Hammond has been the Bucks' GM since April 2008, following seven years as a vice president for the Detroit Pistons, and was in the final year of his current contract when the move was made.
The Bucks have failed to qualify for playoffs in each of the past two seasons after going 46-36 in the 2009-10 season, when Hammond was named NBA Executive of the Year.
The team is 22-18 this season and holds the seventh seed in the Eastern Conference.
The Bucks have gone 6-2 since Hammond fired Coach Scott Skiles Jan. 7, replacing him with assistant Jim Boylan.
"John does a terrific job for our basketball team," Bucks President Herb Kohl said in a statement. "He and his staff have assembled a roster of very talented players who are also very good people, which our fans appreciate and enjoy watching."
Jessica Simpson shares three-way kiss with friends in photo
Scarlett Johansson steps out with fiance after pregnancy reveal