Explicit and Implicit Incentives: Longitudinal Evidence from NCAA Football Head Coaches Employment Contracts

Abstract

We study the role of explicit and implicit incentives in a competitive labor market with no internal promotion opportunities. We find that explicit incentives explain only a small fraction of the total incentives, as the likelihood of new employment and renegotiation of current employment on better terms increases following good performance. We also find the likelihood of renegotiation relative to changing employment on better terms is dependent on the labor market forces. Our findings demonstrate the role of renegotiation and the relative strength of labor market forces compared to ex-ante pay-for-performance in the presence of strong external labor market incentives. Further, our results suggest that conclusions regarding the optimal use of explicit incentives in pay-for-performance may be substantially overstated when not considering implicit incentives from the labor market.