From the Gridiron to the Boardroom:Incentive Design Learnings from NFL Player Incentives
As the NFL season concluded, one storyline stood out: the influence of player incentives. Geno Smith (Seahawks Quarterback), Kyler Murray (Cardinals Quarterback), and Mike Evans (Buccaneers Wide Receiver) are some of the players who had significant incentives still in play in Week 18. These scenarios provide valuable insights into how incentives drive performance.
Aligning Individual and Team Performance: Geno Smith’s Balanced Approach
Smith entered Week 18 with three incentives (passing yards, completion percentage, and total wins or making the playoffs), each worth $2M. Smith faced the challenge of balancing personal goals with the team’s success.
Smith ultimately earned the full $6M in incentives reflecting 24% of his $25M salary. This scenario underscores the importance of aligning individual incentives with company goals.
Also, Smith’s team incentive, tied to either winning 10 games or making the playoffs, is an interesting example of combining absolute and relative performance metrics (where absolute performance helps earn the payout when relative performance falls short, or vice versa).
The Impact of Incentive Size: Kyler Murray vs. Mike Evans
The magnitude of incentives can significantly influence behavior. While large incentives may increase focus, they can also encourage undesired risk-taking, especially if the goals do not align with company objectives. Let’s look at two contrasting examples that illustrate this:
- Murray had a $750k incentive tied to rushing milestones. While $750k is a substantial sum, it reflected only 2% of his $46M salary. Instead of taking unnecessary risks in pursuit of his bonus, Murray prioritized the team over his personal incentive. He found success passing (4 TD passes) and secured a victory, but didn’t earn his $750k bonus.
- Evans had a $3M incentive, reflecting 15% of his $20M salary, tied to receiving milestones. On the final play of the game, Evans was 5 yards shy of his bonus, prompting his team to target him, despite the risk of an interception that could cost them the game and jeopardize their playoff spot. Though the story had a happy ending, this scenario highlights the importance of aligning incentives with top priorities.
Conclusion
While the NFL season provides a compelling lens through which to examine how incentives impact performance, ultimately, a well-structured executive incentive plan will drive sustainable performance, aligning the interests of individuals with those of the broader organization. As NFL fans, we hope our teams align player incentives with making the playoffs next year!
