In 2013, the lead story in your college newspaper reports the details of the hiring of the current football coach. The previous football coach was fired for failing to win games and attract fans. In his last season, his record was 1 win and 11 losses. The news story states that the new coach’s contract provides for a base salary of $600,000 per year plus an annual bonus computed as follows:
Win less than five games ............... $ 0
Win five to seven games ................ 75,000
Win eight games or more ............... 150,000
Win eight games and conference championship ....... 250,000
Win eight games, win conference, and get a bowl bid .... 350,000
The coach’s contract has essentially no other features or clauses.
The first year after the new coach is hired the football team wins three games and loses eight. In the second year, the team wins six games and loses five. In the third year, the team wins nine games, wins the conference championship, and is invited to a prestigious bowl. Shortly after the bowl game, articles appear on the front page of several national sports publications announcing that your college’s football program has been cited by the National Collegiate Athletic Association (NCAA) for nine major rule violations including cash payoffs to players, playing academically ineligible players, illegal recruiting tactics, illegal involvement of alumni in recruiting, and so on. The national news publications agree that the NCAA will disband your college’s football program. One article also mentions that during the past three years, only 13 percent of senior football players managed to graduate on time. Additional speculation suggests that the responsible parties, including the coaching staff, athletic director, and college president, will be dismissed by the board of trustees.
a. Compute the amount of compensation paid to the new coach in each of his first three years.
b. Did the performance measures in the coach’s contract foster goal congruence? Explain.
c. Would the coach’s actions have been different if other performance measures had been added to the compensation contract? Explain.
d. What performance measures should be considered for the next coach’s contract, assuming the football program is allowed to continue?