Wednesday, February 07, 2007

Compression

Reading the posts about Marxism in law firms (ya gotta be kidding) and thinking about the salaries of professors led me to wonder about the MoneyLaw position on salary compression. I have not paid attention to other salaries at my school but I understand that here and elsewhere it is necessary to raise starting salaries and that we match offers incumbents may get from other schools. In a sense these salaries are market determined. Everyone else crawls upward, salary-wise, meaning that, apart from some high salary people, the range from top to bottom is quite small. I do not think it is common in law schools but friends in our economics department tell me that it is not uncommon for new hires to pass incumbents over there.

I am torn on this for the following reasons:

1. I think the vast majority of senior level law professors could not find jobs and salaries to match the ones they now hold if they resigned today and circulated resumes. Younger and less experienced professors could be hired to do almost the same thing at lower salaries. Why should stakeholders pay more than the least possible? Under this theory the seniors do not resign all at the same time.

On the other hand,

1. Something seems amiss about a salary scheme that encourages people to constantly be trolling around for a better offer in order to leverage their salaries up at their own schools. From a more economic perspective, schools require professors to absorb a search cost in order to qualify for salary increases. More importantly, it seems both unfair and to encourage disloyalty or at least a lack of personal interest in the long term development of the home school.

2. The people most likely to get the offer that permits leveraging are of the Making Nice, Knowing Better, Doing Nothing variety. Not exactly a great way to encourage faculty activism.

3. If one believes in a life-cycle wage theory senior level law professors are not overpaid but are drawing what is owed them.

So, Jim and others, what is the MoneyLaw position on salary compression?

(Sorry, No music link but I am humming Richard Thompson's 1952 Vincent Black Lightning.)

8 Comments:

Blogger Nancy Rapoport said...

IMHO, it's important to pay close to market price for entry-level faculty, but it's equally important to understand which market the school is in. State schools rarely can afford the same salaries that private schools can pay, unless the state schools are flagships.

Sometimes, it's the non-monetary parts of salaries (e.g., travel/book budgets, research assistants, etc.) that can help to close a deal. In my experience, what closes a deal is a combination of fit, enthusiasm of the faculty (I'll get back to that one), the total compensation package, and luck. When UNLV made me an offer, it voted on me the day after I did my job talk. I was floored by that level of enthusiasm, and the almost-simultaneous vote was one of the reasons I was happy to say yes (albeit months later, for reasons that you can probably deduce).

What to do about compression? It's important to distinguish systematic underpayment (something to fix) from the value of performance over time (something not to fix). If someone came in under circumstances that justify a fix, then the dean should, well, fix it. Example: UH doesn't give a pay raise w/tenure, just w/promotion. Therefore, the laterals that we brought in as associate profs w/o tenure needed an extra, non-UH-funded salary bump when they received their tenure at the associate prof level. Other folks just didn't get large raises over time because they were doing their job but not OVERperforming.

(I'm of the view that our salaries pay for us to teach well, perform our share of service, and publish regularly. Large raises, then, are for performance that goes beyond what our salaries compensate us for doing. Not everyone shares my view.)

What about salary-shopping? Sure, it's ugly to have to get an offer elsewhere in order to get a raise, and I'd hate a system that constantly requires such tactics. On the other hand, (1) if someone's constantly receiving "nibbles," then perhaps the dean's raises over time are out of whack and (2) do we really do what we do for money? Would we publish one extra article a year for an extra $1.5K? Would we teach with more effort? The fact is that we chose a career with immense freedom over one with immense income. I think it's a fair trade.

2/08/2007 8:38 AM  
Blogger William Henderson said...

Nancy makes some good points.

In general, however, I think there is a lot of confusion (and, frankly, incoherent) in our discussion of Moneyball/Moneylaw.

In my experience, faculty hiring decisions (especially in the lateral market) are trying to maximize scholarly prestige. However, over the last 15 years, the two schools that gained the most in US News academic reputation were San Diego and George Mason (a mere 15 ordinal spots). Yet, both schools availed themselves of a left-right arbitrage--and both had attractive metro areas working for them.

I am sure that many faculty would contend that their hiring is not done with an eye toward the rankings.

But what, then, is the institutional benefit of focusing almost entirely on scholarship in making a lateral offer? Absence a strong service and teaching excellence, how does this benefit the institution? Why would alumni want to subsidize these decisions? It has no bearing on rankings, potentially no bearing on the classroom, raises costs for students, and has no clear payoff student's employment prospects.

I am not implying that the heavy emphasis on lateral hiring is misguided. Rather, I am saying that much of the discussion on Moneyball/Moneylaw lateral hiring lacks a coherent theory of institution building. Instead, it appears that most of the putative benefits of lateral hiring are based on unexamined faculty preferences.

In this context, there is a lot of clarity to be gained asking some tough questions. bh.

2/08/2007 10:04 AM  
Anonymous Anonymous said...

Have you listened to Del McCoury's version of that song? It's brilliant.

2/08/2007 3:48 PM  
Blogger Marie T. Reilly said...

One lurking problem with salary adjustment based on market offers is possible bias against professors who are not moveable for reasons other than that nobody wants them. This group includes professors with a spouse who has made a non-portable investment in a career, or who has kids or other dependents who cannot be moved without big non-pecuinary transaction costs. The winners in the "I got an offer from so and so" game are those professors who have no such ties -- the no spouse, no kids or kids are grown folks. (Ok, I'm a little bitter about this.) I think that if this is the game we are going to play to address salary compression, then it may be biased against mid career people who have invested in their families and communities-- qualities that may very well make them more valuable (in use but not exchange value) than their "mercenary" colleagues.

2/09/2007 10:21 AM  
Anonymous Anonymous said...

I think that "mercenary" may be a bit harsh, although I understand the bitterness. If administrators at your school are playing it right, then the "mercenaries" at your school are actually doing you a favor. How? They provide a cue as to what the going rate for a productive tenured faculty member might be. If they are at 145k, then smart and ethical administrators should bump similarly productive faculty to the same rate. Blame the admin, not fellow faculty.

We should also differentiate between the faculty Reilly describes (productive and marketable, but not moveable for personal reasons) from nonproductive people who just like to complain about counter offers made to productive faculty. While those described by Reilly certainly exist, they are typically far outnumbered by nonproductive faculty who no other school really wants, but who like to think that they deserve huge raises because others are getting them, and "by-gosh I'm as good as him/her."

To be clear, an examination of Reilly's online PSU bio reveals that she would be in the marketable and productive category.

2/09/2007 11:41 AM  
Blogger Jeff Harrison said...

I agree the most law professors are not moveable and, but for tenure, would probably be out of a job, at least if productivity matter.

I also agree with MTR but feel compelled to offer a view that is out there. Is is "bias" when people do what they want to do. The professor who turns down a lateral move or does not look for one values the local ties more than the salary increase. The one does does move, feels differently. Bias has almost a "victim" feel to it. Maybe it is a case of wanting everything -- local ties, family, highest possible salary -- when very few achieve it.

In a system as irrational as the law professor system, I do not believe any of this hogwash but feel like it's important to provide another perspective.

2/09/2007 3:57 PM  
Blogger Marie T. Reilly said...

Anonymous has it right. There are two categories of non-moveable profs: 1) those that the market would value but not enough to overcome high idiosyncratic transaction costs; and 2) those that the market does not value. And, yes, both categories can free ride on the market value indicators of moveable people.

Anonymous is also right that we should distinguish between these two categories. Here's the rub. A good dean can distinguish between the two categories. But a good dean also knows that this distinction will put relative quality of faculty members squarely on the table. Category 2 faculty members cannot allow this to happen. They will mount tantrums or worse in anticipation of any move in this direction-- all in the name of "fairness and equality."

Distinction between these two types of professors would build the institution by enforcing incentives for productivity and quality throughout the faculty. But, the payoff is long run and the threat of public holy war waged by category 2 profs is immninent. Category 1 profs will not launch a counter jihad because they associate a much higher value to their time, what with the family, kids, community and scholarship. So for the "good" of the institution, deans, even potentially good ones sacrifice category 1 profs and the positive incentive effect from differentiation for peace.

That is the source of my bitterness.

2/11/2007 10:38 AM  
Blogger Jim Chen said...

On behalf of Jeff Harrison:

Wow and Wow again to mtr! Is there more dead on than flat dead on? I think we have yet another example of faculty capture. Peace in the interest of mediocrity.

2/11/2007 8:49 PM  

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