Jim Harbaugh has reached a contract extension to remain Michigan's football coach through the 2025 season, athletic director Warde Manuel announced Friday.

"I continue to believe that Jim is the right man to lead our program in pursuit of Big Ten and CFP championships," Manuel said in a statement. "Our program didn't achieve at a level that anyone expected this year but I know those setbacks will drive the coaches, players and staff moving forward. Jim is a tireless worker and competitor. Following the completion of the season we talked for many hours on what it will take for Jim to lead and get us back on the right trajectory."

Harbaugh's new contract will pay him a base salary of $4 million in 2021, which will increase to $4.426 million in 2025. He can earn a maximum bonus of $3.475 million in each year of the contract, including $1 million bonuses for winning the Big Ten championship and College Football Playoff National Championship, and $500,000 bonuses for winning the Big Ten East Division and reaching the CFP.

Michigan would owe Harbaugh $4 million if it fired him in 2021, a guarantee that goes down $1 million each subsequent year of the contract. Harbaugh's buyout to leave Michigan begins at $2 million in 2021 and drops by $500,000 in each subsequent year until 2025.

"Over the past few weeks, Warde and I had discussions that have been honest, open, insightful and constructive in moving our football program forward," Harbaugh said in a statement. "Discussions that I look forward to continuing over the months and years ahead. We have a plan.

"There is work to be done and challenges to be addressed. These challenges are being addressed as we continue to strive for excellence in the classroom and championships on the field, a message that I hope is noted in the language of our agreed-upon contract."

Harbaugh had one year left on his initial contract at Michigan, which paid the coach slightly over $8 million in 2020.

Michigan and Harbaugh began discussing a new contract after the team's regular season ended in November. Harbaugh spent much of the past few weeks vacationing in California but returned to Ann Arbor this week, a source said.

The Wolverines finished the 2020 season at 2-4, canceling their final three games because of COVID-19 concerns within the program.

Harbaugh, a former star quarterback at Michigan, is 49-22 in six seasons at the school and 34-16 in Big Ten play but is coming off by far his worst season at his alma mater. Michigan won 10 games and finished in the top 15 in three of his first four seasons but has yet to defeat rival Ohio State and has dropped four straight bowl games.

Michigan fired defensive coordinator Don Brown last month, and six other assistants have contracts that expire Sunday.

The school said in its release that Harbaugh was "in the process of evaluating and putting together his staff for the 2021 season."

ESPN's Dan Murphy contributed to this report.