Football coaches, the highest paid persons on many U.S. college campuses are worth their money because of the value they bring to their universities., according to a study by researchers of the Vanderbilt University. They are as entitled to their salary as a CEO who is rewarded lavishly for creating value for his or her board of directors, say Randall S. Thomas, Professor of Law and Business at Vanderbilt Law School and R. Lawrence Van Horn, associate professor of economics and management at Vanderbilt Owen Graduate School of Management. “We find no evidence that the structure of college football coach contracts is misaligned, or that they are overpaid,” say Thomas and Van Horn, who , undertook a study of college football coach contracts, comparing them with CEO employment agreements.
According to the research news homepage of the university, the study examined 947 college football coach contracts from the NCAA’s top programs. The researchers coded the compensation and legal characteristics of them and compared them with those of CEOs at similarly sized firms. Among their findings included data showing the average pay for a Division I FBS college football coach has gone from 725,000 Dollars in 2005 to 1.1 millions in 2009 and then 1.5 million Dollars in 2013.
Salaries of football coaches rise faster than those of CEOs, which the authors explain by pointing out that only half of the coaches can possibly be winning at any given time. Those that are losing are in danger of being fired and those that are winning are hot commodities looking for the maximum reward for their efforts.
Thomas and Van Horn found that the current levels of football coach pay were quite similar to those of CEOs at similar firms in 2013. They also determined that among the other similarities was that contract values were aligned with the creation of value. And like thriving corporations, winning college football programs soar in value. “If one believes that CEO compensation is set by the market at an appropriate level, and that employment contracts reflect this equilibrium, then one should reach the same conclusion about football coaches,” Thomas is quoted as saying by Jim Patterson on the university’s home page
Football coaches usually have contracts for five years or more, while only 30 percent of CEOs have contracts that long. Usually, CEOs have contracts in the three-year range. But it’s rare for a coach to actually fulfill a contract. They often get fired if their team is unsuccessful. If successful, the contract is likely amended or torn up in favor of something more lucrative. “We find that successful coaches are commonly rewarded with an amended contract and that as a result their contracts are effectively in place for a shorter time period,” Thomas and Van Horn state. “While coaches are less likely to have large pay for performance payments in their initial contracts, successful coaches promptly receive pay
increases and a new contract, while unsuccessful coaches are terminated.”
This article was republished with permission from Karl-Heinz Huba, the Sport Intern.