Performance under pressure and its impact on compensation: Evidence from professional basketball

Abstract

This paper investigates how performance in high- vs. low-pressure situations affects employee compensation. Leveraging sports as a natural laboratory, we analyze National Basketball Association (NBA) play-by-play data from 2004 to 2017 in combination with seasonal player salaries, using “clutch time”—the closing minutes during a game when the outcome is at stake and performance pressure is at its peak—as an objective criterion of performance pressure. Our regression analysis provides evidence of a salary premium for players who can excel under pressure. Whereas lower-paid players’ performance does not differ much by pressure level, higher-paid players show exceptionally strong performance during critical phases of a game. We demonstrate that the ability to excel under pressure is greatly valued in professional basketball, raising the question of whether this ability is compensated not only in other sports but also in other sectors of the labor market.