Blue Jays and incentive based contracts: A new era

The Toronto Blue Jays are opening themselves to more incentive-based contracts, which, if done right, could help them to maximize future contract values.

The Toronto Blue Jays new management group has decided to go ahead and try something rarely done by the Blue Jays of old. Mark Shapiro and Ross Atkins recently signed Gavin Floyd to an incentive-laden deal. Incentives can be extremely complicated or very simple, depending on the contract. Teams commonly use them to help control risk.

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In the MLB, you can give out performance bonuses. The term “performance bonus” leads you to believe that they can be based on performance itself. While you can receive an incentive based on making the All-Star team or winning a Cy Young Award, it is important to note that you cannot receive an incentive for a statistical season milestones such as strikeouts or walks allowed.

Up until a few years ago, management teams were allowed to award players for career milestones such as 3000 hits, as seen in Albert Pujols contract.

"“Both clauses raise questions under the Basic Agreement, and both parties felt they should not be a subject of individual negotiations,” – Mike Weiner, MLBPA"

Incentive based contracts are commonly seen at this stage of the off-season due to the talent level of the players and incentives available. These incentives tend to be more time-based. Some categories commonly used are days spent on the 25-man roster, games played, games started, games finished, and plate appearances.

Teams use these deals to control risk by offering less guaranteed salary. A team has the comfort of knowing that if the player becomes dead weight, they can be cut or demoted to prevent a portion of the salary from being paid. The benefit to the player is simple, they are given an opportunity to earn more than what they would get in a simple guaranteed contract.

"“Under Mark the thought is there aren’t any absolutes and we’d try to look at each guy case by case.” – Tony Lacava"

Gavin Floyd’s situation was similar to many others. A talented arm derailed by injury trying to make it back. His one year contract guarantees him one million, and gives him the possibility of making another million in incentives.

This contract was tiered based on days spent on the 25 man roster. He will make 500K for 90 days, 250K for 120 days, and 250K for 140 days. The team is willing to pay Floyd should he prove to be an asset.

By not allowing incentive laden deals, you close the door on players like Gavin Floyd. These types of players are less willing to accept lower guaranteed amounts of salary, without the potential of making more than their offers from elsewhere in the league.