The Rules

The world of incentives in MLB contracts is governed by a relatively limited set of regulations found in the Collective Bargaining Agreement and the Major League Rules. These regulations are aimed at establishing what type of achievements during a player’s contract can be used as a basis for an incentive.

The main rule is Major League Rule 3(b)(5), which states:

No contract shall be approved if it contains a bonus for playing, pitching or batting skill or if it provides for the payment of a bonus contingent on the standing of the signing Club at the end of the championship season.

This rule is set in the context of Major League Rule 3(b)(3):

Except with the written approval of the Commissioner, no Major or Minor League Club shall enter into a contract with a player that differs from the forms described by this Rule 3(b). All contracts shall be in duplicate and the player shall retain a counterpart original. All contracts must be filed with the Commissioner or the Commissioner’s designee for approval.

As such, the key aspects of the incentive regime are that a bonus cannot be paid based on a “playing, pitching, or batting skill” or on the standing of the signing club at the end of a season, unless this bonus is explicitly approved by the Commissioner. These terms are not defined in the Major League Rules or CBA, leaving a relatively vague regulatory scheme for how incentives can be used.