A former adviser to the University of Texas Board of Regents who is aligned with controversial reforms that have been touted by conservative groups and Governor Rick Perry issued a report Tuesday identifying what he called a “faculty productivity gap” at the two chief research institutions in the state.
Nothing generates academic interest like a conversation about pay. Much faculty salary discussion focuses on why someone else makes more money. Often the contemplation of salary differences takes as its premise that the disparity must come from favoritism or some other illegitimate source rather than being a reflection of merit or that surrogate for merit, the market.
These conversations tend to be one-sided since the initiative comes primarily from the colleagues who feel underpaid. “Overpaid” colleagues rarely participate in this discussion. Thus, it is always good to see a systematic, data driven discussion of the subject of faculty salary differentials such as the recent much-quoted item from Ehrenberg, et al. at Cornell University.
Their study shows not only significant salary differences between disciplines on average (economists being paid more than English professors) but significant variation in that difference among institutions. This, they say, is because high quality departments pay more than low quality departments in the same discipline. If English is a weak department and economics is a strong department in one university, the difference in average salaries will be greater than if, in another university, both departments have the same quality.
These results validate in a systematic, statistical and aggregate way what individual participants in the academic market place have known and practiced for years. We who hire faculty or seek employment know that desirable scarcity drives up the market price of faculty. High quality, defined almost entirely by research success, is scarce, so the university has to pay for it. Medium quality is common so salary levels are less. The "outside offer" that comes to the faculty member whose local salary is significantly below the market resets that individual’s salary to meet the national market, whether through a counteroffer or a change in institution.
This process, however, has many complexities not easily reflected in the aggregate data. Faculty have a local salary, the amount paid by their current institution. At the time of first hire, the local salary and the market salary are the same, because the hiring university must pay the market rate for the faculty member. This market rate reflects the faculty member’s current and expected value and includes any special premiums that might apply. However, the local salary diverges from the market the day after the faculty member begins work.
Changes in the local salary depend not on the market, but on local circumstances. Across-the-board and merit increases negotiated by unions or established by administrations adjust the local salary to local concerns. Faculty who publish and get grants, and therefore are connected to the external market, tend to increase their local salaries faster than faculty who teach and perform a variety of service roles for the institution. Even so, the rate at which the local salary rises is somewhat to significantly independent of the national salary market place, although most institutions attempt to keep local salaries above the level of initial hires in the same field at the same rank.
Promotion increases, which reward achievement as defined locally, also increase local salaries, but again at rates relatively independent of the market. In these local markets, politics and personality can intervene to slow or increase the rate of salary improvement. Other circumstances such as major budget crises in public institutions for example can hold back salary increases. On unionized campuses, the union’s principal effect is to raise the floor for all faculty, and in some places regulate the rates of increase.
The market salary for a faculty member is not always higher than the local salary. The market may not pay more than the faculty member currently earns. This is often the case for faculty who have been in rank for a number of years, who do good work, but who have no particular distinction that the external marketplace cares to reward. This is the case for a majority of the faculty at most institutions. Simply put, the marketplace is not much interested in hiring midlevel faculty with good if not distinguished capabilities because an institution gains little by doing so.
The hiring institution will have its own cadre of embedded faculty who are also good and experienced, but not spectacular. They rarely need to buy more of this kind of talent. The marketplace is available for those relatively few faculty members whose value is substantially above their local salary. These people can enter the market and receive an offer from a competing institution. This will set a new salary level for them because either their current institution will match the offer or they will leave and take the new, higher salary offer at the competing institution.
Special circumstances complicate this marketplace. For example, senior minority or women faculty of significant scholarly distinction often carry a premium over equivalent individuals without the special characteristics. Faculty with the potential for leadership at a new institution but no leadership opportunities at their current institution can often command a premium because the new institution needs that leadership more than the current institution. Faculty with expertise of value in external commercial marketplaces command a premium over faculty of equivalent quality who have no commercial market value.
Many other circumstances discourage faculty entry into the national marketplace to attempt to improve their salaries. Faculty with a marketplace value may not enter the market because they do not want to pay the relocation costs, because they have an employed spouse in their current location, or because they have a life style that would require substantial change. Other faculty have retirement plans and options that they would lose if they enter the market and take another position elsewhere.
These conditions help explain faculty behavior in their local environments. Because only a few actually access the external marketplace in any one year, and for most faculty the opportunity to take advantage of the external marketplace will happen only once or at most twice in their 30 year careers, most faculty salary effort is locally focused. This increases the politics around local salary policies. It also encourages faculty to develop strategies that manipulate and usually reduce their workload as an alternative to increasing direct compensation.
The inaccessibility of the national market for most faculty encourages the local proliferation of quasi-administrative roles such as program chairs, faculty governance leadership, micro departmental organizations, and other structures that provide a rationale for a salary supplement for administrative service. Faculty pursue major administrative appointments that offer salary increases unavailable to them in the academic marketplace. They take on consulting, publish textbooks, create start-up companies, and supplement their salaries with summer grant funding. Unions and tenure ensure that the institution cannot force faculty members into the marketplace where they might have to accept a lower, market-determined salary. Unions also usually ensure that whatever happens in the marketplace, the salary levels of continuing employees will keep rising.
Faculty salaries also capture the value of security. Compared to many outside professionals of equivalent education and sophistication, faculty salaries appear low. When we account for the fact that faculty, once tenured, have a lifetime employment with compensation and benefits guaranteed, we recognize that part of the lower dollar payment reflects the much lower employment risk for tenured faculty compared to their professional counterparts in the commercial marketplace. College coaching salaries offer a clear demonstration of this. They often appear very high to many observers but actually capture two high-risk circumstances: coaches must win or be fired, and their compensation frequently depends on the amount of revenue their teams earn.
Universities in search of high quality research faculty, defined in the national competition for grants, awards, publications, and the like, will always pay a premium for the individuals who fit their expectations. As the Cornell study shows, if an institution has a particular disciplinary focus for its quality aspirations, it will pay more for the faculty in that field than it will for faculty in fields where its aspirations are less.
At the top rank of public and private universities, almost every field is expected to be at the top level of quality, and in those universities, the salaries of all faculty will most closely reflect the national marketplace for their subdisciplines, including the built-in differentials between English and economics. The farther from the top rank a university is, the more its salaries will diverge from the marketplace level set by the top performers and the more its salary system and interests will focus on local concerns.
To understand the faculty salary game, it helps to know the whole system.
The University of California Board Regents recently created a compensation committee to increase their oversight of university compensation practices and will introduce a yearly review of the system president’s performance. The regents also added an independent compliance officer to assure their compensation policies are followed and will add several new positions in the president’s office to address management shortcomings. These changes are designed to end excessive and secretive compensation practices recently revealed by the press.
Will these efforts bring administrative compensation more in line with the university’s compensation of top professors as suggested by the Academic Senate? Or will they simply provide a method for administrators to convince California legislators that higher administrative compensations are justified so that UC “can compete for the best people?”
The Regents’ compensation committee should, first and foremost, appreciate that top UC administrators already receive generous compensation packages. While some UC professors receive handsome offers from other universities, no UC campus chancellor has ever left for a comparable job at another university. Indeed, UC’s administrative generosity distorts salaries elsewhere.
When in 2004 Marye Anne Foxe received a $92,000 raise to induce her to leave the chancellorship of North Carolina State University to take the same position at the University of California at San Diego, North Carolina newspapers editors ridiculed “California dreamin" for provoking an “ugly” trend toward unjustified administrative salary increases in North Carolina. Editors noted that prior to Foxe moving to San Diego, salaries at San Diego and North Carolina State were comparable, with San Diego paying its chancellor $280,700, only $32,700 a year more than Fox was making in North Carolina. They also noted “all the interest generated when one of the [North Carolina] chancellors’ jobs comes open,” asserting that North Carolina chancellors’ salaries and generous perks already were the envy of most state and private sector employees.
North Carolina editors also denounced UC for paying MRC Greenwood, second-in-command of the 10-campus UC system, $100,000 more a year than her immediate predecessor. And all this was before the press’ revelation that UC administrators paid Foxe an additional $248,000 -- without informing the regents -- to forego her North Carolina sabbatical, making Foxe one of the highest-paid chancellors in the nation.
Trustees of the 16-campus North Carolina system reacted, somewhat predictably, with raises “to get our chancellors up to market.” North Carolina editors lamented that politically connected legislators "seem so eager to help higher-paid (and politically connected) state employees [i.e., university administrators] while they go on the cheap when it comes to the rank and file.” Mindful of a political backlash, in October 2005, North Carolina trustees capped the salary of incoming president Erskine Bowles at $425,000. When this failed to quell the political pressure, Bowles promised to return $125,000 as a donation to student aid programs.
Elsewhere in the country, concerns over administrators’ compensation permeate higher education. In testimony before the California Senate Education Committee hearing on UC compensation, David Longanecker, a national expert on university compensation, opined that "American higher education by and large has lost its way. We are spending an awful lot on executive compensation compared with what we used to spend."
Both at UC and across the nation, top education administrators are being paid increasingly high salaries without any evidence of higher-quality services. At UC this results, first, from questionable practices that paid certain top administrators more than the market price for the job. The second reason applies across the nation as well as to UC and stems from trustee’s condoning of executive searches that artificially restrict the supply of eligible top education administrators.
Since 1981, UC Regents have delegated the authority to select the campus chancellors to the university president. The president presents one name to the board for an up-or-down vote. The same is true for the salary of each proposed chancellor. For starters, the regents should revoke these delegations and assume responsibility for selecting the chancellors and setting their salaries. At a minimum, the regents should demand that the president offer at least three viable candidates for each vacancy and then negotiate the salary of the one chosen with the help of independent advisors rather than the president’s office. The president’s staff has a self-interest in high compensation, since typically yearly incomes are tied to the top administrators.
Going forward, the compensation committee should recognize that it is in the president’s interest to seek high administrative salaries and to bring aboard people disposed to support excessively high administrative salaries and compensation packages. In nominating chancellors and other executives, the president is selecting his team. Higher salaries buy the president the loyalty of these administrators as well as justification for keeping his own salary and total compensation package high. But do they buy anything for the taxpayers and students?
At the same time, there are existing practices that artificially inflate administrative salaries and deserve reform. While many university presidents leave the room when administrators’ salaries are considered, no UC President since 1995 has done so. As a result, trustees and auditors are less willing to discuss executive fiscal responsibility freely. And the UC president, besides advocating salary hikes for himself and his colleagues, could identify his detractors in the open-ballot regents’ meetings and punish them, for example, by not appointing them to various advisory committees.
Although the University of California is a public institution, meetings of special committees to advise the president regarding the selection of campus chancellors and other top administrators are held in secret, facilitating artificial restrictions on the number and types of candidates under consideration. Furthermore, for each administrative search, the president retains a search firm whose consultants’ fee is tied to the size of the nominees’ total compensation package, an arrangement that undermines efforts to rein in compensation.
Also, regents are typically asked to vote to accept or reject the president’s top personnel proposal in a telephone conference, in my experience a difficult context in which to organize resistance to a nomination or salary proposal.
Furthermore, UC administrators continually engage Mercer Human Resource Consulting to benchmark UC compensations with those of comparable universities. Mercer regularly finds that average salaries of administrators, while understandably somewhat higher than those at other public universities, are substantially below those of private universities. Although Mercer notes that UC pay is comparable when retirement and other benefits are factored in, the impression left with their readers is that UC administrators are underpaid. This suggestion ignores the possibility that private university administrators generally face more stringent oversight and therefore job pressures than those in public universities -- not to mention the fact that private funds, not taxpayer funds, are being used.
Indeed, Mercer’s results consistently ignore and discount the fact that UC administrators are public employees. The university's Academic Council found Mercer’s methodology flawed and in need of revision: In particular, “it is biased too heavily toward the private sector,” said Stanton Glantz, chairman of the faculty senate’s committee on planning and budget, adding that “there are plenty of people in California government who are running agencies that are larger and more complex than the University of California who are not getting ridiculously astronomical salaries."
The Academic Council also observes that the salaries of top administrators in Mercer’s report are not performance-based. “At least at the highest levels, [senior management group] salaries are based primarily on membership in administrative categories.” The council recommends that periodic performance reviews be introduced to the salary-setting process for top UC administrators.
Mercer’s procedure is flawed in other ways. Mercer does not report dollar values of the various non-monetary perquisites provided administrators. Nor does Mercer account for administrators’ gifts back to their universities, thus frequently overstating the net salary paid the administrator. Top-ranked University of Michigan President Mary Sue Coleman, for example, on paper makes $724,604, but in fact nets far less since she periodically donates her performance bonuses included in that sum to university programs, in 2003 pledging $500,000.
Year after year, the biggest flaw regarding the Mercer executive compensation report is that UC administrators regularly hire Mercer to create it. In continuing to hire Mercer, administrators are buying results that they like. In sharp contrast, regents periodically change their outside financial auditors to ensure a fresh, critical look at the university’s overall finances.
UC President Robert Dynes has publicly acknowledged that his executives promoted high administrative compensations by applying existing policy inconsistently, favoring top administrators, and failing to disclose fully compensation information to the Regents. Rules put in place after a similar 1992 scandal required that the regents approve executive compensation packages. To address these nevertheless recurrent management failures, the regents recently established an independent compliance officer -- reporting solely to the board -- to assure that compensation practices are consonant with board policies and an ombudsman to speed the University’s response to information requests. They also will restructure the president’s office and are considering adding a chief operating officer and a chief financial officer. Addressing the president’s deficiencies by adding still another layer of employees to that bureaucracy hardly seems a serious attempt to ensure it will follow correct employment practices.
Even if the new Compensation Committee comes to acknowledge and correct the high-administrative-salary bias in the pre-existing UC salary-setting process, the problem of excessive high-level administrative salaries is largely a reflection of a different, probably greater, national problem resulting from trustees’ acceptance of artificial restrictions on the supply of eligible top education administrators.
For top administrators to have placated the regents and similar boards of trustees across the country, the supply of ostensibly qualified candidates for their universities’ top administrative positions must have been somehow artificially restricted. Otherwise, the above-described, high-salary regime could not have persisted because the excess supply of qualified candidates at the higher salaries would have put downward pressure on salaries.
Ever-spiraling salaries have in part resulted from trustees’ irresponsible acceptance of a convenient belief -- perpetuated by top administrators and their hired consultants -- that the only people qualified to head universities are those who have "gone through the chairs," that is, people who have previously served in similar positions elsewhere or come from the higher education establishment. It is hardly surprising that among U.S. doctoral universities, presidential salaries rose an average 81 percent while faculty salaries rose only 47 percent between 1993 and 2003. Moreover, as top administrators from the post-World War II baby boom era retire, selection of new presidents from the existing and limited pool of itinerant college presidents and other top administrators will potentially provoke even more intense bidding wars.
Nevertheless, an enormous supply of willing and able, administratively-oriented, professors -- such as existing deans, vice chancellors, vice provosts and chairs of professional schools and large departments -- as well as term-limited politicians and similarly suitable outsiders, would provide essentially the same services at much lower salaries.
The growing salary gap between university administrators and faculty (and staff) will likely become more divisive. Selecting from a small, virtually revolving pool of candidates who have previously led similar academic institutions demoralizes deans and other academic middle managers who have no realistic expectation of rising through the ranks of their institutions. An exemplary social science dean I know is returning to full-time teaching after having participated in innumerable administrative searches as “the token white male.” Narrow selection criteria also risk promoting leaders who will not mesh with their campus cultures. Universities are being disserved when the selection process disadvantages the large and growing number of middle-level university administrators, term-limited politicians, and others who would be excellent higher education executives and willing to serve at much lower salaries than are currently paid.
Berkeley provides a market check. Berkeley recently became the first UC campus to designate a chief administrative and financial officer to oversee its nonacademic functions. The former banker’s base salary is $260,000, with no relocation or housing support, and a standard 5 percent severance ($13,000). Berkeley’s Chancellor Robert Birgineau (whose compensation package is somehow more than twice as generous) opined that the three suitable candidates who came forward at the advertised $250,000 salary did so because “they love Berkeley.” Sorry, chancellor, that’s the market rate -- when the search process is open, not larded up with unnecessary requirements. The other two qualified candidates would be more than suitable to perform similar tasks in the nearby UC president’s office at much lower than current rates there.
UC’s current compensation debacle is largely a replay of UC’s early-1990s, “golden handshakes” problems. Subsequent policies to fix these problems were either waived, ignored or circumvented by administrators. Had the regents used independent advisors they likely would have questioned the market-justification for the large proposed salary increases for administrators and certainly would have discovered the discrepancies between regent compensation policies and their implementation.
Nevertheless, the regents’ addition of an independent compliance officer will at best solve only what is probably a relatively small part of the compensation problem. Even if this officer corrects the internal problem of improper executive overpayments within UC, the larger problem of continually escalating salaries and perks would remain. A more important change would add independent advisors to inform the regents about available alternative administrative personnel and other compensation issues. While the regents and the president can be presumed knowledgeable about suitable outsiders, a couple of experienced, full-time, taxpayer-sensitive, UC professors who are painfully aware of qualified, underemployed administrative talent within the university would suffice. Recognition of the above problems at UC may not inspire boards of trustees everywhere to reclaim their authority over the hiring of top administrators. It should, however, inspire trustees to broaden significantly their board’s qualifying criteria for top administrators, as well as to insist that recommended compensation packages be demonstrably in line with the candidates’ options in the marketplace. To eliminate the current excessive salaries of top administrators and executives will require that boards of trustees and directors both hire advisors to expose overpayment fraud and recruit independent, full-time advisors from the ordinary, experienced, non-administrative employees of the organization to inform them about available alternative administrative personnel.
Velma Montoya, a Ph.D. economist, is a consultant and writer about higher education. She was a member of the University of California Board of Regents from 1994 to 2005 and represented the board on the California Postsecondary Education Commission.