Harbaugh asked about job status, if he wants to be back

Hi everyone! Long-time lurker but first-time poster here. One of the concerns raised in this thread is that, while we don't want the 49ers to make the playoffs due to timing concerns, there is also a danger that the 49ers' severe underperformance at the end of the season could (i) cause Harbaugh's competitive nature to push him to stay in the NFL and (ii) result in Harbaugh being concerned that leaving the NFL in the wake of a down stretch would be perceived as "fleeing" back to college. 

While I hope neither of these will happen, I do believe convincing Jim Harbaugh to take the Michigan job will require a bit of legwork on Michigan's end.  One area where Michigan will obviously need to make a very compelling offer is on the pay front, and over the past couple weeks I've spent some time (because I apparently desperately need to get a real hobby) preparing a proposal for how I think Michigan can increase its chance of convincing Harbaugh to return to Michigan to coach.  My apologies in advance for the Diary-esque feel to the below post and if this is deemed too far of a deviation from the thread, but I believe that discussing how to get Harbaugh to Michigan (beyond lighthearted references to dumptrucks of money) is an equally (and at this point, perhaps more) essential part of this conversation.  

Given the magnitude of this hire for the future of Michigan’s football program, I think it's important to discuss what level of compensation is both adequate and appropriate to offer to Jim Harbaugh.  My goal with this post is to attempt to further that discussion by suggesting that the pay model for an elite hire like Jim Harbaugh should rely heavily on incentive compensation.  I acknowledge that I am hardly the first to raise the merits of an incentive-compensation approach on these boards, but I’m hopeful the thoughts below may help further flesh out how an incentive-driven compensation model might be structured.

Before diving into the details of my proposal, it probably makes sense to briefly explain the rationale behind utilizing a pay structure that is heavily based on incentive compensation. There are several theories relating to organizations’ methods of employee compensation (usually in the corporate context of executive pay), and the most prominent of these – the “principle-agent” model– is worth quickly mentioning here. Succinctly summarized, the principle-agent model holds that compensation should be designed to both (i) attract managers and (ii) motivate managers in a way that reduces the agency costs between the organization and the manager and thereby maximizes the manager’s economic value to the organization.  While that may sound like a lot of academic nonsense, prong (ii) simply means that the goal of incentive compensation is, as the name would suggest, to incentivize behavior of the manager by aligning the manager’s interests with the interests of the organization’s constituents.

In the case of Michigan football, this would be accomplished by agreeing to reward the manager with additional compensation (i.e., compensation being the interest of the manager over which Michigan has immediate control) in exchange for the manager’s accomplishing objectives that are important to Michigan’s constituents, including, among other things, performing well on the football field.  The allocation between the fixed (“salary” or “base”) portion and the incentive portion of a manager’s total target compensation can vary significantly, but one of the general premises of an incentive-heavy compensation model is that a manager who performs well will have the opportunity to earn (and will deserve) more pay than that manager would if he or she were paid purely with a base salary. By contrast, a manager who performs poorly will earn (and deserve) less pay than that manager would if he or she were paid purely with a base salary.

That explanation probably won’t strike anyone as a particularly ground-breaking concept. However, it’s important to keep in mind that incentive compensation is designed to (i) permit (and actually encourage) the payment of additional money to the manager where the manager’s performance creates additional value for the organization such that paying the additional money is economically rationale – e.g., if Firm pays Employee $5 for $10 of output but will pay Employee $5.50 for $11 of output, both A and Employee will benefit – while at the same time (ii) providing down-side protection for the organization by allowing it to pay less than it might otherwise be obligated to pay to a salaried manager when that manager’s performance is not generating the returns that would permit the organization to afford such an amount.  All of the above is a far-too-long-winded way of stating that incentive compensation is also designed to attract top-tier managers (the goal mentioned in the first prong of the principle-agent model) by offering the opportunity to earn top-tier compensation in exchange for top-tier performance. 

Circling back to our situation, I would suggest that there are two primary, non-theoretical reasons why it makes sense to offer a sizable and incentive-heavy compensation package to Harbaugh.  The first of these is simply that Jim Harbaugh already makes a significant amount of money with San Francisco (and would with any other franchise in the NFL), and as such it is important to pay a competitive salary that makes the position financially viable. A sizable, incentive-heavy pay structure offers the opportunity to not only make the position financially viable, but potentially much more desirable relative to his current situation while simultaneously protecting Michigan from the downsides of any unexpected underperformance.  This reason is fairly straightforward.

The second reason to offer him a sizable, incentive-heavy pay structure relates – perhaps counter-intuitively – to the fact that I don’t actually suspect Jim Harbaugh will be motivated to coach at Michigan (or anywhere else for that matter) purely out of a desire for money. Simply put, Jim Harbaugh will have his choice among a large number of NFL and college jobs, and at some level it will come down to which option Jim believes is the appropriate destination for his personal and professional satisfaction. As discussed ad nauseam on these boards, the primary deterrent from his taking the Michigan job would likely be a continued desire to prove that he can win at the very highest level.  The reality, unfortunately, is that Michigan can’t do anything to change the fact that it is a college program and simply won’t be able to offer Jim the type of ring that might be obtained in the NFL. 

Therefore, the most compelling alternative Michigan can offer to address this deficiency is to unequivocally project the university’s belief that Jim Harbaugh is one of – if not the – most elite coaching talents in football, and the most straightforward way to do so is to offer to place Jim Harbaugh at the most elite coaching pay-grade in sports. Put another way: we'll inevitably hear some members of the peanut gallery question whether Jim could hack it at the top level if he goes back to college for a salary similar to what he’s making in the NFL. But nobody would question why a coach would forego the NFL for college if it meant the opportunity to potentially be the most highly paid coach in the game of football. With an incentive-heavy compensation structure, Michigan would be able to make that status a reality without locking itself into an outsized base salary and bearing the risk of underwhelming results. (Indeed, one need look no further than the anger on these boards over Brady Hoke earning $4+ million in 2013 and 2014 despite lackluster results to see that the standard compensation model can pose serious issues.) Offering Jim Harbaugh that indicia of truly elite status may still be insufficient to land him as our coach, but it’s probably Michigan’s best shot at addressing his burning ambition to be the best.

Having laid out these arguments for an incentive-heavy approach to compensation, I should also briefly discuss the two most likely counterarguments to this approach. The first is that a coach in as much demand as Harbaugh’s would not need to accept the down-side risk of lesser compensation should he underperform, especially when coming into a program that requires some rebuilding. While I think Jim is competitive enough that he probably would have little doubt that he will perform well enough at Michigan, the solution to this issue is as simple as structuring the compensation model so that a middling year would nonetheless result in an acceptable (even if not top-notch) year of pay.  The second and admittedly more difficult counterargument to address is that the proposed structure and the amount of money potentially on the table goes too far in the direction of commercializing college athletics, particularly for a school like Michigan.  There isn’t a particularly strong rebuttal against this point for those that feel that the amount is too much other than for me to point out that (1) at some point all of these multi-million dollar figures are various shades of arguably-too-big and (2) the higher end of the numbers will only result from seasons where the economic benefits will almost certainly justify the increased salary expenses.  I have tried to devise a pay structure that would adequately reward Jim Harbaugh when his performance merits it and not go over the top when it does not, but I cannot promise that my proposed approach will please everyone. In fact, I will be the first to say that some will surely disagree with this approach, and those individuals’ opinions are no less valid.

Without further delay, the following is the general compensation model I would propose, which consists of both fixed and incentive-based compensation components.

In order to put this model to the test, I’ve run it with five different outcomes to help people get a sense for what Harbaugh would stand to earn under this approach. These outcomes include:

• a “worst-case” scenario (i.e., the minimum we might ever have to pay);
• a “best-case” scenario (i.e., the maximum we might ever have to pay); and
• three “reasonably likely” outcomes for any given season

The “worst-case” scenario would pay as follows:

By comparison, the “best-case” scenario would pay as follows:

Finally, the three “reasonably likely” scenarios would each pay as follows:

Scenario 1:

Scenario 2:

Scenario 3:

This post has been lengthy enough so I will cut it off here.  There are clearly many ways to approach this, but I’m hopeful this provides some food for thought on one way we might try to further enhance the pitch to make Jim Harbaugh the next football coach of the University of Michigan.

Go Blue.