20 Nov Jerry Jones Has a Point, But the Wrong One
By Paul McConnell at Board Advisory
Much has been written about NFL Commissioner Roger Goodell’s contract extension and Dallas Cowboys President Jerry Jones’ objections to the amount he can earn and the lack of rigorous performance criteria. While Jerry might be right, I think the bigger issue is a classic example of misalignment in compensation strategy between an owner and an executive.
Sports team owners earn a healthy annual return on their investment. But the really serious money is made from the growth in the value of the sports franchise. The franchise value grows tax-free over time from enhanced TV contracts, merchandising, stadium deals, operating management and keeping the stadiums filled. When the franchise is sold, the gain on the sale is taxed at favorable long-term rates.
From press accounts, it appears that the contract being discussed between Goodell and Jones is a collection of bonus arrangements designed to reward the commissioner for improvements in the various metrics that drive the franchise value. One of the arguments is whether the performance goals are sufficiently difficult or if the bonuses are just disguised salary. This is a typical “managerial” approach to compensation – pay me for the things I can control and I’ll “manage the hell out of them”. Its not a contract compatible with the group of entrepreneurs that own the place. In a public company this would be like paying the CEO huge annual bonuses, but not giving them any stock.
Here is an idea for a better approach to executive compensation in this situation. Scrap the bonuses entirely. Pay the Commissioner a nice high salary consistent with what the top players make – maybe an average of the top 5 players in each position or a fixed percentage of the cap. The Commissioner represents the players too and he should have something in his package tied to their welfare. But the true wealth from this contract should come in the form of something like a Stock Appreciation Right (SAR) tied to the increase in the aggregate franchise value. Forbes Magazine, an objective third party, conducts a compensation study of top athlete pay each year. The values they compute may not be 100% accurate, but the trend is consistent with the Owners’ value. The SAR would only pay out at the end of the Commissioner’s term to ensure a long-term alignment with the Owners. NFL Commissioners serve a long time. Rozelle served 30 years, Tagliabue 17 and Goodell has already served 11. It’s a long-term job. The pay should be too.