Now that NBA teams are making the final push for the
playoffs and sports pundits are calling their predictions for the
championship title, it's time to look at whether or not it might have
all been worth it.
"Many of these teams have made an enormous financial sacrifice by compensating and, subsequently, relying on a few select players to lead them to glory," said Frank Glassner, CEO of Compensation Design Group, an international compensation consulting firm headquartered in San Francisco. "Are these so-called 'warriors' worth the outrageously absurd amounts?"
The NBA salary cap has increased from $26.9 million in 1997-98 to the new level of $43.87 million -- the highest amount since the salary cap was established in 1984. This doesn't even take into consideration amounts each individual receives from endorsement contracts. "The current salary structure in the NBA is bloated and obscene," said Glassner. "Exorbitant sports salaries and compensation packages have become synonymous with the player as 'pay for ego' vs. 'pay for performance.'"
To prove his point, Glassner decided to see if the players' actual game statistics contributed to their high salaries. A player's statistics reflect his accomplishments on the job. Likewise, as in any other business field, an employee's compensation depends on how well he carries out his duties.
"Some players are paid like the CEOs who run companies in trouble," said Glassner, a 29-year veteran of executive compensation. "They are paid for lackluster performance. An ideal salary plan for players would be one based on the same principles and procedures used for successful businesses -- a plan based heavily on incentives for performance."
In Glassner's plan, players would receive a base salary determined by number of years with the NBA, plus incentives based on points (adjusted by FG% -- field goal percentage), assists, steals, and blocks per game. In addition, there would be bonus payments for post-season play or for achieving top league status in various statistics. The following outlines Compensation Design Group's (CDG) incentives for performance program: -0- COMPENSATION DESIGN GROUP BASKETBALL SALARY PLAN Base Salaries: Per Game Incentives: Rookie $200,000 $2500 per point 2nd Year $300,000 $1500 per assist 3rd Year $400,000 $1500 per steal 4th Year $500,000 $1000 per rebound 5th Year $600,000 $600 per steal 6th Year $700,000 7th Year $800,000 8th Year $900,000 9 + Years $1,000,000 In order to avoid potential for "gaming" the points category, points related incentives will be adjusted based on FG%. FG% Per Points Game Adjustment ------------------------------------------- Greater Than or Equal to 60% 200% ------------------------------------------- 55-60% 175% ------------------------------------------- 50-55% 150% ------------------------------------------- 45-50% 125% ------------------------------------------- 40-45% 100% ------------------------------------------- 35-40% 80% ------------------------------------------- 30-35% 60% ------------------------------------------- 25-30% 40% ------------------------------------------- 20-25% 20% ------------------------------------------- Less Than or Equal to 20% 10% ------------------------------------------- For example, if player A scores 20 points in a game with a field goal percentage is 0.235; his total income from points scored is $10,000. 20 x $2500 x 20% = $10,000 In contrast, if player B scores the same number of points in a game but his field goal percentage is .461; his income would be $62,500. 20 x $2500 x 125% = $62,500
Recently, Latrell Sprewell, 34, of the Minnesota Timberwolves, demanded that the team either extend his contract or trade him, saying he was "insulted" by the team's last contract offer of $10 million per season for the next three years. "I've got my family to feed," he said, comments that drew criticism from NBA commissioner David Stern.
Sprewell is set to make $14.6 million this season in the final year of his deal. Assuming that he plays in all 82 games this season, for every minute he is on the court, Sprewell will bring in approximately $5,732. Additionally, if CDG takes into consideration that Sprewell practices 4 hours per business working day, then he would still earn $225 per minute.
"Imagine if you made $5,732 for every minute you worked," said Glassner. "In just one day, that's 60 minutes x 8 hours x $5,732 = $2,751,360 per day. In reverse, the median household income for 2003 was $43,318. Break that down and the average American made about $0.34 a minute."
Applying Glassner's plan to Sprewell's performance so far, he would have earned $3,013,900 -- a far cry from its current situation. Up until the All-Star game, Sprewell played in 52 games scoring 654 points with a FG% of 41.7%, 138 rebounds, 120 assists, 35 steals, and 14 blocks. -0- Compensation Performance Total Pay ---------------------------------------------------------------------- Base Salary 13th Year in NBA $1,000,000 ---------------------------------------------------------------------- $2500 for each point 654 points (41.7% = 100%) $1,635,000 ---------------------------------------------------------------------- $1500 for each assist 120 assists $180,000 ---------------------------------------------------------------------- $1500 for each steal 35 steals $52,500 ---------------------------------------------------------------------- $1000 for each rebound 138 rebounds $138,000 ---------------------------------------------------------------------- $600 for each block 14 blocks $8,400 ---------------------------------------------------------------------- Total: $3,013,900 ----------------------------------------------------------------------
"Under this plan, if players performed at their maximum, they could actually earn their current mega salaries," said Glassner. "The incentive to perform at their optimum would be simple: better performance, more money."
In contrast, Glassner applied the same plan to Sprewell's teammate, Kevin Garnett, one of the top league leaders at the moment. Garnett's FG% of 0.499 would yield him 125% of his points related incentive. Garnet would earn $5,307,200 under CDG's performance based plan. -0- Compensation Performance Total Pay ---------------------------------------------------------------------- Base Salary 10th Year in NBA $1,000,000 ---------------------------------------------------------------------- $2500 for each point 1004 points (49.9% = 125%) $3,137,500 ---------------------------------------------------------------------- $1500 for each assist 265 assists $397,500 ---------------------------------------------------------------------- $1500 for each steal 70 steals $105,000 ---------------------------------------------------------------------- $1000 for each rebound 630 rebounds $630,000 ---------------------------------------------------------------------- $600 for each block 62 blocks $37,200 ---------------------------------------------------------------------- Total: $5,307,200 ----------------------------------------------------------------------
Realizing these figures only represent individual production, players are also eligible for year-end awards. However, it is evident how much basketball players are overpaid, even high performers like Kevin Garnett.
The following tables outline incentives that players can also cash out on if they perform well. -0- Year-End Awards: Year-End Team Based Incentives Per Player ------------------------------------------------ NBA Championship $1 million ------------------------------------------------ NBA Runner-Up $500,000 ------------------------------------------------ Conference Winner $250,000 ------------------------------------------------ Playoff Participant $50,000 ------------------------------------------------ Year-End Individual Incentives ------------------------------------------------ Most Valuable Player $1 million ------------------------------------------------ Rookie of the Year $250,000 ------------------------------------------------ Defensive Player of the Year $500,000 ------------------------------------------------ Sixth Man Award $300,000 ------------------------------------------------ Most Improved Player $100,000 ------------------------------------------------ Sportsmanship Award $200,000 ------------------------------------------------ J.Walter Kennedy Citizenship Award $150,000 ------------------------------------------------
With the significant increase in scrutiny on executive performance, pay for performance is generally applied to corporate executives across the country today. "Why not apply this same concept to professional athletes?" said Glassner. "Especially now, since salaries have skyrocketed at an alarmingly high rate."
Unfortunately, Glassner notes, in the end the fans are the ones who lose if the current system continues. "If sports teams dared to adopt a pay-for-performance plan, it could actually improve the game," said Glassner. "Players may become more motivated to improve skills and undertake a training regime reflective of their salary. Owners certainly wouldn't complain about rewarding performance and the real winners would be the fans. They would get to see an improved game with all players trying their hardest, no matter where their team is in the standings."
Glassner said that based on his pay-for-performance plan, as well as Latrell's performance, or lack thereof, he may wish to revisit the $10 million per year contract with the Timberwolves.
Compensation Design Group (www.cdgworldwide.com) is headquartered in San Francisco, with offices in Chicago and New York, and is one of the best known executive compensation consulting firms in the country.
Frank Glassner can be reached at (415) 618-6060, or via e-mail at fglassner@cdgworldwide.com.
"Many of these teams have made an enormous financial sacrifice by compensating and, subsequently, relying on a few select players to lead them to glory," said Frank Glassner, CEO of Compensation Design Group, an international compensation consulting firm headquartered in San Francisco. "Are these so-called 'warriors' worth the outrageously absurd amounts?"
The NBA salary cap has increased from $26.9 million in 1997-98 to the new level of $43.87 million -- the highest amount since the salary cap was established in 1984. This doesn't even take into consideration amounts each individual receives from endorsement contracts. "The current salary structure in the NBA is bloated and obscene," said Glassner. "Exorbitant sports salaries and compensation packages have become synonymous with the player as 'pay for ego' vs. 'pay for performance.'"
To prove his point, Glassner decided to see if the players' actual game statistics contributed to their high salaries. A player's statistics reflect his accomplishments on the job. Likewise, as in any other business field, an employee's compensation depends on how well he carries out his duties.
"Some players are paid like the CEOs who run companies in trouble," said Glassner, a 29-year veteran of executive compensation. "They are paid for lackluster performance. An ideal salary plan for players would be one based on the same principles and procedures used for successful businesses -- a plan based heavily on incentives for performance."
In Glassner's plan, players would receive a base salary determined by number of years with the NBA, plus incentives based on points (adjusted by FG% -- field goal percentage), assists, steals, and blocks per game. In addition, there would be bonus payments for post-season play or for achieving top league status in various statistics. The following outlines Compensation Design Group's (CDG) incentives for performance program: -0- COMPENSATION DESIGN GROUP BASKETBALL SALARY PLAN Base Salaries: Per Game Incentives: Rookie $200,000 $2500 per point 2nd Year $300,000 $1500 per assist 3rd Year $400,000 $1500 per steal 4th Year $500,000 $1000 per rebound 5th Year $600,000 $600 per steal 6th Year $700,000 7th Year $800,000 8th Year $900,000 9 + Years $1,000,000 In order to avoid potential for "gaming" the points category, points related incentives will be adjusted based on FG%. FG% Per Points Game Adjustment ------------------------------------------- Greater Than or Equal to 60% 200% ------------------------------------------- 55-60% 175% ------------------------------------------- 50-55% 150% ------------------------------------------- 45-50% 125% ------------------------------------------- 40-45% 100% ------------------------------------------- 35-40% 80% ------------------------------------------- 30-35% 60% ------------------------------------------- 25-30% 40% ------------------------------------------- 20-25% 20% ------------------------------------------- Less Than or Equal to 20% 10% ------------------------------------------- For example, if player A scores 20 points in a game with a field goal percentage is 0.235; his total income from points scored is $10,000. 20 x $2500 x 20% = $10,000 In contrast, if player B scores the same number of points in a game but his field goal percentage is .461; his income would be $62,500. 20 x $2500 x 125% = $62,500
Recently, Latrell Sprewell, 34, of the Minnesota Timberwolves, demanded that the team either extend his contract or trade him, saying he was "insulted" by the team's last contract offer of $10 million per season for the next three years. "I've got my family to feed," he said, comments that drew criticism from NBA commissioner David Stern.
Sprewell is set to make $14.6 million this season in the final year of his deal. Assuming that he plays in all 82 games this season, for every minute he is on the court, Sprewell will bring in approximately $5,732. Additionally, if CDG takes into consideration that Sprewell practices 4 hours per business working day, then he would still earn $225 per minute.
"Imagine if you made $5,732 for every minute you worked," said Glassner. "In just one day, that's 60 minutes x 8 hours x $5,732 = $2,751,360 per day. In reverse, the median household income for 2003 was $43,318. Break that down and the average American made about $0.34 a minute."
Applying Glassner's plan to Sprewell's performance so far, he would have earned $3,013,900 -- a far cry from its current situation. Up until the All-Star game, Sprewell played in 52 games scoring 654 points with a FG% of 41.7%, 138 rebounds, 120 assists, 35 steals, and 14 blocks. -0- Compensation Performance Total Pay ---------------------------------------------------------------------- Base Salary 13th Year in NBA $1,000,000 ---------------------------------------------------------------------- $2500 for each point 654 points (41.7% = 100%) $1,635,000 ---------------------------------------------------------------------- $1500 for each assist 120 assists $180,000 ---------------------------------------------------------------------- $1500 for each steal 35 steals $52,500 ---------------------------------------------------------------------- $1000 for each rebound 138 rebounds $138,000 ---------------------------------------------------------------------- $600 for each block 14 blocks $8,400 ---------------------------------------------------------------------- Total: $3,013,900 ----------------------------------------------------------------------
"Under this plan, if players performed at their maximum, they could actually earn their current mega salaries," said Glassner. "The incentive to perform at their optimum would be simple: better performance, more money."
In contrast, Glassner applied the same plan to Sprewell's teammate, Kevin Garnett, one of the top league leaders at the moment. Garnett's FG% of 0.499 would yield him 125% of his points related incentive. Garnet would earn $5,307,200 under CDG's performance based plan. -0- Compensation Performance Total Pay ---------------------------------------------------------------------- Base Salary 10th Year in NBA $1,000,000 ---------------------------------------------------------------------- $2500 for each point 1004 points (49.9% = 125%) $3,137,500 ---------------------------------------------------------------------- $1500 for each assist 265 assists $397,500 ---------------------------------------------------------------------- $1500 for each steal 70 steals $105,000 ---------------------------------------------------------------------- $1000 for each rebound 630 rebounds $630,000 ---------------------------------------------------------------------- $600 for each block 62 blocks $37,200 ---------------------------------------------------------------------- Total: $5,307,200 ----------------------------------------------------------------------
Realizing these figures only represent individual production, players are also eligible for year-end awards. However, it is evident how much basketball players are overpaid, even high performers like Kevin Garnett.
The following tables outline incentives that players can also cash out on if they perform well. -0- Year-End Awards: Year-End Team Based Incentives Per Player ------------------------------------------------ NBA Championship $1 million ------------------------------------------------ NBA Runner-Up $500,000 ------------------------------------------------ Conference Winner $250,000 ------------------------------------------------ Playoff Participant $50,000 ------------------------------------------------ Year-End Individual Incentives ------------------------------------------------ Most Valuable Player $1 million ------------------------------------------------ Rookie of the Year $250,000 ------------------------------------------------ Defensive Player of the Year $500,000 ------------------------------------------------ Sixth Man Award $300,000 ------------------------------------------------ Most Improved Player $100,000 ------------------------------------------------ Sportsmanship Award $200,000 ------------------------------------------------ J.Walter Kennedy Citizenship Award $150,000 ------------------------------------------------
With the significant increase in scrutiny on executive performance, pay for performance is generally applied to corporate executives across the country today. "Why not apply this same concept to professional athletes?" said Glassner. "Especially now, since salaries have skyrocketed at an alarmingly high rate."
Unfortunately, Glassner notes, in the end the fans are the ones who lose if the current system continues. "If sports teams dared to adopt a pay-for-performance plan, it could actually improve the game," said Glassner. "Players may become more motivated to improve skills and undertake a training regime reflective of their salary. Owners certainly wouldn't complain about rewarding performance and the real winners would be the fans. They would get to see an improved game with all players trying their hardest, no matter where their team is in the standings."
Glassner said that based on his pay-for-performance plan, as well as Latrell's performance, or lack thereof, he may wish to revisit the $10 million per year contract with the Timberwolves.
Compensation Design Group (www.cdgworldwide.com) is headquartered in San Francisco, with offices in Chicago and New York, and is one of the best known executive compensation consulting firms in the country.
Frank Glassner can be reached at (415) 618-6060, or via e-mail at fglassner@cdgworldwide.com.
© 2005 Business Wire