Salary arbitration is the process of negotiating a certain player’s contract for the upcoming season.
Player Eligibility
MLB players are eligible for salary arbitration if they have more than three years of MLB service time, but have not yet exceeded the six years of MLB service required for free agency.
In certain cases, players who reach a certain service-time threshold are eligible for arbitration a year earlier — this is known as a Super Two player.
Super Two Players
A Super Two is a player who has more than two but fewer than three years of MLB service time but ranks in the top 22 percent among those players between 2 and 3 years. These “Super Two’s” are then classified as arbitration eligible.
Super Two players end up having four years of arbitration as opposed to the standard three years.
Players who are not classified as “Super Two” are given the league minimum salary for their first 3 years of playing in the MLB. An extra year of arbitration as a Super Two allows you to skip the league minimum in Year 3 and enables you to negotiate a salary increase.
Arbitration Process
If a player is arbitration eligible and does not have a contract for the upcoming season, the club may tender him a contract. A tender means that the club agrees to offer a contract based upon the salary both the team and the player can agree to.
The player and club must agree on a salary number by mid-January. If the player and club cannot agree upon a contract for the upcoming season, then the team and player will go to salary arbitration.
The player and team must present a salary number to an independent arbitrator that they believe is appropriate based on the player’s performance over the previous seasons. These can often be determined by comparing the salaries of similar players, who share similar a position, age, or production levels.
During February, a hearing will be scheduled and a panel of independent arbitrators will hear the case and will rule either in favor of the player or the club. The arbitrator cannot rule in favor of any other dollar amount.
Oftentimes, teams and players aim to avoid arbitration. So, it’s possible that both sides may come to a last-minute agreement before their scheduled hearing.
In recent years, MLB clubs have signed players to extensions, often “buying out” years of arbitration and sometimes free-agency years. Teams do this because in the event a player performs very well, they could command much more in either free agency or arbitration. It’s a guarantee for both the club and the player.
Typically, players get raises during the arbitration process too, but their salaries cannot be cut more than 20 percent from the prior year.
Pros
Players on their rookie contracts have no leverage when it comes to salary, meaning the club sets the player’s salary, usually around league minimum – $570,000 during the 2021 season.
Arbitration-eligible players are more fairly paid for their contributions to their major league squad, and for the first time have a say in their salary. The highest salary arbitration figures also begin to set a precedent based on player factors (age, position, performance) and act as barometers for the future.
Cons
Salary arbitration can be a difficult process as teams try to justify that their players are worth less than what players may believe. Naturally, both sides want to avoid arbitration as it can sometimes damage the relationship.
Summary
While the salary arbitration process can be a challenge, it allows players to be paid more accurately for their on-field performance than during their first couple years in the Major Leagues and acts as a guide for future negotiations.
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