61. Can incentives be built into a contract? How do they count against the cap?
There are three types of allowable incentives: performance incentives, academic/physical achievement incentives, and extra promotional incentives. The latter two types of incentives are always included in team salary. Performance incentives are classified as either "likely to be achieved" or "not likely to be achieved," and are only included in team salary if they are "likely to be achieved." The league office determines what is likely and what is not. Their guideline is whether the criterion was achieved in the previous season. For example, if a player had seven assists per game the previous season, then an incentive based on seven assists per game would probably be classified as "likely to be achieved," but an incentive based on eight assists per game would probably be classified as "not likely to be achieved." Unlikely bonuses in any season are limited to 25% of the player's salary in that season. In the first year of a contract the base salary, likely bonuses and unlikely bonuses must all fit within the salary cap or exception.
Incentives must be structured so that they provide an incentive for positive achievement by the player or team, and are based upon numerical benchmarks (such as points per game or team wins) or generally recognized league honors (such as MVP or all-NBA first team). The numerical benchmarks must be specific -- e.g., a bonus may be based on the player's free throw percentage exceeding 80%, but may not be based on the player's free throw percentage improving over his previous season's percentage. Certain kinds of incentives are not allowed, such as those based on the player being on the team's roster on a specific date, or for a specific length of time. An incentive also cannot be based on the player suiting up for a specific number of games.
All performance incentives are re-evaluated at the start of each season to determine whether they should be classified as likely or unlikely to be achieved. In addition, players' performance incentives may be re-evaluated if they are traded. For example, a bad team may have a player with a performance incentive based on the team winning 41 games, that the league classifies as "not likely to be achieved." If that player is traded to a contending team, the league may reclassify the incentive as "likely to be achieved," and include it in the new team's team salary.
Note that the incentives are classified based on the prior season, not on an assessment of the current season. Suppose Team A won 25 games last season, and Team B (with the league MVP) won 45. Also suppose the MVP had a performance incentive based on his team winning 30 games. This incentive would be classified as "likely to be achieved," since Team B achieved this standard the prior season. Now suppose this player is traded to Team A for draft picks. Even though adding the MVP should easily push Team A's win total above 30, the incentive would still be reclassified as "not likely to be achieved" since the classification is not based on an assessment of the current season, but on the results of the prior season.
