Skip to main content Accessibility help

Executive Pay Regulation: What Regulators, Shareholders, and Managers Can Learn from Major Sports Leagues

  • Helmut M. Dietl (a1), Tobias Duschl (a1) and Markus Lang (a1)


Executive pay regulation is widely discussed as a measure to reduce financial mismanagement in corporations. We show that the professional team sports industry, the only industry with substantial experience in the regulation of compensation arrangements, provides valuable insights for the regulation of executive pay. Based on the experience from professional sports leagues, we develop implications for the corporate sector regarding the establishment and enforcement of executive pay regulation as well as the level, structure, and rigidity of such regulatory measures.



Hide All
Acharya, V., Wachtel, P. and Walter, I. 2009. “International Alignment of Financial Sector Regulation.” In Restoring Financial Stability: How to Repair a Failed System, edited by Acharya, V. and Richardson, M. Hoboken, NJ: Wiley.
Acharya, V.V., John, K. and Sundaram, R.K. 2000. “On the Optimality of Resetting Executive Stock Options.” Journal of Financial Economics 57 (1): 65101.
Aggarwal, R. 2008. “Executive Compensation and Incentives.” In Handbook of Empirical Corporate Finance, edited by Eckbo, B. E. Elsevier Science Ltd.
Akerlof, G. 1976. “The Economics of Caste and the Rat Race and Other Woeful Tales.” Quarterly Journal of Economics 90: 599617.
Arnaut, J. 2006. Independent European Sport Review. Nyon: UEFA.
Bebchuk, L. A. and Spamann, H. 2010. “Regulating Bankers’ Pay.” Georgetown Law Journal 98 (2): 247–87.
Bebchuk, L. and Fried, J. 2003. “Executive Compensation as an Agency Problem.” Journal of Economic Perspectives 17 (3): 7192.
Bebchuk, L. and Fried, J. 2006. “Pay without Performance: The Unfulfilled Promise of Executive Compensation.” Cambridge: Harvard University Press.
Bebchuk, L., Fried, J. and Walker, D. 2002. “Managerial Power and Rent Extraction in the Design of Executive Compensation.” University of Chicago Law Review 69: 751846.
Bloom, M. 1999. “The Performance Effects of Pay Dispersion on Individuals and Organizations.” Academy of Management Journal 42 (1): 2540.
Blouin, J.L. and Carter, M.E. 2010. “The Economics of Restricted Stock and the Section 83 (B) Election.” SSRN Working Paper 1561923. University of Pennsylvania.
Borland, J. and MacDonald, R. 2003. “The Demand for Sports.” Oxford Review of Economic Policy 19: 478502.
Brookman, J.T., Jandik, T. and Rennie, C.G. 2006. “A Comparison of CEO Compensation Data Sources.” Working Paper. University of Arkansas.
Bushman, R. M., Indjejikian, R. J. and Smith, A. 1996. “CEO Compensation: The Role of Individual Performance Evaluation.” Journal of Accounting and Economics 21 (2): 161–93.
Carpenter, M. and Sanders, W. 2002. “Top Management Team Compensation: The Missing Link between CEO Pay and Firm Performance?Strategic Management Journal 23 (4): 367–75.
Carter, M.E., Lynch, L.J. and Tuna, I. 2007. “The Role of Accounting in the Design of CEO Equity Compensation.” Accounting Review 82 (2): 327357.
Cavanagh, M. and Sadler, G. 2009. “Shareholder Voting and Directors’ Remuneration Report Legislation: Say on Pay in the UK (CRI 2009-004).” Compensation Research Initiative.
Chatov, R. 1975. “Corporate Financial Reporting: Public or Private Control?”. New York: Free Press.
Cheung, S. 1983. “The Contractual Nature of the Firm.” Journal of Law and Economics. 26 (1): 121.
Chhaochharia, V. and Grinstein, Y. 2007. “Corporate Governance and Firm Value: The Impact of the 2002 Governance Rules.” Journal of Finance 62 (4): 1789–825.
Chi, J. and Johnson, S.A. 2008. “The Value of Vesting Restrictions on Managerial Stock and Option Holdings.” SSRN Working Paper 1136298. Arizona State University and Texas A&M University.
Clayton, M. and Yermack, D. 2001. “Major League Baseball Player Contracts: An Investigation of the Empirical Properties of Real Options.” SSRN Working Paper 1297052. New York University.
Conyon, M. and Sadler, G. 2010. “Shareholder Voting and Directors Remuneration Report Legislation: Say on Pay in the UK.” AAA 2010 Management Accounting Section (MAS) Meeting Paper.
Core, J.; Guay, W. and Larcker, D. 2003. “Executive Equity Compensation and Incentives: A Survey.” Economic Policy Review 9 (1): 2750.
Corrigan, E.G. 1982. “Are Banks Special?” Annual Report, Federal Reserve Bank of Minneapolis.
Cyert, R.; Kang, S. and Kumar, P. 2002. “Corporate Governance, Takeovers, and Top-Management Compensation: Theory and Evidence.” Management Science 48 (4): 453–69.
De Jong, A.; DeJong, D. V.; Mertens, G. and Wasley, C. E. 2005. “The Role of Self-Regulation in Corporate Governance: Evidence and Implications from the Netherlands.” Journal of Corporate Finance 11 (3): 473503.
DeBrock, L.; Hendricks, W. and Koenker, R. 2004. “Pay and Performance: The Impact of Salary Distribution on Firm-Level Outcomes in Baseball.” Journal of Sports Economics 5 (3): 243261.
Deloitte and Touche. 2009. “Annual Review of Football Finance,” London: Deloitte.
Devers, C.; Cannella, A.; Reilly, G. and Yoder, M. 2007. “Executive Compensation: A Multidisciplinary Review of Recent Developments.” Journal of Management, 33 (6): 1016–72.
Dew-Becker, I. 2009. “How Much Sunlight Does It Take to Disinfect a Boardroom? A Short History of Executive Compensation Regulation in America.” CESifo Economic Studies 55 (3-4): 434–57.
Dietl, H. and Franck, E. 2007. “Governance Failure and Financial Crisis in German Football.” Journal of Sports Economics 8 (6): 662–69.
Dietl, H., Franck, E. and Lang, M. 2008. “Overinvestment in Team Sports Leagues: A Contest Theory Model.” Scottish Journal of Political Economy 55 (3): 353–68.
Dietl, H. M., Franck, E.; Lang, M. and Rathke, A. 2011 (forthcoming). “Salary Cap Regulation in Professional Team Sports.” Contemporary Economic Policy.
Dietl, H, Franck, E. and Nüesch, S. 2006. “Are Voluntary Salary Cap Agreements Self-Enforcing?European Sport Management Quarterly 6: 2334.
Dietl, H., Lang, M. and Rathke, A. 2009. “The Effect of Salary Caps in Professional Team Sports on Social Welfare.” B.E. Journal of Economic Analysis and Policy 9 (1) Article 17.
Dietl, H., Lang, M. and Werner, S. 2010. “The Effect of Luxury Taxes on Social Welfare in Team Sports Leagues.” International Journal of Sport Finance 5 (1): 4151.
Dietl, Helmut M., Lang, Markus and Rathke, Alexander. 2011. “The Combined Effect of Salary Restrictions and Revenue Sharing in Sports Leagues.” Economic Inquiry 49 (2): 447–63.
Dobson, S. and Goddard, J. 2001. The Economics of Football. Cambridge: Cambridge University Press.
Duggan, M. and Levitt, SD. 2002. “Winning Isn't Everything: Corruption in Sumo Wrestling.” The American Economic Review, 92 (5): 1594–605.
Eisenhardt, K. 1989. “Agency Theory: An Assessment and Review.” Academy of Management Review, 14 (1): 5774.
Fama, E. 1980. “Agency Problems and the Theory of the Firm.” Journal of Political Economy, 88 (2): 288307.
Faulkender, M., Kadyrzhanova, D.; Prabhala, N. and Senbet, L. 2010. “Executive Compensation: An Overview of Research on Corporate Practices and Proposed Reforms.” Journal of Applied Corporate Finance 22 (1): 107–18.
Flynn, M. and Gilbert, R. 2001. “The Analysis of Professional Sports Leagues as Joint Ventures.” Economic Journal 111: F27F46.
Fort, R. 2003. Sports Economics. Upper Saddle River, NJ: Prentice Hall.
Fort, R. and Lee, Y. 2007. “Structural Change, Competitive Balance, and the Rest of the Major Leagues.” Economic Inquiry 45 (3): 519–32.
Fort, R. and Quirk, J. 1995. “Cross-Subsidization, Incentives, and Outcomes in Professional Team Sports Leagues.” Journal of Economic Literature 33: 1265–99.
Franck, E. 2003. “Beyond Market Power: Efficiency Explanations for the Basic Structures of North American Major League Organizations.” European Sport Management Quarterly 3 (4): 221–39.
Franck, E. and Nüesch, S. Forthcoming. “The Effect of Wage Dispersion on Team Outcome and the Way Team Outcome Is Produced.” Applied Economics.
Frick, B.; Prinz, J. and Winkelmann, K. 2003. “Pay Inequalities and Team Performance: Empirical Evidence from the North American Major Leagues.” International Journal of Manpower 24: 472–88.
Garner, J. and Kim, W. 2010. “Does a Salary Cap Really Work? What the U.S. Can Learn from Korean Evidence.” SSRN Working Paper 1546783.
Gibbons, R. and Murphy, K. 1992. “Optimal Incentive Contracts in the Presence of Career Concerns: Theory and Evidence.” Journal of Political Economy 100 (3): 468505.
Gomez-Mejia, Luis and Wiseman, Robert M. 1997. “Reframing Executive Compensation: An Assessment and Outlook.” Journal of Management 23 (3): 291374.
Gunningham, N. 1991. “Private Ordering, Self-Regulation and Futures Markets: A Comparative Study of Informal Social Control.” Law & Policy 13 (4): 297326.
Gunningham, N. and Rees, J. 1997. “Industry Self-Regulation: An Institutional Perspective.” Law & Policy 19 (4): 363414.
Hall, B.J. and Murphy, K.J. 2003. “The Trouble with Stock Options.” Journal of Economic Perspectives 17 (3): 4970.
Heubeck, T. and Scheuer, J. 2003. “Incentive Clauses in Players’ Contracts in Team Sports-Theory and Practice.” German Working Papers in Law and Economics 2003 (1): 130.
Hill, J. and Groothuis, P. 2001. “The New NBA Collective Bargaining Agreement, the Median Voter Model, and a Robin Hood Rent Redistribution.” Journal of Sports Economics 2 (2): 131–44.
Holmstrom, Bengt. 1982. “Moral Hazard in Teams.” Bell Journal of Economics 13 (2): 324–40.
Hutchens, R. M. 1989. “Seniority, Wages and Productivity: A Turbulent Decade.” Journal of Economic Perspectives 3 (4): 4964.
Jacobs, M. and Winter, R. 1971. “Antitrust Principles and Collective Bargaining by Athletes: Of Superstars in Peonage.” Yale Law Journal 81 (1): 129.
Jensen, M. and Murphy, K. 1990. “Performance Pay and Top-Management Incentives.” Journal of Political Economy 98 (2): 225–64.
Kahl, M., Liu, J. and Longstaff, F.A. 2003. “Paper Millionaires: How Valuable Is Stock to a Stockholder Who Is Restricted from Selling It?Journal of Financial Economics 67 (3): 385410.
Kahn, L. 2000. “The Sports Business as a Labor Market Laboratory.” Journal of Economic Perspectives 14 (3): 7594.
Kaplan, A. and O'Reilly, N.J. 2008. “The CEO - Star Athlete Analogy: The Role of Variable Compensation in Professional Sport.” International Journal of Sport Management and Marketing 3 (4): 358–73.
Kaplan, R. 2004. “The NBA Luxury Tax Model: A Misguided Regulatory Regime.” Columbia Law Review, 104 (6): 1615–50.
Kaufman, G.G. 1994. “Bank Contagion: A Review of the Theory and Evidence.” Journal of Financial Services Research 8 (2): 123–50.
Késenne, S. 2000. “The Impact of Salary Caps in Professional Team Sports.” Scottish Journal of Political Economy 47: 422–30.
Késenne, S. 2007. The Economic Theory of Professional Team Sports - an Analytical Treatment. Cheltenham, UK: Edward Elgar.
Knutt, N. 2005. “Executive Compensation Regulation: Corporate America, Heal Thyself.” Arizona Law Review 47: 493517.
Krautmann, A. and Oppenheimer, M. 2002. “Contract Length and the Return to Performance in Major League Baseball.” Journal of Sports Economics 36 (1): 617.
Lazear, E.P. 1995. Personnel Economics. MIT Press Books.
Leitner, Y. 2005. “Financial Networks: Contagion, Commitment, and Private Sector Bailouts.” Journal of Finance 60 (6): 2925–53.
Levitt, S.D. 2002. “Testing the Economic Model of Crime: The National Hockey League's Two-Referee Experiment.” B.E. Journal of Economic Analysis & Policy 1 (1) Article 2.
Lo, K. 2003. “Economic Consequences of Regulated Changes in Disclosure: The Case of Executive Compensation.” Journal of Accounting and Economics 35 (3): 285314.
Marburger, D. 1997. “Gate Revenue Sharing and Luxury Taxes in Professional Sports.” Contemporary Economic Policy 15: 114–23.
Marburger, D. 2006. “Chasing the Elusive Salary Cap.” In Handbook on the Economics of Sport, edited by Andreff, W. and Szymanski, S. Cheltenham, UK: Edward Elgar Publishing.
Mondello, M. and Maxcy, J. 2009. “The Impact of Salary Dispersion and Performance Bonuses in NFL Organizations.” Management Decision 47 (1): 110–23.
Murphy, K. 1985. “Corporate Performance and Managerial Remuneration: An Empirical Analysis.” Journal of Accounting and Economics 7 (1-3): 1142.
Murphy, K. 1986. “Incentives, Learning, and Compensation: A Theoretical and Empirical Investigation of Managerial Labor Contracts.” RAND Journal of Economics 17 (1): 5976.
Murphy, K. 1999. “Executive Compensation.” In Handbook of Labor Economics, edited by Ashenfelter, O. and Card, D. New York: North Holland.
Neale, W. 1964. “The Peculiar Economics of Professional Sports: A Contribution to the Theory of the Firm in Sporting Competition and in Market Competition.” Quarterly Journal of Economics, 78: 114.
Posner, R.A. 2009. “Are American CEOs Overpaid, and, If So, What If Anything Should Be Done About It?Duke Law Journal, 58: 1013–47.
Quirk, J. 1997. “The Salary Cap and the Luxury Tax: Affirmative Action Programs for Weak-Drawing Franchises.” In Stee-Rike Four!: What's Wrong with the Business of Baseball? Edited by Marburger, D. Westport, CT: Greenwood Publishing Group.
Romer, D. 2006. “Do Firms Maximize? Evidence from Professional Football.” Journal of Political Economy 114 (2): 340–65.
Rosen, S. and Sanderson, A. 2001. “Labour Markets in Professional Sports.” Economic Journal 111 (469): 4768.
Rosner, S. and Shropshire, K. L. 2004. “The Business of Sports.” Sudbury, MA: Jones & Bartlett Publishers.
Rottenberg, S. 1956. “The Baseball Players’ Labor Market.” Journal of Political Economy 64: 242–58.
Scully, G. 1974. “Pay and Performance in Major League Baseball.” American Economic Review 64: 915–30.
Scully, G. W. 2004. “Player Salary Share and the Distribution of Player Earnings.” Managerial and Decision Economics 25 (2): 7786.
Staudohar, P. 1998. “Salary Caps in Professional Team Sports.” Compensation and Working Conditions 3: 311.
Staudohar, P. 1999. “Labor Relations in Basketball: The Lockout of 1998-99.” Monthly Labor Review 122 (4): 39.
Staudohar, P. 2005. “The Hockey Lockout of 2004-05.” Monthly Labor Review 128: 2329.
Szymanski, S. 2001. “Income Inequality, Competitive Balance and the Attractiveness of Team Sports: Some Evidence and a Natural Experiment from English Soccer.” Economic Journal 111 (469): 6984.
Szymanski, S. 2003. “The Assessment: The Economics of Sport.” Oxford Review of Economic Policy 19 (4): 467–77.
Walker, D.I. 2010. “The Challenge of Improving the Long-Term Focus of Executive Pay.” SSRN Working Paper 1396663. Boston University School of Law.
Whitney, J. 1993. “Bidding Till Bankrupt: Destructive Competition in Professional Team Sports.” Economic Inquiry 31: 100–15.
Wolfe, R.A., Weick, K.E., Usher, J.M., Terborg, J.R., Poppo, L., Murrell, A.J., Dukerich, J.M., Core, D.C., Dickson, K.E. and Jourdan, J.S. 2005. “Sport and Organizational Studies.” Journal of Management Inquiry 14 (2): 182210.



Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between <date>. This data will be updated every 24 hours.

Usage data cannot currently be displayed