Hoops Rumors Glossary: Base Year Compensation

The term “base year compensation” no longer shows up in the NBA’s Collective Bargaining Agreement and hasn’t since 2011. A relic of past agreements, the base year compensation rule was intended to prevent teams from signing free agents to new contracts that were specifically intended to facilitate salary-matching in trades.

While the base year compensation rules have, for the most part, been adjusted and/or removed from the CBA, there’s still one situation where they apply. Teams have to take them into account when completing sign-and-trade deals.

The BYC rules apply to a player who meets all of the following criteria in a sign-and-trade:

• He is a Bird or Early Bird free agent.
• His new salary is worth more than the minimum.
• He receives a raise greater than 20%.
• His team is at or above the cap immediately after the signing.

If the player meets those criteria and is included in a sign-and-trade deal, his outgoing salary for matching purposes is considered to be his previous salary or 50% of his new salary, whichever is greater. For the team he is being signed-and-traded to, his incoming figure for matching purposes is simply his new full salary.

Here are a couple specific examples to help make things a little clearer:

Let’s say the Warriors want to sign-and-trade Jonathan Kuminga this offseason. The likely salary gap between his current contract and his next one make him a good example of a base year compensation player. Kuminga is a Bird free agent, his new salary will be well above the minimum, and Golden State is an over-the-cap team. Having made $7,636,307 in 2024/25, Kuminga figures to receive a raise significantly higher than 20% — there’s a reasonable chance his next deal will start above $20MM. So he’ll meet the BYC criteria.

In a scenario where he signs a deal with a $25MM starting salary as part of a sign-and-trade, Kuminga’s salary for matching purposes from the Warriors’ perspective would be $12.5MM, which is 50% of his new salary (that amount is greater than his previous salary). From his new team’s perspective, Kuminga’s incoming figure would be his actual salary, $25MM.

On the other hand, if Kuminga were to get a starting salary worth $15MM from a new team, his outgoing salary for matching purposes would be $7,636,307, the amount he made in 2024/25, because that figure would be higher than 50% of his new salary ($7.5MM).

Often, a team acquiring a player via sign-and-trade doesn’t have the cap room to sign the player outright, or else there would be little incentive to negotiate a sign-and-trade. That means salary-matching is required, which can be complicated by base year compensation rules.

In the first Kuminga scenario outlined above, where his first-year salary is $25MM, the Warriors wouldn’t be able to take back more than $21,027,000 in salary in exchange for the forward due to the league’s matching rules. That’s calculated by accounting for 50% of Kuminga’s new salary ($12.5MM), plus the expanded traded player exception buffer amount ($8,527,000) for this season.

That maximum incoming number would dip to $12.5MM if the Warriors’ team salary is above the first tax apron or if they want to retain the ability to operate above the first apron later in the season, since taking back a dollar more than 100% of that $12.5MM figure would mean using the expanded traded player exception and would hard-cap them at the first apron for the rest of 2025/26.

However, in order to take on $25MM in incoming salary, Golden State’s hypothetical trade partner – assuming they’re also over the cap – would have to send out at least $16,473,000 in order to account for the league’s salary-matching rules themselves.

In other words, the gap that the base year compensation rules create between the salary-matching figures from the two teams’ perspectives could complicate sign-and-trade talks, requiring the two clubs to include additional pieces or get a third team involved to make the numbers work.

Four players have been signed-and-traded so far this offseason, but only one – Nickeil Alexander-Walker – met all of the base year compensation criteria. He was a Bird free agent earning more than the minimum whose team was over the cap, and he got a substantial raise in the sign-and-trade deal sending him from Minnesota to Atlanta, from $4,312,500 to $15,161,800.

Because the Hawks were able to acquire Alexander-Walker using a sizable traded player exception, the base year compensation rules didn’t really complicate those trade talks, since no salary-matching was required. But it’s worth noting that because of those BYC rules, the new trade exception the Timberwolves created in the move isn’t worth Alexander-Walker’s $15,161,800 salary — it’s worth 50% of that amount, $7,580,900.

The base year compensation rules are designed to prevent teams from circumventing the cap by giving a free agent an inflated single-year salary in a sign-and-trade solely for matching purposes.

The base year compensation concept doesn’t surface all that often, due to the specific criteria that must be met. However, it looms large over sign-and-trade attempts involving free agents who receive significant raises, reducing the likelihood of teams finding a deal that can be legally completed.

Note: This is a Hoops Rumors Glossary entry. Our glossary posts will explain specific rules relating to trades, free agency, or other aspects of the NBA’s Collective Bargaining Agreement. Larry Coon’s Salary Cap FAQ was used in the creation of this post.

Previous versions of this post were published in past years.