Expectations Can Make All The Difference
One of the cornerstones of modern performance management is the concept of pay based on the achievement of goals, but the role of performance expectations is less well defined. A study examining the effect of performance expectations on the total compensation of professional US football coaches found that compensation increases when performance expectations are exceeded. While on-field as well as off’-field performance measures were found to affect total compensation of coaches.
Key Topics: Performance expectations; Coaching; Executive compensation
Title of Reviewed Article: The Effects of Performance Expectations on Total Compensation of Division I–Football Bowl Subdivision Head Coaches
Researchers: Brian P. Soebbing (Temple University), Pamela Wicker (University Cologne), and Nicholas M. Watanabe (University of Missouri).
Publication: Journal of Sport Management, 2016, Vol. 30 No. 1, pp. 70-81.
Setting the Scene
Much research on professional and college sports has been carried out to examine leadership-related phenomena (Day, Gordon, & Fink, 2012; Kahn, 2000), with recent research focusing on coaching performance and efficiency (Maxcy, 2013), and the effect of coaching on organizational performance (Martinez & Caudill, 2013). Given the level of responsibility of head coaches, they have been compared to CEOs in non-sporting companies (Soebbing & Washington, 2011).
Various elements have been shown to play a role in the compensation of coaches, such as on-field performance (Grant et al., 2013; Humphrey, 2011), organizational characteristics and size (Humphrey, 2011), and experience of coaches (e.g. Grant et al., 2013). In college football, there is a natural divide between BCS automatic qualifying (AQ) schools and non-BCS AQ schools, with AQ institutions typically being larger from a revenue standpoint, and prior research suggests this can also have a positive effect on coaches’ compensation (Inoue et al., 2012).
Performance expectations have been accessed in various ways in prior research, such as historical on-field performance (e.g. Holmes, 2011) and sports betting markets (Humphreys et al., 2011a). In relation to the betting markets, Sauer (2005) argued that these markets accurately predict match outcomes, and information from these markets has been used to study various phenomena, such as referee bias (Larsen, Price, & Wolfers, 2008) and coaching dismissals (Allen & Chadwick, 2012).
While a wide range of factors have been used to examine coaches’ compensation, performance expectations have had limited review. This study looked to examine the effect of actual performance, in comparison with expected performance, on the total compensation of head coaches in the Division I-Football Bowl Subdivision (FBS). The researchers outlined two primary research questions:
Hypothesis 1 – “The better the on-field performance relative to performance against the point spread, the higher a head coach’s total compensation.”
Hypothesis 2 – “The better the on-field performance relative to performance against the point spread, the higher the salary of a BCS-AQ head coach compared to a non-BCS-AQ coach.”
How the research was conducted
This study collected total compensation data for Division I–Football Bowl Subdivision (I-FBS) head coaches in the National Collegiate Athletic Association (NCAA) between 2006 and 2013. In total 748 coach-season observations were included in the study.
Information on total compensation was taken primarily from the USA Today NCAA coaching salary database, with total compensation being defined as the combination of both university and non-university compensation. Total compensation was also taken from other sources, including the College Football Coaches Hot Seat website and newspaper articles.
The researchers examined actual versus expected performance. Performance expectations were determined by a team’s performance against the closing point spread, which the researchers viewed as an unbiased predictor in relation to performance outcomes.
Other factors examined included team performance, teams’ performance variability, team market size, academic performance of team members, university characteristics, experience of coaches, and coach demographics.
In their analysis the researchers distinguished between Bowl Championships Series (BCS) automatic qualifying (AQ) institutions and non-BCS AQ institutions.
Key Research Findings
The average total compensation per year for the head coach population accessed was approximately $1.6m, with a sizeable range of approximately $150,000 - $6.5m. Average head coach experience was 10 years.
For Hypothesis 1, in relation to difference between actual and expected performance, the results found that for an increase of one actual win in comparison with the points spread performance expectations, this led to an increase in total compensation of 5 – 5.5%, thus offering support to the hypothesis.
Hypothesis 2 posited that exceeding performance expectations at AQ schools leads to a further total compensation increase. The results do not support this hypothesis as they found that coaching at AQ schools does not lead to an increase in total compensation based on expected performance above that of coaches at non-AQ institutions.
Head coaching experience was found to positively affect total compensation, with those with more experience having higher total compensation.
Additionally, off-field performance measures, along with individual and university factors were found to affect total compensation.
The results for Hypothesis 1 were as expected and largely consistent with previous research on CEOs and senior management that accessed the impact of expectations on the various factors, including compensation (e.g. Holmes, 2011).
The results for Hypothesis 2 are somewhat surprising, considering that there are typically significant differences between compensation generally between AQ and non-AQ schools (Humphreys, Soebbing, & Watanabe, 2011b), and the results are contrary to the researchers’ expectations. The researchers suggest that the results may reflect that, as above expected performance at an AQ school doesn’t lead to extra revenues for the school, as so the school may be reluctant to provide additional compensation above a non-AQ school.
Organizational and Reward Implications
This study provides some obvious practical implicates for institutions hiring head football coaches, although the results also provide insight and guidance on the effects of exceeding performance expectations on CEO and senior management compensation generally in sporting and non-sporting companies, where the use of performance expectations, whether internal and/or external, such as financial analysts, is a factor. The finding that extra compensation for exceeding expectations is prevalent should be of interest to such companies.
Using college head coach compensation data over a multi-year period, this study provides valuable insights into the role of performance expectations in determine compensation changes. However, while this study examines various on-field and off-field performance factors, it does not consider the financial performance and status of the school or football program, which are likely to also impact on compensation decisions; further research including financial performance would be of benefit. Also, while this study reviewed total compensation, further review of changes in individual compensation elements would likely yield interesting results.
Source Article: Soebbing, B. P., Wicker, P., & Watanabe, N. M. (2016). The Effects of Performance Expectations on Total Compensation of Division I–Football Bowl Subdivision Head Coaches. Journal of Sport Management,30(1), 70-81.
Published by: Human Kinetics, Inc.
For further details and access to the full journal article Click Here (subscription or payment may be required).
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