Academic journal article Journal of Business and Behavior Sciences

Does Pay Lead to Performance? Using NCAA Head Football Coaches as a Surrogate for Ceos

Academic journal article Journal of Business and Behavior Sciences

Does Pay Lead to Performance? Using NCAA Head Football Coaches as a Surrogate for Ceos

Article excerpt

ABSTRACT : The paper addresses the compensation of NCAA head football coaches in relation to their performance. In most cases, the NCAA head football coaches are treated as CEOs of a mini organization; however, for a variety of reasons, such characterization is not similar to corporate settings. Using cross-section data, our study has shown no statistical link between head coaches' current pay and team performance. We also note that the link between head coach pay and performance may be muddled by the rise in college football popularity. We suggest several avenues for future research. Panel data may reveal estimates that provide a statistically significant relationship, as has been seen in some of the CEO pay and performance literature. The relationship between the Boards and the CEOs/coaches needs to be explored to address if pay decisions are based upon quantitative factors (i.e. success and resumes.

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INTRODUCTION

In the past few years, CEO compensation has attracted the consideration of economists, accountants, organizational researchers, professors, consultants, lawyers, regulators, governance experts, even journalists and the general public are interested in the vast salaries and benefits that accrue to the business bosses. Bebchuk and Fried (2003) note that the increase in papers on executive compensation may have exceeded even the remarkable increase in executive compensation itself.

Most of the studies are reflective or descriptive in nature, with very little predictive power and fail to find consistent explanations for CEO pay because of a multiplicity of subjective factors that are resistant to quantification. O'Reilly and Main (2005) claim that psychological links between the Board of Directors and the CEO confound the economic explanations. Although the market for executive talent may not be perfectly efficient, in a free market system it is reasonable to assume that better managers and leaders will have greater compensation than their less qualified counterparts (Hambrick and D'Aveni, 1992; Kaplan, 2008). It is the purpose of this paper to explore the linkage between pay and top management performance using NCAA head football coaches as a substitute for the business CEO. This substitution reduces the variables to a more quantifiable number.

While this is not a perfect substitute, the two groups, head coaches and CEOs, do have much in common. CEO pay is advancing similarly to other fortunate and talented groups: hedge fund managers, top lawyers, and professional athletes (Kaplan, 2008). Division I college football coaches have found a similar increase in recent years as TV contracts and media exposure have led to an exponential rise in college football popularity. The increased exposure has augmented revenue streams for athletic departments. As a result, successful coaches have also increased their pay. However, greater pay also leads to greater expectations. Failure to live up to expectations leads to large turnover rates in CEOs and coaches. Turnover and tenure for collegiate coaches is higher than that of Fortune 500 CEOs. For example, the average tenure of a Fortune 500 (as of 2011) is 8.4 years against 4.5 years for a NCAA football coach (source: Forbes and USA Today).

LITERATURE REVIEW

Numerous studies have been written on the topic of management pay. A "modem" history would range from Adam Smith warning about management by non-owners in 1784 (Wren and Bedeian, 2005); to the current editorials raging against the 1%. This article will limit our presentation of the literature in order to focus on some of the more important aspects. This will include a brief explanation of the market forces at work on top management pay, alternative explanations of company performance, and the rationale for selecting our sample.

Top Management Pay: Leonard (1990), using a sample of 439 large US firms, found that firms with long-term incentive plans have greater increases in return on equity (ROE) than firms that did not have these incentive packages. …

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