Worrying About Contract Incentives

Performance incentives in players’ contracts are becoming more and more common, particularly for old and/or injury-prone players. Players may get some a bonus for making the All-Star team or nabbing a few MVP votes while others get extra cash for reaching certain thresholds, usually based on plate appearances, innings pitched, or the more general games played.

J.C. Romero recently signed a one-year contract with the Phillies worth $1.35 million. As Randy Miller reported on Twitter, Romero can earn an extra $150,000 if he spends 25 or fewer days on the disabled list. On the surface, there doesn’t appear to be anything wrong with that. No one — Romero, his teammates, the Phillies’ brass, or the fans — wants to see the DL days pile up, so if this clause can motivate Romero to put in a little extra time in the weight room or do some additional stretching every day, what’s the harm?

Sports have a clear macho factor, as is illustrated in this article on Green Bay Packers quarterback Aaron Rodgers by ESPN’s Tim Keown. Rodgers was shaken up on a hit but clearly wanted to go back into the game, but his teammate Donald Driver urged him to stay on the sidelines.

This is what progress looks like: On Dec. 12 against Detroit, in a game vital to the Packers’ playoff hopes, Driver walked behind his team’s bench after Rodgers had taken hard shots on consecutive plays, and leaned down to tell his quarterback, “This is just a game. Your life is more important than a game.”

Rodgers stayed out. The Packers lost. There’s a good chance they would have won if Rodgers had been able to continue. The next week, Rodgers wasn’t cleared to play against the Patriots on Sunday night, and the Packers lost again. Matt Flynn played well, but he missed on a few passes and threw a costly pick near the end. It’s not a stretch to say the Packers would have won that game had Rodgers played.

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What Driver did was bad for the team but good for the person. You know how much easier it would have been for him to sit back and hope Rodgers could clear his head fast enough to get back into the game? That’s what Rodgers wanted to do, and it seems as if the Packers’ trainers were either unaware of the situation or otherwise occupied immediately after the injury. Rodgers didn’t want to hear what Driver was telling him, so he stood up and stared back at him.

What Rodgers saw — legitimate concern from a respected veteran who cares about him — was enough to make him realize Driver was right.

Keown cites Jason Witten of the Dallas Cowboys and Hines Ward of the Pittsburgh Steelers as opponents of “playing it safe”, two clear adherents of the macho zeitgeist in professional sports. Players like Driver — and now, Rodgers — are clearly in the minority.

Baseball players are just as likely to play it stoic. Chase Utley, for one, is well-known for playing while injured, never saying a word about how he’s feeling, and ignoring the Phillies’ training staff. As much as we like to think otherwise, Utley admitting that he is hurting is good for the team. Giving Utley, for example, a contract incentive to keep his mouth shut just exacerbates the problem.

Romero started the 2010 season on the disabled list due to elbow surgery. He has pitched a grand total of 53 and one-third innings in the past two seasons combined. He thinks he needs to prove himself to earn a longer contract after the season. This contract incentive may actually cause Romero to hide any problems in an effort to earn his paychecks in 2012 and beyond. Not only could this be detrimental to the team, but it could be detrimental to Romero’s career.

Incentives based on games played, innings pitched, and plate appearances — anything based on staying on the field more often — are not in the players’ best interest. They are good for the owners and general managers, who will be less likely to be embarrassed by a flop signing. And they are good for managers and coaches, who will be less likely to be accused of improper player usage. They are not good for the players. Any movement aimed at removing these incentives is a step in the right direction.

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20 comments

  1. Danny

    December 28, 2010 11:55 AM

    I believe that the only contract incentive for players should be team wins. If the team wins 90 games, you get a $100,000 bonus (as an example).

    There are so many inherent problems with all other incentives.

    A) If a player gets money for an All-Star appearance or MVP award, what’s to stop him from bribing writers to receive the award. Or the manager selecting All-Stars?

    B) If a player gets money for hitting 50 homers, would you be shocked to see his fly ball rate skyrocket? He may hit more homers, but his overall effectiveness may go down.

    C) If a player has an incentive/option for a certain number of appearances, what if management tells a manager not to put that player in to avoid having that option vest? What if that player is actually an effective part of the team?

    D) If Chase Utley has an incentive for Gold Gloves, I believe he’s owed about $100 billion in back pay.

    If the only incentive is team wins, it would encourage all the right behaviors. It may not be enough of an incentive for certain players *cough Jayson Werth cough*, but for guys on low salaries like Romero it could be huge.

    There already is a bonus for wins — a playoff share — but it’s almost a fraction of what the players normally make, so it seems as just an afterthought. When salaries weren’t so high, however, this playoff share was a HUGE incentive and could easily double a player’s salary.

    Time to get rid of player incentives. Perks? That’s another thing. But there’s no bright side to any of the incentives involved in contracts. In any sport, really.

  2. Danny

    December 28, 2010 12:05 PM

    Update:

    Chase Utley receives $50,000 for each Gold Glove won.

  3. sean

    December 28, 2010 12:15 PM

    weird that incentives are fine but bonuses for milestones are not allowed

  4. Danny

    December 28, 2010 12:16 PM

    A-Rod’s got milestone bonuses built in to his contract.

    “$30M marketing agreement based on home run milestones ($6M each for reaching 660, 714, 755 and tying and breaking major league HR record)”

    -from cot’s baseball contracts for a-rod. not sure if the marketing agreement circumvents the milestone incentive rule.

    (if you knew that rule and i’m just posting something obvious, i apologize.)

  5. Richard

    December 28, 2010 12:30 PM

    “It may not be enough of an incentive for certain players *cough Jayson Werth cough*”

    What is this supposed to mean?

  6. Danny

    December 28, 2010 12:39 PM

    Ha, it was a joke. I didn’t mean it. I DIDN’T MEAN IT!

  7. FanSince09

    December 28, 2010 12:53 PM

    Glad to see JC back, but the Phillies should of kept Scott Air.

    I do like contract incentives, though. Maybe they can throw some money at Coal Hammel for “not collapsing in the playoffs,” “not sweating like it’s 100 degrees in the first inning of a night game in april,” “Not giving up a stupid homerun when the offense is struggling,” “not throwing teammates under the bus.”

  8. Cole Handsome

    December 28, 2010 02:29 PM

    While the DL bonus is troubling in general, with respect to JC Romero specifically, I do not think it is much of a concern. Most veteran players are loath to go on the disabled list and that is commonly accepted, and they are deferred to in this respect. It is more likely that this presents a conflict of interest for the Phillies, which may be at the detriment of Romero. Of course, one should assume that the Phillies will act in good faith, as I cannot think of a time when they blocked a player from reaching his incentives.
    Of all things, what about the $27.5 million option for Cliff Lee that is contingent on innings pitched. I’d argue that it’s good for both the Phillies and Lee (as Lee would not have been able to reach a contract with his preferred team without it).

  9. Danny

    December 28, 2010 02:40 PM

    I see your point on the Lee option; I would rather it just be a straight club option or mutual option that don’t have any vesting guarantees.

    The Phillies’ plans could change by the time that last year rolls around, and they may want to decline the option; however, if Lee reaches an innings number, they don’t have a choice in the matter. What if they are so hell-bent on making sure Lee’s option doesn’t vest that they tell the manager to remove him after five innings of every start?

    These scenarios are pretty far-fetched, but they are still possible. Lee would also be more apt to pitch (ineffectively) with injury to reach his option year and a big payday.

  10. Cole Handsome

    December 28, 2010 03:03 PM

    @Danny
    The removal of incentive-based options and payouts should simply be a moot point. Obviously, Lee’s agent and the Phillies spent time considerable negotiating conditions surrounding the $15 million differential between the buyout and vesting option, and the vesting triggers that would go into it, thus making it a mutual option (I assume that Lee could take the buyout over the option once vested, but I may be wrong). To remove this tool would be counter-productive and be at the detriment of both players and teams when negotiating contracts, likely resulting on lower payouts to players as teams are hamstrung even more by the guaranteed payouts in MLB contracts. You should save your arguments against these incentives until we see teams acting in bad faith to prevent players from reaching their potential or citeable cases where players limp to the finish line to reach their awards.

  11. Steve

    December 28, 2010 03:20 PM

    @Danny

    B) If a player gets money for hitting 50 homers, would you be shocked to see his fly ball rate skyrocket? He may hit more homers, but his overall effectiveness may go down.

    What about batting ave or obp how could offering incentives for solid baseball hurt.

  12. long time fan

    December 28, 2010 04:00 PM

    Using random numbers may provide a solution to the problem that incentives may reward undesired behavior. Here is a rough first idea:

    Package incentives in bundles; at the end of the season a pre-defined method of generating random numbers will select some of the incentives in each bundle to be operative, with the others in the bundle deemed void.

    Example (of the top of my head — you guys can doubtless do better): For a batter:
    (a) $1 if no more than x1 days on DL;
    (b) $2 for more than x2 homers;
    (c) $3 for more than x3 RBI’s;
    (d) $4 for more than x4 PA’s with OBA better than .xx4;
    (e) $5 for more than x5 plate appearances and a BA better than .xx5.

    At season’s end, 2 of the 5 incentives are selected at random. During the season, player has no reason to strive for homers to the detriment of other statistics.

    Could something along these lines be made workable?

  13. Richard

    December 28, 2010 04:24 PM

    CBA precludes use of performance metrics of any kind for contract incentives. Things like appearances, innings, and awards or milestones are all that is left.

  14. Cole Handsome

    December 28, 2010 04:47 PM

    @long time fan
    I can’t fathom an employee being satisfied with having his incentives selected at random. It’s like telling a GM salesman that, by chance, he may be given commissions for all of the Buicks he sells but not for the Cadillacs. Let me give you a hint, compensation is determined by market value for for cause employees. Any departure from that system would mean that labor would be playing by an entirely new set of rules(even players who are not eligible for free agency are paid by arbitration (after a few seasons), where the awards are meant to equal market value not quality of performance)

  15. Scott G

    December 28, 2010 06:28 PM

    Danny,

    “but it’s almost a fraction of what the players normally make, so it seems as just an afterthought…”

    Maybe I’m being nit-picky, but isn’t any single amount of incentive or bonus a fraction of a player’s contract?

  16. Chili

    December 30, 2010 01:33 AM

    The argument in favor of an incentive is that it apportions risk. The club is loathe to pay for production that it doesn’t receive. The player is loathe to provide production that isn’t properly compensated. Negotiations break down.

    The solution is an incentive. Sure, there are possibilities for parties to act in bad faith and deliberately sabotage the intention of the agreement. I like the ‘PA’s chances in filing a grievence, though, if Lee is still good and is getting arbitrarily pulled from games.

    We want a system where players are encouraged to be forthright about injuries, but it’s not as though an incentive is the only economic factor that encourages a player to gut it out. If Romero hadn’t been on the DL so much in the past, he’d be getting a bigger K this year. Whether the incentive is a term of his deal or not, he knows that it’s in his interest to be “healthy” all year.

  17. Josh

    December 30, 2010 07:05 AM

    If Romero were to refuse the DL and pitch ineffectively, it would not be in his interest either. The incentive clause does give a short term dollar figure for his avoiding the DL, but the relative value of the incentive compared to overall contract value is small. If he wanted another contract, another year of work, and all the money that comes with that, it would seem like a bad decision to pitch poorly this year. Romero’s case is even weighted in favor of the incentive because of the length of the contract and the fact that he is not getting 20M/year.

  18. Jon

    December 30, 2010 09:24 AM

    @Richard – Although the Red Sox famously got around that by giving Curt Schilling a bonus for “World Series games started” back in 2004.

  19. Peter

    January 03, 2011 08:46 PM

    Shoulda kept Cliff Lee!

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