Blogs / 2011 / April

With the conclusion of the NCAA tournament earlier this month, as a compensation consultant, I am most fascinated by the mass turnover of head coaches and the new employment contracts that result. In many cases, the salaries of the coaches seem rather exorbitant; among the highest paid are John Calipari at the University of Kentucky and Tom Izzo at Michigan State University whose contracts provide for salaries of approximately $4 million and $3.4 million, respectively, per year. Despite budget cuts that currently plague many institutions of higher education, compensation to coaches has continued to increase and appears to be largely recession-proof: according to USA Today, average compensation among coaches making tournament appearances rose by approximately 60% from 2006 to 2010. While such facts have drawn criticism in some forums, many schools present valid arguments for high pay to well-regarded coaches. Coaches with strong records tend to improve ticket sales as well as donor contributions. Furthermore, good coaches are able to recruit higher caliber players, which usually leads to continuously high-performing teams. These activities accomplish key goals of college athletic programs – to raise money and enhance “brand” recognition for the school.

While public opinion can have indirect influence on pay decisions, the responsibility of approving coaches’ employment contracts rests with each school’s board. Board members are appointed or elected and should have no conflicts of interest, so they are not in a position to realize significant personal gains from the decisions they make. In this way, setting compensation for coaches is quite similar to establishing compensation packages for corporate executives. Board members of publicly-traded companies are elected by shareholders and are charged with representing owners’ interests. The independent status of the board in the corporate and academic environment is intended to provide assurance that decisions are for the good of the organizations’ stakeholders and reflect negotiation at “arm’s length.” (As an aside, board composition and governance practices may be dramatically different in privately held companies, but that topic will be reserved for another post.)

Ultimately, compensation for head coaches, like that of executives, is dictated in large part by market conditions; in other words, pay is affected by the relationship between the number of qualified job candidates (supply) and the number of schools in search of a high-performing coach (demand). By most accounts, the demand for good coaches is quite high for the reasons cited above, while the supply is relatively limited due to the numerous collegiate and professional opportunities available to top coaches. As a result, highly sought after coaches are in a position to command increasingly more compensation. The same could be said of senior executives of publicly traded companies; unfortunately, it’s far more difficult to objectively identify top-performing executives than coaches – few performance measures are as straight-forward as a winning record.

Priya Kapila is a consultant at CBIZ Human Capital Services. Working in CBIZ’s St. Louis office, Kapila handles various elements of compensation plan design for diverse organizations, including structuring executive compensation packages, developing performance-based incentive programs, and designing comprehensive salary systems. For more information on Priya Kapila and CBIZ Human Capital Services, please call (314) 692-2249 or visit www.cbiz.com/hr/.