NCAA Division I Football Coach Compensation Thesis

NCAA Division I Football Coach Compensation - Thesis Example The paper tells that the agency theory postulates that the compensation that executives are given should be aligned to the performance of the executives. The initial perspective that centers on this issue is that the moral hazard calls for unobservable nature of the managerial efforts to run an organization. It is thought that the principal of a given organization such as football coaches design the compensation of the employees of the firm. In the course of designing the compensation of employees, managers aim at meeting the objectives of their agents and therefore deserve the high compensation. The second perspective that supports the compensation of executives to be aligned with the performance is that executives are faced with many difficult choices to choose from in order to solve firm issues. The fact that they are able to make the right choices, their efforts are unobservable and therefore should be paid higher amounts based on the performance. As noted by Core, John, Holthaus en and Larcker, the second perspective assures executives that they are responsible for designing compensation plan of agents to be contingent to the performance measures. To this end, executives are allowed to screen agents and ensure that they possess the heterogeneous ability required in the organization. Despite the two perspectives outlined above that promote the need for aligning the compensation of executives with their performance, division 1 coaches and other football coaches are not paid according to their performance. Both perspectives prescribe that the compensation of employees should be increase as the performance of the employees increase. However, Darrough and Melumad (73) note that there is a weak effect of agency theory on the performance measures of CEO and football coaches. In a study conducted by Jensen and Murphy (1990a), it was established that an increase in the value of shareholders by $1000 led to only a $3 increase in the compensation of CEOs. Therefore, i t was concluded that the compensation offered to CEO and football coaches is independent of their performance. This study seeks to establish whether the compensation of division-1 football coaches relies on their performance and whether it is related to compensation of CEOs. Problem Statement The compensation of most employees follows the agency theory, which postulates that the compensation of employees should follow their performance. An employee whose performance is high should receive a high compensation and vice versa. The need for the compensation to be aligned to the performance of the employee is based on the perspective of the moral hazard and that of the adverse selection. Despite these perspectives and the agency theory, not all employees are paid based on performance. For instance, the salaries of division one coaches and CEOs seems not to follow the agency theory given that an increase in the performance of the organization only leads to a small increase their pay (Bank er Plehn-Dujowich and Xian 56). This has led many scholars to conclude that the compensation of football coaches does not follow the agency theory. Moreover, in some cases, the compensation of the coaches is not aligned to that of CEOs of other firms (Bushman Indjejikian and Smith 56). Due to these issues, it is necessary to determine the factors that affect the compensation of division 1 coaches in NCAA. The division 1 football coach compensation is affected by other factors apart from the performance such as the training of the coach, the level of employment whether the coach is an overall coach or a coach that coaches only a given group such as forwards, center or backwards. This study seeks to establish the specific factors that are responsible for the compensation of division 1 coaches in the U.S. Study Objectives This study seeks to establish the factors that affect the compensation of division one football coaches in the U.