elsevier, vol. 46(1), pages 154-171, September.
    12. repec:eee:labchp:v:3:y:1999:i:pb:p:2485-2563 is not listed on IDEAS
    13. Khanna, Naveen & Poulsen, Annette B, 1995. "Managers of Financially Distressed Firms: Villains or Scapegoats?," Journal of Finance, American Finance Association, vol. 50(3), pages 919-940, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Carola Frydman & Dirk Jenter, 2010. "CEO Compensation," Annual Review of Financial Economics, Annual Reviews, vol. 2(1), pages 75-102, December.
    2. Kim, Jeong-Bon & Li, Yinghua & Zhang, Liandong, 2011. "CFOs versus CEOs: Equity incentives and crashes," Journal of Financial Economics, Elsevier, vol. 101(3), pages 713-730, September.
    3. Shue, Kelly & Townsend, Richard R., 2017. "Growth through rigidity: An explanation for the rise in CEO pay," Journal of Financial Economics, Elsevier, vol. 123(1), pages 1-21.
    4. Benson, Bradley W. & Lian, Qin & Wang, Qiming, 2016. "Stock ownership guidelines for CEOs: Do they (not) meet expectations?," Journal of Banking & Finance, Elsevier, vol. 69(C), pages 52-71.
    5. Loureiro, Gilberto & Makhija, Anil K. & Zhang, Dan, 2011. "Why Do Some CEOs Work for a One-Dollary Salary?," Working Paper Series 2011-7, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    6. Hillegeist, Stephen A. & Peñalva, Fernando, 2004. "Stock option incentives and firm performance," IESE Research Papers D/535, IESE Business School.
    7. Matthias Kiefer & Edward Jones & Andrew Adams, 2016. "Principals, Agents and Incomplete Contracts: Are Surrender of Control and Renegotiation the Solution?," CFI Discussion Papers 1603, Centre for Finance and Investment, Heriot Watt University.
    8. Peter Jaskiewicz & Joern H. Block & James G. Combs & Danny Miller, 2017. "The Effects of Founder and Family Ownership on Hired CEOs’ Incentives and Firm Performance," Entrepreneurship Theory and Practice, , vol. 41(1), pages 73-103, January.
    9. Lim, Terence & Lo, Andrew W. & Merton, Robert C. & Scholes, Myron S., 2006. "The Derivatives Sourcebook," Foundations and Trends(R) in Finance, now publishers, vol. 1(5–6), pages 365-572, April.
    10. Xavier Gabaix & Augustin Landier, 2008. "Why has CEO Pay Increased So Much?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(1), pages 49-100.
    11. Yaowen Shan & Terry Walter, 2016. "Towards a Set of Design Principles for Executive Compensation Contracts," Abacus, Accounting Foundation, University of Sydney, vol. 52(4), pages 619-684, December.
    12. A. Hossain & A.-A. Masum & S. Saadi & R. Benkraiem & N. Das, 2023. "Firm-Level Climate Change Risk and CEO Equity Incentives," Post-Print hal-04434397, HAL.
    13. de La Bruslerie, H. & Deffains-Crapsky, C., 2008. "Information asymmetry, contract design and process of negotiation: The stock options awarding case," Journal of Corporate Finance, Elsevier, vol. 14(2), pages 73-91, April.
    14. Li, Feng & Srinivasan, Suraj, 2011. "Corporate governance when founders are directors," Journal of Financial Economics, Elsevier, vol. 102(2), pages 454-469.
    15. Lucian Arye Bebchuk & Jesse M. Fried, 2003. "Executive Compensation as an Agency Problem," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 71-92, Summer.
    16. H Peyton Young & Lucas Merrill Brown, 2016. "The Diffusion of a Social Innovation: Executive Stock Options from 1936," Economics Series Working Papers 777, University of Oxford, Department of Economics.
    17. Carola Frydman & Raven E. Saks, 2010. "Executive Compensation: A New View from a Long-Term Perspective, 1936--2005," The Review of Financial Studies, Society for Financial Studies, vol. 23(5), pages 2099-2138.
    18. Page, T. Beau, 2018. "CEO attributes, compensation, and firm value: Evidence from a structural estimation," Journal of Financial Economics, Elsevier, vol. 128(2), pages 378-401.
    19. Hayes, Rachel M. & Lemmon, Michael & Qiu, Mingming, 2012. "Stock options and managerial incentives for risk taking: Evidence from FAS 123R," Journal of Financial Economics, Elsevier, vol. 105(1), pages 174-190.
    20. J. Samuel Baixauli-Soler & Maria Belda-Ruiz & Gregorio Sanchez-Marin, 2017. "An executive hierarchy analysis of stock options: Does gender matter?," Review of Managerial Science, Springer, vol. 11(4), pages 737-766, October.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:88:y:2018:i:c:p:330-346. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jbf .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.