Standardized Performance Bonuses: A Startlingly Simple Way to Pay Good, Young Players

I’ve had a lot of ideas lately. Back in February, I wrote about five little tweaks I’d like to see made to Major League Baseball, including at least one or two that I was 100 percent serious about. In March, I wrote about how adjusting the draft order to reward teams for trying to win would improve the game. And last month, I wrote about how to stop beanball wars (and, of course, why MLB has no actual interest in stopping them).

This month’s edition of Jeff Fixes Everything will focus on one thing: performance bonuses.

If you’ve ever worked a regular, boring corporate job, you’re familiar with the concept of performance bonuses. Some companies actually build the bonus structure into their compensation packages, while others are more variable based on company performance. The thing the all have in common, at least in theory, is that employees can earn extra money, on top of their salaries, for good performance.

Major League Baseball has only the barebones element of such a system, and only for players who have negotiated it into their contracts. The problem with this is that the people who needs these bonuses the most aren’t eligible for them for the same reason they need them: they get paid relative peanuts because they haven’t been in the league long.

So I have an idea to fix this problem. It’s not perfect, but I’ve identified some likely objections or pitfalls and tried to address them. I’d love to hear more of your thoughts here in the comments or on Twitter (I’m @snidog over there).

The Idea: Performance Bonuses

Every year, each team puts $33 million in a bonus pool. Why $33 million? The data tells us that a “replacement-level” team would win roughly 48 games in a season. Math tells us that teams win an average of 81 games per year. That means that there are 33 “surplus” wins per team per season, so we’re just plopping $1 million per win into the bonus pool.

At the end of the year, you add up all the WAR produced by all the major leaguers. Because WAR correlates pretty closely with actual wins, that number will be somewhat close to the 990 “wins” teams have allotted for in the bonus pool. (It would be much closer if not for caveat #1 below.) So let’s say the total WAR is 1,214.9. That means that, for that season, each “win” in WAR was worth $814,881.88 of “bonus money.” Then, you simply distribute the bonus money based on WAR.

Two quick caveats before we go into real-world examples and then get to some of the gotchas:

1) A negative WAR would be treated as a 0.0. We’re not going to make someone give money back for being below replacement level. It might feel good to make Chris Davis return $2.8 million, but it would feel less good to make Noel Cuevas sell an internal organ on the black market to finance his -1.5 WAR on the league minimum salary. There was actually a total of -213.7 WAR compiled by our Negative Nellies in 2018.

2) Obviously, this system would require an agreement on which version of WAR it was based on, or how to do a composite of the multiple versions. For this article, I’ll be using Baseball-Reference WAR, but that’s simply because it’s the system I’m most familiar with.

So let’s look at how this would look in the real world. That 1,214.9 number was not a number I made up. That’s the total amount of WAR produced in the major leagues in 2018, according to B-Ref. (Actually, it’s the total number compiled by players with positive WAR. Factor in the -213.7 of negative value, and you’re at 1,001.2, which is extremely close to 990.) So who would get what bonuses? Let’s see…

Mookie Betts gets a bonus of $8,882,212.49 based on his 10.9 WAR. That bumps his 2018 earnings from $10.5 million to a little over $19 million, much more suitable for a historic MVP season.

But Betts isn’t who I’m most concerned about. Let’s look at Ozzie Albies. Albies made $555,000 last year, and then he signed a VERY team-friendly extension this past offseason. The reason for the extension is clear: young players have to weigh the risks and rewards of playing baseball. Albies had a very good season, but he also runs the real risk of never getting a big payday due to injury or ineffectiveness. As much as $555,000 sounds like a lot of money, it’s not life-changing money. If he were to suffer a career-ending injury, he’d have 60-70 more years to live, and $555,000 isn’t going to go very far. So it made sense that he would opt for a guarantee of tens of millions of dollars over maximizing his earning potential.

But what if he had made $3,651,551.14 last year? That’s his $555,000 salary added to the $3,096,551.44 he would have earned as a performance bonus based on his 3.8 WAR. If Albies had already earned about $5 million in his career (remembering that he also had 1.3 WAR in 2017), he would have had greater leverage in negotiating an extension with the Braves.

That’s where the value in this idea comes from. It’s the guys who are performing well but don’t yet have the service time for arbitration, let alone free agency. Blake Snell earned $545,000 for winning the Cy Young Award. I think he should have made $6,656,614.10. Mitch Haniger had a breakout season with the Mariners for roughly the league minimum; I think he deserved a $5 million bonus.

Let’s talk about some of the benefits of this system, which are many.

Benefit 1: Help Fix Free Agency

As it stands right now, free agency appears broken, because teams have gotten too smart to pay for past performance over expected future performance. Additionally, there are few (if any) outlier front offices making “old school” (aka “dumb”) decisions, so groupthink that looks from the outside like collusion is driving down free agent values. This system would allow a player to “bet on himself” to an extent, knowing that if he puts up a 6-WAR season, he’s putting close to $6 million extra in his pocket.

This system would also, as illustrated with the Albies example, increases the likelihood of great players reaching free agency by reducing their inclination to take the guaranteed money early. That might seem like a drawback to people who pine for the “good old days” when players spent their whole careers with one team, but a robust and exciting free agency system is good for the game.

Benefit 2: More Money Goes to the Best Players

So many things in life have become politicized that it has become second nature to assume EVERYTHING is political. When it comes to financial compensation, anyone with political leanings automatically sees the discussion in political terms. I want everyone to turn off their political brains for a second but keep the logic turned on, because I’m about to type a sentence that should be entirely noncontroversial:

It’s silly that Ian Kennedy is going to make 27 times as much as Cody Bellinger this year.

Okay, feel free to turn the politics back on, I guess. I understand the arguments on both sides, and like most things of a political nature, I come down somewhere in the middle. Kennedy made $423,000 in 2011 when he finished fourth in the Cy Young voting, so now he’s being compensated for being good when he was underpaid. Bellinger will get his chance at a big payday in a year or three. Perhaps my centrism is why I don’t want to blow up the whole system — for a more radical argument, read Sam Miller’s piece from ESPN in which he proposed that player compensation be almost ENTIRELY performance-based. I’m fine with Kennedy making more than Bellinger — I just think 27 times as much is a bit extreme. Under my system, if Bellinger puts up 9.0 WAR this season and Kennedy does 2.0, that gap goes from 27x to about 2x.

(I’ll talk more in a bit about why I don’t want to blow up the whole system. Incidentally, it was an email discussion with ESPN’s Miller — whose piece I hadn’t seen until he pointed me to it during our discussion — that fleshed out some of the details and reasoning on my idea.)

Benefit 3: It’s Flexible

There’s nothing set in stone about the “$1 million per win” number. Maybe it should be $2 million? Miller’s article advocates for a system based on actual league revenues, which could maybe work here. Not the 50 percent Miller proposes (again, I don’t want this to be the entire compensation), but perhaps 20 percent. I have some issues with tying it to overall revenue that I’ll cover later, but the point here is that it’s flexible. It’s something for the union to negotiate on. And even if bonuses aren’t tied directly to league revenue, they can inflate as revenues go up.

Why This Instead of Something Else?

As mentioned above, I emailed back and forth with Sam Miller about this idea, and he brought up some interesting objections that helped me flesh out why I like this idea. Sam asked, “If you are philosophically on board with merit pay, why not go all the way? Why the half-measure?”

Here are some of the reasons I don’t want to blow up the whole system and go to a full performance-based compensation structure:

Reason 1: Encouraging Competitiveness and Rewarding Genius

Some people outperform their salaries because they haven’t been in the league very long and therefore don’t get paid much. In other cases, though, front offices and player development staffs deserve credit and deserve to be rewards.

Let’s look at the Dodgers, for example. We’ve mentioned Bellinger, who was drafted and developed by the Dodgers in the typical way. But what about Chris Taylor and Max Muncy and Justin Turner? Those guys were available to any team — two free agent signings and a trade for a failed prospect. The Dodgers acquired those players, and those players turned into stars.

But what if Muncy’s performance in 2018 directly resulted in him making $20 million? That’s great for him — and, to be clear, it’s what he “deserves” — but it drastically reduces the incentives for front offices to find these scrap heap players. Simply put, if bargains no longer exist, people will stop searching for them. So yes, it would be better for Muncy if he had made $20 million last year, but if the system that allowed him to make that money also made it exponentially less likely that he would have been signed in the first place? Well, that’s a net loss, for Muncy, for the Dodgers, and for baseball.

Instead, my proposal would have paid Muncy about $5 million last year — still a huge payday and reward for him, but still a bargain in the baseball sense.

Reason 2: Strengthen, Rather Than Kill, Free Agency

If players were paid entirely based on their performance, there are a lot of teams that very few players would choose to play for. No offense to the city of Milwaukee, for example, but if your options were to live there or San Diego, which would you choose? Or if you were a pitcher, would you choose to sign with the Rockies?

Merit pay would lead to the rich teams getting richer and the poor teams getting poorer.

In contrast, my system would strengthen free agency. More great players would reach free agency — remember the Albies example, where players have less incentive to sign overly team-friendly extensions. Teams can still compete for free agents. Heck, they can even still overpay for free agents. The difference is, there are more good free agents out there, and the dynamics change as the players know they can bet on themselves to earn an extra $5-10 million per year.

Reason 3: Veteran Presence and Guidance

It’s an idea that is sometimes mocked and memed on social media, but I think there’s some inherent value in veteran leadership and other intangibles. I also think the current system of “paying your dues” has some benefits to help young players learn the system. As a Dodger fan, I liked having Chase Utley on the roster even when his play didn’t merit it, and I know several younger Dodgers did too.

Along those same lines, value is not truly linear. Utley was worth 1.0 WAR in 2017, and the Dodgers paid him $2 million. Technically, the value of 1.0 WAR is more than $2 million, but he would not have been worth $8 million or whatever the current number is. If it was going to cost $8 million to have a 1.0-WAR player on your team, 1.0-WAR players would stop getting jobs. Keeping it as more of a “performance bonus” system rather than strict “merit pay” allows teams to continue that non-linear payment to guys like Utley.

Conclusion

As I said, I don’t want to overthrow the whole system. There are things I like about the current system. I just like the idea of making it possible for young players to earn some riches early, enough that they don’t have to sign ridiculously team-friendly extensions.

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