The impact of salary dispersion and performance bonuses in NFL organizations

Abstract

PurposeThis paper aims to evaluate the effects of both salary dispersion and incentive pay on team performance using data complied from the National Football League over the years 2000‐2007.Design/methodology/approachThe authors consider the effect of pay structure on both in terms of on‐field and financial performance. Salary disparity and its subsequent consequences has been a topic of economic research on corporate pay structure and also professional team sport organizations. Analysis of pay structures incorporating the effects of incentive pay on performance is also recurrent in the literature. The paper uses regression analysis and incorporates both fixed and random effects models.FindingsA relationship between improved on‐field performance and increased payroll, lower levels of salary dispersion, and increased incentive payments is found. However, when employing team revenue production as the measure of performance, a positive relationship with salary dispersion is found.Research limitations/implicationsThe findings are of particular interest because a conflict of objectives is seen. When financial incentives are primary, hierarchical pay structure is optimal. It is shown that more compressed pay structures improve on‐field performance.Practical implicationsThis study is unique in addressing how salary dispersion in combination with incentive pay correlates to team success as measured by both winning and revenue production. While the authors used the NFL as the organization of interest, this type of analysis could be applied to other professional sport leagues incorporating some type of salary cap. In addition, future research could also involve a mixed methods approach to help gain an additional understanding of the decision making of those in managerial positions of influence within sport and non‐sport organizations.Originality/valueThe study is unique in that most previous empirical work analyzing payroll structure in sport organizations does not consider disparity in conjunction alternative methods of improving performance through structure of compensation.