The highest-paid person on many college campuses – the football coach – is as entitled to his salary as a CEO who is rewarded lavishly for creating value for his or her board of directors, say two researchers from Vanderbilt University.
Randall S. Thomas, the John S. Beasley II Professor of Law and Business at Vanderbilt Law School and R. Lawrence Van Horn, associate professor of economics and management at Vanderbilt Owen Graduate School of Management and associate professor of law, undertook a study of college football coach contracts, comparing them with CEO employment agreements.
“We find no evidence that the structure of college football coach contracts is misaligned, or that they are overpaid,” say Thomas and Van Horn.
The study examined 947 college football coach contracts from the NCAA’s top programs. They coded the compensation and legal characteristics of them and compared them with those of CEOs at similarly sized firms. Among their findings included data showing the average pay for a Division I FBS college football coach has gone from $725,000 in 2005 to $1.1 million in 2009 and then $1.5 million in 2013.
Salaries of football coaches rise faster than those of CEOs, which the authors explain by pointing out that only half of the coaches can possibly be winning at any given time. Those that are losing are in danger of being fired and those that are winning are hot commodities looking for the maximum reward for their efforts.
Thomas and Van Horn found that the current levels of football coach pay were quite similar to those of CEOS at similar firms in 2013. They also determined that among the other similarities was that contract values were aligned with the creation of value. And like thriving corporations, winning college football programs soar in value.
“If one believes that CEO compensation is set by the market at an appropriate level, and that employment contracts reflect this equilibrium, then one should reach the same conclusion about football coaches,” Thomas says.
There were significant differences between CEO and coaching contracts. While half of CEOs don’t even have an employment contract, virtually all college football coaches do. Almost all CEO contracts have non-compete clauses that would prevent them working for a close competitor if they should resign; football contracts rarely if ever include such clauses. Finally, arbitration provisions are common in CEO employment contracts, but are included in a little more than 10 percent of football contracts.
Football coaches usually have contracts for five years or more, while only 30 percent of CEOs have contracts that long. Usually, CEOs have contracts in the three-year range.
But it’s rare for a coach to actually fulfill a contract. They often get fired if their team is unsuccessful. If successful, the contract is likely amended or torn up in favor of something more lucrative.
“We find that successful coaches are commonly rewarded with an amended contract and that as a result their contracts are effectively in place for a shorter time period,” Thomas and Van Horn state. “While coaches are less likely to have large pay for performance payments in their initial contracts, successful coaches promptly receive pay increases and a new contract, while unsuccessful coaches are terminated.”