Revisiting Compensation Plans in Higher Education

Like many universities throughout the country, UW-Madison is undergoing a restructuring of its human resources policies, aiming to make them more cost-effective by stimulating higher productivity-- bottom-line thinking encouraged and facilitated by the Wisconsin Legislature.

Among the planned changes in the new HR Design plan, released last Friday, is a shift to use of "new compensation structures...with market data... gathered to inform compensation decisions. Pay adjustments will reflect a broad range of factors (e.g., market, equity, performance) within defined parameters, and will be based on objective performance evaluations...These decisions will have to be made through fair, objective and transparent performance evaluations. Supervisors will be provided with training on how to conduct effective and bias-free performance evaluations and how to ensure that the supervisors who report to them are doing the same with their staff. Deans and directors will be responsible for ensuring that compensation decisions are fair and merit-based."

Unfortunately, the scholarly literature  suggests that some elements of this approach may be problematic. Here are some examples:

• The application of market data is subject to misapplication. The HR Design Plan says, "For example, for positions that require unique or advanced skills, the university must be very responsive to external labor markets in order to recruit and retain talent" (p.24). While this is commonly accepted wisdom, research discussed in yesterday's New York Times challenges it. Specifically, the use of market data has been shown to needlessly inflate the compensation of "stars" who are said to be flight risks, despite significant doubt about their transferability. Even though the article  focused on CEOS, given that these are jobs with unique or advanced skills too, the lessons seem quite applicable to high-level university administrators, athletic coaches, and "star" faculty-- who would likely find it very difficult to simply move to operating in an entirely different academic setting, moving their labs and students, etc.  There are big costs to doing so, and we have seen the results, since those stars often return to Madison after a few years away, and others seek to do so-- too late, when we no longer have space or desire to employ them. 

• There is a strong risk that these models will prioritize the pay of employees in a way that maximizes institutional prestige, rather than institutional effectiveness.  This is a common problem in the non-profit sector, and the current plan doesn't identify explicit actions to avoid it. It's currently a well-known problem, contributing to a rankings race that costs Wisconsin taxpayers money and comes at the expense of our educational mission.

• The plan makes statements about "considering" internal equity but does not make explicit the rank order in which internal equity should be prioritized by departments.  Admittedly, this is a highly de-centralized campus, but that should not come at the expense of equitable human resources practices. In the meantime, evidence continues to emerge from top scholars in economics and business suggesting that job satisfaction for university employees is really affected by relative pay in their workplace rather than absolute levels of pay such as those that would be constructed by setting pay within an institution based on pay given outside the institution. 

A few additional thoughts on that last point...We saw the anxiety about faculty pay that forms some of the ground for these changes emerge and grow quite heated during the New Badger Partnership discussion last spring.  I blogged extensively about this,  raising questions about the use of extra-institutional peer comparisons in defining "low" pay,  rather than intra-institutional comparisons (in other words, am I underpaid because my colleagues at Penn State make more money, or because my colleague in the office next door makes more?)   I argued that while Madison faculty (and many staff) operate in a national and even international marketplace, there are selection mechanisms operating that mean that many of us place a lower priority on such distinctions compared to other people who choose to work at notoriously well-paid places.  In other words,  people on whom the future of the university rest knew when they were hired that Madison wasn't known for its high salaries, recognized the low cost-of-living in the area and the great benefits, and while they have little tolerance for being inequitably paid among people on campus (nor look kindly on salary compression), didn't rank pay relative to other institutions as a top priority.  (Admittedly, it is hard to test the merits of my claim, since I cannot locate any high-quality surveys of our university community which provide an array of responses to questions about compensation and achieve high response rates-- and it's safe to say that those who step forward with complaints are a selected bunch upon whom new policies should probably not be based.  So, if this is incorrect, get the data and let's examine it.)

The shift to new compensation structures is part and parcel of wider efforts seeking to bring corporate models to higher education.  They convey a set of neoclassical economic constructs, such as self-interest, scarcity, maximization, choice, efficiency, value, and competition, with which we are all too familiar.  The effects of such models can be observed in conflicts like the one that arose at UVA this summer, when an external, bottom-line focus and disrespect for internal collaborative processes led Rector Helen Dragas to make an extraordinarily ill-advised attempt to oust President Terry Sullivan.

To be completely fair,  many disagree with me regarding this claim of corporatization. The HR Design team produced a document that proclaims, "Misconception: UW-Madison is moving to a corporate model. Fact: UW-Madison will be adopting a personnel system that meets the needs of our educational mission and culture. Our university will implement a new personnel system tailored to the needs of our higher education environment. Implementation will include working with governance and other stakeholder groups to ensure that the new HR system makes sense for our mission, culture and environment. We will also continue to identify and apply best practices from other educational and public sector organizations. (This point is emphasized throughout the plan.)."

I don't doubt the sincerity of this statement at all. But the problem is that the "needs" assessment is marked against the demands of external (and internal) stakeholders that seek to promote a focus on efficiency above other values, and among whom some politically seek an austerity budget for public institutions that will create room for new business opportunities for profiteering institutions.  Moreover, it's getting harder and harder to find practices in the public sector that are unlike those used by the corporate sector, given the longstanding conversion of universities and their brethren to this model.  So, it will be very easy to say "our friends do it, and we don't want to fall behind," even though this may serve to justify a model that is effectively destroying those friends.

So what are the alternatives? Absent the availability of a list of already-considered alternatives and their pros and cons, such as what could have been offerred by the HR Design team, I will turn to the work of noted scholars like Stanford's Myra Strober, and University of Massachusetts-Amherst's Nancy Folbre.  My assessment of their work leads me to suggest that we would benefit from shifting to focusing explicitly on the following in a revised HR Design plan:

(1) Ensure that first and foremost the university offers all employees compensation consistent with the UW-Madison community's collective norms. To do this, we must explicitly agree on and state our norms and values. When did we last (or ever) do this?   UW-Madison prides itself on developing in its students a sense of civic commitment and responsibility, and avoiding hypocrisy requires that we exert the value of altruism to be inherent in how we treat each other--including when it comes to pay.  While the HR Design plan pays attention to ensuring we pay a living wage, I think we can all agree that that's really the bare minimum.  To ensure we hire people committed to UW-Madison and retain them for the long haul, we need to make explicit a set of institutional priorities placed on internal equity and long-term employee performance.   Focus on ensuring that all campus units promote a culture of fairness among employees, where equity concerns are addressed proactively rather than reactively (as they are now).

(2) Focus on rewarding the type of work that produces high-quality outcomes for our students. As an educational institution, we engage in work that is inherently process-based, and the outcomes of which can take a long time to emerge. We should be explicit about discouraging units from emphasizing short-term gains that are often illusory and can serve to too quick elevate a "rising" star who may lack institutional commitment or perform very little "non-market" work.   Much of what the best members of our community do is essentially volunteer work-- service above and beyond the call of duty-- and unless we explicitly commit ourselves to paying for that work, it goes unacknowledged and will inevitably decline.

(3) Distribute gains effectively.  If employees at UW-Madison want to be national leaders in stemming the rising tide of inequality, we should actively discourage the "Matthew effect" on campus. In other words, we should prevent a winner-take-all system and ensure that gains come to those who have not typically be rewarded.  (There was some language about this in the Critical Compensation Fund guidelines this spring-- that was a good start).  For example, we will gain much more from ensuring the continuity of strong programs in the humanities because they are being decimated elsewhere, and because emphasizing the importance of the humanities in the teaching of our students will help our students stand out not only as workers but as human beings.  Humanities faculty need adequate support staff just as much as science labs do, and we collectively benefit from recognizing that.  The plan needs to be very clear on this point, lest departments be less to be seemingly "rational" but practically ineffective decisions.

(4) Focus on the distribution of abundant resources rather the adaptation to scarcity. The HR Design could leverage this opportunity to become part of a larger effort rejecting the claims that the university must tighten its belt because of tough times-- it is not because of a lack of a tax base that these changes are occurring, but because of particular policy choices.  Scarcity is being created and advertised to us-- and we are buying it.  But the psychological effects of scarcity rhetoric undermine any additional compensation and have long-lasting effects.  We should encourage in our community a sense of selflessness, and write a plan that maximizes everyone's benefits under conditions where we are wealthy, not poor.  This will effectively de-emphasize internal competitiveness, which creates strife, and create more opportunities to achieve intrinsic satisfaction in one's work. In the last 5 years, I have felt my colleagues grow more tense and worried, feeling as it everything is a zero-sum game and we are under siege. That's remarkably destructive, and should be addressed.

In summary, I am grateful for the work of all on campus who contributed to the HR Design effort. I think they worked within parameters and expectations which are common to campuses across the United States.  But therein lies the problem-- we need to better engage a process of sifting and winnowing that is open to thinking from outside the box lest we  perpetrate on ourselves a system that has demonstrably diminished the flourishing of so many Americans.