Journal of Management Accounting Research
Brian Cadman, Gavin Cassar
School of Accounting
Abstract
We study the role of explicit and implicit incentives in a competitive labor market with no internal promotion opportunities. In the setting of NCAA head football coaches, we find that compensation changes from career outcomes and increases from renegotiation are significantly greater than explicit bonuses. At the same time, we find that explicit incentives increase as implicit incentives from outside opportunities weaken. Overall, we show that the labor market provides strong implicit incentives by rewarding coaches for good performance while penalizing them with weaker employment opportunities following poor performance. Our findings demonstrate the significance of implicit incentives in the presence of a strong external labor market and suggest that the optimal use of explicit incentives is tempered by implicit incentives from the labor market.
