Contracts and Bonuses in the Sport of Kings – New Evidence on Jockeys’ Pay and Performance David Butler, Department of Economics, University College Cork, Ireland Robert Butler, Department of Economics, University College Cork, Ireland* Robert Simmons, Lancaster University, United Kingdom * Corresponding author. Email
[email protected] Telephone +353 21 490 2434. ABSTRACT A considerable body of evidence exists to show that performance-related pay schemes can raise worker productivity with much of this increase due to worker sorting. However, variations in the power of performance-related pay contracts are rarely observed. The thoroughbred horse racing industry offers such an opportunity. Elite jockeys are paid an annual salary (retainer) as well as receiving a riding fee and share of prize money earned in races. Contrary to earlier research, we find no evidence of worker shirking when the power of incentive contracts is reduced through switching into retainer contract. We find a positive relationship between jockey pay and performance in this industry, with jockeys delivering greater prize money for owners and themselves. Moreover, retainer contracts result in legacy effects with superior performance continuing for elite jockeys even after their retainer agreements have expired. We argue this is due to a reduction in monitoring costs and enhanced opportunities for previously retained jockeys to ride successfully for large-scale racehorse owners. This all points to successful selection and monitoring by horse race owners, their executives and trainers. Our results are significant for employers and employees working under performance-related pay schemes. Word Count: 8,594 Keywords: Contracts, incentives, horse racing. JEL Codes: Z20, J24, J41, J44 Acknowledgements: The authors wish to express their thanks to John Whitley of Racing Research, Nick Driver of the Racing Post and Ann Saunders of the Professional Jockeys Association and Fiona Mullins.