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NHL starting performance-based pay system

The days of predictable annual salary increases are over for NHL employees. Now, they have to earn much of their salary increase in the form of an annual bonus.

The league has introduced a performance-based compensation system that largely eschews guaranteed salary increases in favor of bonuses based on a league employee’s fulfillment of annual goals. The new system represents a significant change at the NHL, where senior executives debated the merits of a bonus system for close to a decade, according to league sources.

An NHL spokesperson declined to comment.

While the other major professional sports leagues have used a performance-based pay system for years, the NHL has avoided it largely because Commissioner Gary Bettman believed that employees would work hard for the league simply because of their passion for the job. He also felt the high demand for a job in sports and limited supply of those jobs allowed the league to have its choice of talented employees.

Over the years, the increase of performance-based compensation systems at other leagues and companies convinced NHL staffers that the league needed to adopt a similar system in order to attract new and talented employees. The addition of NHL Chief Operating Officer John Collins, who joined the NHL in 2006 and was familiar with the NFL’s performance-based system from his years as a senior marketing executive there, added momentum to the NHL’s decision to adopt a performance-based system. Also, the economy, which forced the league to freeze salaries in 2009-10, created an opportunity to switch to the system this year, sources said.

The Segal Co., a consulting firm headquartered in New York, and NHL Chief Financial Officer Craig Harnett designed the performance-based pay system. The new system was introduced to the NHL staff after the start of the 2009-10 season. The Segal Co. also works with the NBA.

The system is set up so that annual raises will be reduced from 5 percent to 6 percent, on average, to 2 percent to 3 percent. The roughly 3 percent remaining will be put into a bonus pool that will be distributed at the end of the league’s fiscal year. Also, if the league exceeds its annual budget, the NHL shares in revenue with owners and a portion of that revenue will be contributed to the bonus pool.

Before the start of each season, each league employee will draft a list of goals he or she hopes to accomplish that year. Those goals are reviewed and approved by their manager, and the employee’s ability to fulfill those goals determines the size of the bonus he or she is entitled to at the end of the season.

The system isn’t designed to reward every NHL employee, only those who meet their goals. Unless the league exceeds its budget projections for 2009-10, there will be no bonus money distributed this year, sources said, since salaries have been frozen for 2009-10 and the money that would have been set aside isn’t available.

Senior managers such as Bettman, Collins and Deputy Commissioner Bill Daly are excluded from the plan.

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