Inventing Incentives

More and more athletic directors are offering their coaches incentive pay. The trick is tailoring the bonus to what is affordable, appropriate, and meaningful for your program.

By Kenny Berkowitz

Kenny Berkowitz is an Assistant Editor at Athletic Management.

Athletic Management, 16.3, April/May 2004, http://www.momentummedia.com/articles/am/am1603/incentives.htm

It’s one of the biggest challenges facing every athletic director: how to keep good coaches on your team. For many athletic departments, one part of the solution is providing well-constructed coaching bonuses.

Whether it’s millions for a bowl game win or a few hundred bucks for a championship season and a good team GPA, coaches at all levels are earning extra money for a job well done. The appropriateness is still debated in some quarters, especially at the high school and small-college level, and how to structure them varies widely with each school’s means. Some athletic directors see a costly escalation occurring. But there’s little doubt that bonuses are increasingly common and effective.

Jeremy Foley, Athletic Director at the University of Florida, believes the five-figure bonuses his top coaches receive contribute to the continuity of his staff. "If I have coaches who are successful, both in the classroom and on the field, I want to compensate them, so they’ll feel good about their situation and want to stay here in Florida," says Foley. "Anything you can do to enhance your coaches’ packages will help provide stability."

At the University of Western Kentucky, Athletic Director Wood Selig offers much smaller bonuses, typically between $5,000 and $10,000, but also feels they are critical. "I think our bonuses are working, and I think they help us," says Selig. "They contribute to the overall package that our coaches enjoy, and may directly impact whether they want to stay here. If we didn’t have them, I don’t think we’d see a mass exodus out the door tomorrow, but I think our coaching continuity might be negatively impacted."

With no signs of slowing down, now is a good time for athletic directors to think about whether coaching bonuses are right for their school. What are the best ways to structure coaching incentives? How do you make them fair while also paying attention to the economic realities of the market? How do you make them work for individual coaches?

INCENTIVES or REWARDS?
Before starting a system for performance pay, athletic directors need to ask themselves what they want: an incentive for future performance or a reward for past successes? It may vary greatly depending on your level of play.

At the University of Iowa, which gives out hundreds of thousands of dollars in performance pay, Athletic Director Bob Bowlsby feels bonuses provide a strong incentive for his coaches. For most of Iowa’s head coaches, Bowlsby uses a standard contract that awards five percent of their annual salary for winning a conference championship; between three and 10 percent for appearing in the NCAA tournament, depending on their final ranking; two percent for being named Regional Coach of the Year; and five percent for being named National Coach of the Year.

For Iowa’s highest profile coaches—in football, men’s basketball, and women’s basketball—Bowlsby negotiates individual bonuses, which increases his flexibility, and allows him to underline the importance of academic success. "We have an institutional philosophy that would like to see consistent academic achievement combined with consistent athletic achievement," says Bowlsby. "In order to do that, we’ve been able to award larger bonuses, and it’s having the desired effect. Because we’re achieving in both areas over a consistent period of time and none of our coaches has left, I guess you’d have to say it’s working."

In the past year, Head Football Coach Kirk Ferentz earned a total package of between $1.5 and $2 million, with $850,000 in bonuses. That included $350,000 for posting a .620 winning percentage and graduating 60 percent of his student-athletes over the last three years; $300,000 for longevity; $150,000 for finishing the season ranked eighth in the USA Today/ESPN coaches poll; and $50,000 for leading his team to the Outback Bowl.

At Florida, Foley generally provides incentives in 10 percent increments. For example, for Head Football Coach Ron Zook, who has a base salary of $206,000, Foley adds 10 percent plus $57,500 for an SEC championship victory; 20 percent plus $75,000 for winning a BCS bowl; 30 percent plus $100,000 for a national championship; $25,000 for being named SEC Conference Coach of the Year by AP; $50,000 for being named AP Coach of the Year; one-month’s salary for graduating 60 percent of his student-athletes; and 10 percent of his salary for graduating 80 percent of his student-athletes.

"It’s all straight forward and it’s all part of our negotiations," says Foley. "There’s a clear scale to compensate my coaches, and as long as the bonuses are within reason, it’s a healthy way to reward success."

At Division III Williams College, where coaches are treated as faculty members, bonuses are more often seen as a reward, not an incentive. Decisions about incentive pay are made by the college’s dean of faculty, using recommendations from the president, provost, and Athletic Director Harry Sheehy. Working with an available pool of about $3,000, Sheehy is only able to recommend bonuses for six of his 25 full-time coaches each year. The bonuses, which Sheehy calls "bumps," are generally $500 apiece, and are purposely kept low-key, and are included in the coaches’ paycheck without any kind of public announcement.

"Because the merit pay bumps aren’t very large, we see them primarily as a reward for having done an outstanding job," says Sheehy. "We see our coaches as teachers first and foremost, so wins aren’t going to be the only thing that determines merit. Winning is certainly a positive reflection of quality teaching, but it’s not our sole definition of success."

Starting every January, coaches who want to be considered for a bonus can submit a form to Sheehy assessing their work over the past year and talking about things they’d like to improve in the coming year. Along with recapping their sports seasons, coaches write about service they’ve performed in the department, college, and community. Sheehy reads those forms, adds his personal recommendations, and presents them to the dean of faculty.

"The biggest advantage to our system is that the bonuses don’t become a huge issue," says Sheehy. "The disadvantage is that, as an athletic director, there are times when I really have to split hairs. A couple of years ago, every one of our 31 teams had a winning record, but because we have a limited pool of money, we were simply unable to give each of them a merit bump. Deciding who gets the bonus can be very difficult, but there are so many good coaches here that there’s no stigma in not getting a bump.

"What’s important here is recognition," says Sheehy. "Someone in the college administration recognizes you’re doing an outstanding job."

ECONOMIC REALITIES
There are some negatives to incentive pay, however, and one of the biggest is how it can potentially wreak havoc on an annual budget. Some Division I schools are taking out insurance policies to cover bonuses, but most still fund incentive pay out of a budget line.

The key is to structure a system that will work within your means. At the University of Iowa, money for coaching bonuses comes from department revenues. At Florida, it comes from the athletic department’s operating budget. At the University of Northern Iowa, it comes from the athletic department’s endowment fund. And at Western Kentucky, it comes from the university.

"You need to be careful before you start throwing incentive bonuses to everybody left and right," advises Selig. "You could get yourself into a predicament where you can’t cover them all."

"You have to think about the lean times as well as the good times," agrees Northern Iowa Athletic Director Rick Hartzell. "You have to build a level of trust with your staff to create the flexibility you need to make the system work for everybody—including yourself, as the person who has to manage the budget."

For this reason, Hartzell structures his bonuses very loosely. Since most bonuses are funded with income from the athletic department’s endowment, which is subject to fluctuations in the market, in a good economic year a coach may receive a $2,500 bonus for winning a championship. In a bad economic year, that same coach may receive $1,000 for winning the same exact championship. His coaches understand the system and it works at UNI.

"There’s administrative flexibility built into the system, so I’m not tied into paying more money in bonuses than I can afford," says Hartzell. "In this situation, it’s better for us to not have a strict policy and to know that people trust me to do the best I can under the circumstances. The system might not work everywhere, but it works here because of the relationships we have and the trust we’ve built."

Another way that many athletic departments make sure they can fund bonuses is by setting up a two-tiered bonus system, with revenue sports on one level and non-revenue sports on the other. Typical of most schools, Selig’s upper level at Western Kentucky contains coaches from football and men’s and women’s basketball, and the lower level includes all his other coaches, with each contract specifying different amounts of performance pay.

Has he heard any complaints about fairness: Why is his incentive bigger than mine? "In every athletic department, there’s a formal or informal hierarchy of sports that is pretty much understood by everyone," says Selig. "It’s driven by the marketplace, so we’re first expected to take care of the programs that are our true revenue generators. And I’ve never had a coach who complained about it."

At Northern Iowa, Hartzell’s top tier includes only the highest-profile coaches, whose contracts are negotiated separately from the rest of the coaching staff. "Nobody has quarreled about it here, because we have a group of coaches who understand the ups and downs, the positives and negatives, of being in this field," says Hartzell. "Coaches trust me to do everything I can in any given year, because that’s how our system works."

At the top of his scale, Hartzell is contracted to reward his head men’s basketball coach with a bonus of one month’s salary for a conference championship and half a month’s salary for any subsequent wins in the NCAA tournament. At the other end of the scale, for the majority of coaches and assistant coaches without individual contracts, Hartzell does his best to approximate the same level of reward.

PERSONALIZING CONTRACTS
At the University of Northern Illinois, Athletic Director Cary Sue Groth bemoans the increased emphasis on bonuses. "There’s an arms race going on in coaching packages, and I think most athletic directors would like it to slow down a little bit, because it’s getting out of hand," she says. But Groth also recognizes their worth, and thus works hard to personalize bonuses to her coaches.

"I don’t think there’s a cookie cutter contract that will work for everybody," she explains. "Our contracts are going to be different for each coach, depending on where they are in their careers and what their individual priorities are. For example, a young coach may be more interested in short-term incentives, and an older coach may be thinking about retirement. We want to tailor the contract so it works for them. And that’s how I approach our contract negotiations. I ask our coaches, ‘What’s important to you?’

"A couple of weeks before I met with our football coach, I asked him to think about what was most important to him," continues Groth. "We broke down the contract in sections, and even before we started negotiating the actual contract, we talked with people in our human resources department about our options. That way, he was part of developing a contract that will work best for him and his family."

She also makes sure the bonuses correlate with her philosophy. For example, Groth doesn’t award coaching bonuses for academic success, and didn’t accept one when it was offered to her earlier this year. "That’s our job," she says, "to make sure our student-athletes do well academically." At the same time, she’s made sure to set up a bonus system that carefully balances genders, with two men’s sports and two women’s sports in its upper-tier.

At Western Kentucky, where coaches receive a bonus for graduating their student-athletes, Selig is trying to find new ways to recognize his coaches for achieving academic success. He’s considering awarding a bonus to coaches whose student-athletes’ GPAs are higher than the general student population, and thinking about non-monetary awards, like arranging with a local restaurant to provide dinner for coaches whose team GPAs have increased by 0.1, or working with a travel agent to book a weekend trip for the coach whose team has the highest GPA of the season.

"It’s not the same as putting $5,000 in a coaches’ pocket," says Selig. "But it’s a way to recognize another aspect of a job well done. By nature, coaches are Type A personalities. They’re going to perform to the best of their abilities, regardless of their compensation, and these bonuses are just a small part of the game.

"But they are also a reality for the industry we’re in," he continues. "Some people might argue that you’ve hired coaches to win championships, graduate student-athletes, and operate with integrity. That’s what you’re paying them for in the first place, so why do you need to pay a bonus on top of that? But bonuses are a necessary part of what we do, showing our appreciation for a job well done by members of our coaching staff. What matters is making coaches feel they’re being appreciated."


Sidebar: REWARDING ACADEMICS
At the University of Iowa, Athletic Director Bob Bowlsby has put more weight on student-athletes’ academic achievement by tying graduation rates into his coaches’ bonuses. But instead of offering his coaches a separate bonus for academic success, Bowlsby uses a process he calls "bundling," which averages winning percentage and graduation rates over a three-year period, and provides a single incentive for both.

"We’re not prepared to excel in one without also excelling in the other," says Bowlsby, who believes that Iowa is the only school in the country to bundle its bonuses.

For Head Football Coach Kirk Ferentz, whose team has won 77.8 percent of its games since the start of the 2001 season, that meant an extra $350,000 in his paycheck. If he’d graduated less than 60 percent of his student-athletes, or won fewer than 62 percent of his games, he would have lost the entire $350,000 bonus. Instead, it became the largest single bonus paid to him by the department.

"We wouldn’t want to be 10-1 in football and graduate only 25 percent of our kids," says Bowlsby. "Likewise, we wouldn’t want to go 3-8, even if we had fabulous graduation rates. And the only way we’re going to reach this level of achievement is to link the incentives for both."


Sidebar: HIGH SCHOOL BONUSES
Like many things in professional and collegiate sports, performance pay is trickling down to the high school level. Although some state associations have formally barred coaching bonuses, in other states they’ve become an accepted practice at some high schools.

In the summer of 2002, Belen (N.M.) High School became the first program in its region to decide to reward coaches with bonuses for winning district and state titles. Since then, Belen has won championships in boys’ and girls’ cross country, football, girls’ soccer, and wrestling, and the school district has paid $11,200 in coaching incentives.

For a program that had lost nine head coaches in the preceding two years, the bonuses created a huge turnaround in winning percentages. "Before the bonuses, we were struggling to just stay at .500," says Athletic Director Danny Griego. "Basically, our coaches were looking around all the time and using Belen as a stopping area before getting another job. We spent a couple of years proposing extended contracts and salary increases to the school board, but none of that passed. So we proposed incentive pay as something the district could afford, and the school board thought it was important enough to try."

The guidelines at Belen are simple, with the same bonus given to coaches in every sport. Head coaches are awarded $800 for a district championship and another $2,000 for a state title, while assistant coaches are generally awarded $400 for a district championship and another $800 for a state title. At a school where head coaching salaries run from $2,000 for tennis to $5,500 for football, those bonuses can have a significant impact, and they have.

"In the last couple of years, we’ve really turned things around," says Griego. "Our coaches are staying here, and that consistency has led us to become one of the two dominant programs in our district in every sport."

At Vidalia (Ga.) High School, which began offering coaching bonuses four years ago, the response has been equally positive. "The coaches love it," says Athletic Director Charles Reid. "They definitely see it as an incentive, and it’s helped us keep our coaches—not that they wouldn’t do a good job anyway, but the bonuses have provided an extra incentive. And last year, we won three state championships."

Instead of earning a specified amount of money, Vidalia’s head coaches and assistant coaches are given a specific percentage for each level of performance: 33.3 percent of their coaching salary for winning a regional championship, 50 percent for winning the state semi-finals, and 100 percent for winning the state title. Reid justifies the bonuses as compensation for the extra time and effort coaches spend on postseason play, and in four years, he says he’s never had any complaints from the community.

But in nearby Sylvania, where Screven County High School won the 2002 AAA state football championship, Athletic Director and Head Football Coach Mark Daniel learned about coaching bonuses the hard way. After the season, Screven County’s superintendent approached the school board to ask for a raise for Daniel and his assistant coaches. When he was turned down, he shifted his strategy from salaries to bonuses, approached the board a second time, and won. But the process entailed a long debate, where teachers and community members argued that the bonuses would create a rift within the school, and that it was wrong to give bonuses to coaches without giving them to teachers, too.

"We had a very successful season, but it ended on a sour note for the whole community," says Daniel. "People who are supportive of the athletic program wanted to reward our staff and let us know that they appreciate what our success has brought. But it became a public issue, because there are a lot of people who don’t believe that athletics has a place in education, and they try to bring a negative light to it any time they can."

Ultimately, the board paid a total of $20,250, with a $4,000 bonus to Daniel and about $1,000 to each of his 15 assistant coaches, which equaled 10 percent of their coaching salary for each playoff win. And though Daniel says he’d do it all again, he advises other athletic directors to spend more time thinking about the politics of offering bonuses to high school coaches.

"You need to be very attuned to the political situation in your specific school system," says Daniel. "I learned that if you have people on the Board of Education who resent athletics, or think athletics shouldn’t receive so much attention, then you end up with problems."

Sidebar: USING THE GATE
At Northern Illinois University, where Head Football Coach Joe Novak’s contract was renegotiated at the end of last season, Athletic Director Cary Sue Groth found herself in the unusual position of turning away donations. The team had one of its most successful seasons ever, and people wanted to contribute.

"A lot of people offered us money to help with Joe’s contract," says Groth, "but we didn’t want to fund his salary and incentives through donor dollars. We wanted to keep funding it through the gate receipts, because we didn’t want to risk getting our donors too involved in personnel matters.

"I stay away from using donations to enhance personnel packages," continues Groth, "because donors may think they have an obligation to get involved the next time there’s a coaching change: ‘If my money is going to pay for the coach, I should make sure my voice is heard when it comes time to renew his contract.’ I think people feel that way, whether they’ve given $50 or $50,000."

Instead, Groth used the opportunity to direct donors to her department’s capital campaign fund, which is being used to improve the football stadium’s end zones, coaches’ offices, and locker rooms. "When people came forward and said, ‘We’d like to help you keep Joe, here’s some money,’ I said, ‘Let’s put it in the facility pot,’ she explains, ‘because our priority right now is raising money to pay for new facilities, which is an important part of keeping coaches.’

"In the long run, you’re better off if you distance donations from personnel matters," continues Groth. "And it’s worked out well. To date, we’ve been able to use our gate receipts to pay our coaches’ incentives."