Bill Belichick of the New England Patriots is one of the highest-paid coaches in the National Football League; Forbes in 2013 estimated his salary as $7.5 million. His track record helps explain the high compensation: Belichick is the first head coach to enjoy double-digit victories in 13 consecutive seasons, and is the second, after Chuck Noll, to win four Super Bowls. He has coached the Patriots to 13 division titles in 16 years.
Arguably, Belichick and the Patriots have dominated the NFL longer than any other team since the NFC-AFC merger in 1970. But is his ability to extract world-beating performances out of some good-but-not-great players and even to motivate others to take pay cuts in order to play for him, an anomaly? Can unusually gifted managers improve employees’ performance to such an extent that it is a rational decision to take less to work for them?
Some academic research indicates the answer is yes. That is, by enhancing employee value managers can potentially add significant value to an organization.
This research is particularly important to recall this week, when, with the close of the NFL’s regular season, teams fire underperforming coaches and hire new ones. Are coaches worth the multimillion-dollar salaries they are offered? Is the same true of managers in the business world? Just what is the value of a top manager to the organization and employees?
Do baseball managers improve performance?
In 1993, Lawrence Kahn analyzed data from Major League Baseball, drawn from the 1969–1987 period, to estimate the impact of managerial quality on team and on individual players’ performance. Using a team’s winning percentage in a given year as the dependent variable, managerial quality, winning percentage in the previous year, and additional controls, he empirically demonstrated that a manager’s ability was a very important factor in converting player performance into team victories in baseball.
But it wasn’t just team performance that was enhanced by managerial quality.
“Kahn’s additional analysis showed that great coaches help players achieve better individual performance”
Kahn’s additional analysis showed that great coaches help players achieve better individual performance. Furthermore, he empirically documented the impact of newly hired great coaches, showing that “when a high-quality new manager takes over a team, the average starting player's performance relative to his lifetime statistics (accumulated under other managers) is greater than when a low-quality manager takes over the team,” he wrote in his paper, Managerial Quality, Team Success, and Individual Player Performance in Major League Baseball.
Subsequently, these players might be able to monetize their newly acquired levels of performance, either with their team or elsewhere.
On the football field
In the football world, Coach Belichick is known for meticulous attention to detail and for his defensive strategy. His eye for talent and his ability to elicit the most from his players—whom he uses in unusual positions and unconventional formations—have helped the Patriots maintain a high level of play year after year, despite their typically low draft position.
At the same time, Belichick has helped individual players magnify their abilities and excel. As Kahn demonstrated, great coaches do not just help teams win; they also help players achieve their fullest potential. That’s why some players are willing to work for less for great coaches creating a competitive advantage for their teams.
Several players have benefited handsomely from playing under Belichick. Consider Deion Branch. When the Patriots drafted the wide receiver in 2002, he signed a five-year $2.93 million contract. Though initially listed third on the depth chart, Branch started 11 of 15 games in 2003, leading the team with 57 catches for 803 yards; in Super Bowl XXXVIII, Branch caught 10 passes for 143 yards and a touchdown.
The following season, after suffering an injury, Branch finished the regular season with 35 receptions for 454 yards and four touchdowns. In the AFC Championship, Branch scored the first and last touchdowns, the final one a 23-yard run on a reverse, which clinched the game after the Pittsburgh Steelers had clawed their way back to be down by just a touchdown. Two weeks later, Branch tied a Super Bowl record with 11 catches for 133 yards and became the first receiver to be named Super Bowl MVP since 1989.
Though Branch’s statistics did not match those of the top receivers in the game, he earned a reputation as a big-game performer. In 2006 the Patriots offered him a three-year $18.85 million contract with $4 million signing bonus but Branch held out for more, sitting out preseason games and the first game of the regular season; the Patriots fined him $600,000. Later that year the Patriots traded Branch to the Seattle Seahawks; he signed a six-year $39 million contract extension with a $13 million signing bonus with the Seahawks.
The rich deal monetized Branch’s performance with the Patriots, capitalizing on his reputation as a big-game competitor and paying him far more than his statistics justified. In five years with Seattle, Branch started only 40 games and failed to fulfill his promise as a top receiver.
A pay cut pays off
Next, consider Corey Dillon. When the Cincinnati Bengals’ all-time leading rusher was traded to the Patriots in 2003, he had been scheduled to earn $3.3 million in 2004 and $3.85 million in 2005. Dillon voluntarily restructured his contract—effectively taking a pay cut of over $3.6 million—to facilitate his trade to the Patriots and play for Belichick.
In 2004, playing for the Patriots, Dillon rushed for 1,635 rushing yards and 12 touchdowns, setting career highs and franchise records. Dillon played a major role in New England’s victory in the divisional playoffs. And New England won its third Super Bowl thanks to a running game built around Dillon. In recognition of his performance, the Patriots restructured Dillon’s contract and paid him a guaranteed $10 million over two years and $25 million over five years.
The examples of Branch and Dillon illustrate that playing for a great coach paid off for both players. Dillon took a pay cut for a chance to make the playoffs and win a Super Bowl, and Branch took advantage of his performance under Belichick and was paid handsomely elsewhere, though it turned out that his performance was not as portable as he believed it to be.
What managers can learn
Kahn’s study on the effect of managerial quality on baseball team performance and Belichick’s example in practice offer valuable lessons that support the hype generated when coaches are hired.
First, all other things being equal, managerial quality strongly influences a team’s performance in baseball as well as football. In fact, Kahn finds that changing managers may affect a team positively when a newcomer is superior to his predecessor. In addition to winning, great managers increase teams’ revenues over their compensation costs. From a corporate point of view, this implies hiring and succession planning processes are very important in leveraging great executives and managers. It pays for firms to invest in hiring and developing great managers.
Second, a given year’s winning percentage is not affected by the previous year’s winning percentage controlling for other important factors; only current performance, influenced by managerial quality, matters. This finding implies that a team that keeps on winning does so because the manager influences the team’s ability to keep winning. In short, a manager can teach a team to win; Kahn argues that the winning habit is learned top down in an organization.
Kahn’s study offers additional insights.
An average player’s performance in a given season relative to his lifetime average improves more for a higher-quality manager than for a lower-quality counterpart. Great managers deploy their players by putting them in situations where they have the highest chance of success. Through training as well as motivations, even average players might become rising superstars.
"It pays for firms to invest in hiring and developing great managers"
In the corporate world, this is analogous to team leaders utilizing skillsets of their team members in jobs and on projects that enable them to excel and to showcase their talents. If people have the expectation that they can monetize the value of their improved performance, they will be more willing to accept a lower starting salary to work for a better manager. Great corporate leaders thus provide another source of competitive advantage because they have the potential to attract, leverage, and retain talented employees at lower overall cost to the firm.
Overall, one can conclude that teams that hire great managers get increased team and individual performance. Giving these findings, Kahn argues that hiring great managers is truly a bargain, both for the organization and for individual players. And yes, it can be a smart move to take a pay cut to work under a great leader. The career of Bill Belichick represents a notable example.
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Boris Groysberg is a professor of business administration at Harvard Business School and the coauthor, with Michael Slind, of Talk Inc. (Harvard Business Review Press, 2012). His work examines how a firm can be systematic in achieving a sustainable competitive advantage by leveraging the talent in all levels of the organization. Follow him on Twitter @bgroysberg. Abhijit Naik is an independent researcher.