Compensation Design Group Has Perfect Solution for Top Performing Basketball Players: Pay for Performance

Business Wire, April 26, 2005

SAN FRANCISCO -- 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:

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."