1. John Stewart and Advisor: Professor Thomas Bruggink
Lafayette College
“Legal Performance Enhancement:
The Relationship Between Performance Incentive Clauses and Player Output
in Major League Baseball”
Thesis: “Appearance” incentive contracts in professional baseball have desirable indirect
effects on player performances and team wins.
• Players with incentive contracts for playing time not only increase their playing
time but also improve their performance.
• Players with incentive contracts for awards increase their performance.
• The greater the monetary incentive, the greater the improvement in performance.
• On a team level, the greater the use of incentive contracts and the greater the
amount of bonuses, the greater the team success as measured by wins of playoff
appearances.
Initial Results:
• Tested hypothesis on MLB batters and pitchers between 2005 and 2008.
• Inclusion of performance clause leads to higher levels of At Bats and Innings
Pitched
Impact of New Performance Incentives
0
5
10
15
20
25
30
35
At Bats Innings Pitched
• Increasing the monetary value of award bonuses increases player output, with
diminishing returns
Implications:
Besides the typical cases of performance incentive laden contracts geared towards
aging players or those recovering from injury, performance clauses provide an
underutilized motivation to increase player output. Whether it means staying in shape or
extra time in the batting cage, performance incentives help push players towards and past
their potentials.
Output
Bonus $

2. Discussion:
Salary contracts in MLB are based on expected performance during the contract
years, not actual performance. The exception is the incentive clause in contracts. The
focus of this study is to empirically measure the relationship of incentive clauses in
player contracts on both player performance and team success.
According to the model, players with new performance contracts in 2008, holding all else
constant, had 31.8 more at bats than players without; this was statistically significant at
the twenty percent level. Pitchers with a new performance incentive also pitched 24.7
more innings than players without, holding all else constant, and this was significant at
the five percent level. For batters, a model regressing 2008 batting average, the
independent variables ATTAIN, ATTAIN2
, and ATTAIN3
, were statistically significant
at the five percent level. In a model predicting a pitcher’s 2008 innings pitched,
ATTAIN and ATTAIN2
were statistically significant at the one percent level.
Sampled from 147 MLB pitchers, 192 MLB batters, 2005-2008 seasons.
Individual Model:
Dependent Variables: 2008 – BA, OBP, SLG, AB, ERA, WHIP, K/9, IP
Independent Variables: 2005-2007 - BA, OBP, SLG, AB, ERA, WHIP, K/9, IP
2008 – Experience, Dummies for performance incentives OR
Total performance incentive bonus in dollars.
(1) PERFj = B0 + B1*PREVj + B2*EXP + B3*EXP2
+ BDj + εj
(2) PERFj = B0 + B1*PREVj + B2*EXPj + B3*EXP2
j + B4*ATTAINj + B5*ATTAIN2
j +
B6*ATTAIN3
j + εj
(Di is a dummy variable for incentives, ATTAINi is the attainable amount of bonus
awards than can be achieved by player i.)
Conclusion:
The incentive clause in Major League Baseball is ultimately a mechanism that
shares risk between player and owner. Bonus payments are conditional on player
performance and both help owners the downside loss associated with injury or
underperformance, and help compensate players for above and beyond effort and output.
In the individual models, incentives had the greatest impact on player
appearances. Larger award bonuses predicted more At Bats and more Innings Pitched.
Players with new performance contracts in a given year had more At Bats than those
without, holding all else constant. In the models with monetary values of incentives, the
regressions implied the relationship between bonuses and appearances suffered from
diminishing returns. Similar results were obtained from the models with player
performance.
In an expansion of the model in an effort to estimate the relationship between
incentive clauses and team performance, we observed compelling results. Teams
utilizing the optimal amount of performance incentives could potentially win nearly three
more games in a given season than if they hadn’t used any at all.