UCONN Basketball Coach Explains Basic Economics to Reporter

It's not that often that I get to see two of my favorite topics (UCONN basketball and executive compensation) collide (and on Youtube, yet).

After a recent game, during the press conference, UCONN coach Jim Calhouh was asked a question by "freelance journalist and political activist) Ken Kreyeske, who apparently working for some outfit called “The Hartford News" . He asked Calhoun

"Considering that you're the highest paid state employee and that there's a two billion dollar budget deficit, do you think tat"

Calhoun doesn't even let him finish, and responds, "Not a dime back." He then goes on to explain that he actually makes quite a bit more than that, and that the UCONN program actually results in a significant surplus ($12 million a year) that flows back to the university.

But I love the smackdown he puts on the reporter. At one pint, he asks him, "You're really not that stupid, are you?", followed by "My best advice to you? Shut up. Get some facts and then you can talk"

For that alone, if I ever see the man (and I almost rode in his Cancer Bikeathon last summer), I'd like to shake his hand.

Here's the video. Caution: do not watch while drinking any liquids, or be prepared to clean off your monitor and keyboard):

In addition to pure entertainment value, it also raises some interesting questions or points:

• Who is in a better condition to determine whether a $1.6Million-plus annual salary for Calhoun adds value to UCONN?
• Since it's a university, and not a company, a winning basketball team also has externalities over and above the financial impact of the team
• Most executive salaries are benchmarked to the salaries of industry peers' compensation. How does Calhoun's stack up to his peers (perennial top-25 schools who regularly go to the Final Four)
• What are the likely effects of capping executive compensation (either for Basketball coaches or for executives at troubled banks)?
  

Can anyone come up with a better response to a stupid reporter's question?

HT: The Ace of Spades

"Bonuses" and "Maluses"

One of the problems with bonuses is that they create asymmetric payoffs - there's typically an upside for some actions, but no downside (yes, I know, there's the settling up in the labor market, etc., but that's a story for another piece). To deal with this, at least one firm (UBS) has started using "maluses" along with bonuses

"Just as bonuses (Latin for “good”) are paid out for good performance, maluses (“bad”) will be meted out if the bank subsequently makes losses or if the employee misses performance targets, UBS said. The maluses could wipe out all previously agreed share bonuses and two thirds of all cash bonuses under stringent new rules designed to align the interests of executives and traders with those of shareholders."

This concept is aslo called a "clawback", and embedding it in compensation packages so that a person has a downside component is a great idea. Looks like something we'll end up discussing in class.

HT: Proxyland, ("corporate governance and other oxymorons"), a blog worth reading.