At the end of a spring break that I spent, in significant part, staring at budget numbers and thinking about law school finances, I've finally come around to responding to a neat post by Rick Bales called Getting what you pay for.
Rick made good MoneyLaw use of Michael Dorff's newly posted article, The Rational Choice Myth: The Selection and Compensation of Critical Performers:
Some positions within an organization wield unusual impact over the entity's success. The decision makers who hire these critical performers face a daunting task: to distinguish among closely comparable finalists in a context where small differences in talent can produce enormous outcome divergences. I apply research from psychology and behavioral law and economics to argue that decision makers demonstrate unwarranted confidence in their ability to distinguish among nearly identical candidates. The illusion of validity, representativeness bias, insensitivity to predictability, and the fundamental attribution error all impede decision makers' ability to make these fine distinctions. Once they have made a selection, cognitive dissonance induces inappropriate confidence in the outcome's validity and promotes excessive compensation. Involving a group in the decision may worsen these effects by imbuing outcomes with the false veneer of market legitimacy through social cascades and by discouraging contrary views through excessive consensus or groupthink. * * * In the corporate context, I . . . propose a combination of mandatory compensation caps linked to firm size and a reverse auction among CEO finalists to determine the successful candidate.Rick "enjoyed [Michael's] article, and couldn't help thinking about how it might apply to hiring in the legal academy." Michael's observation that corporate boards' "strong emotional incentive to bolster their confidence" in their CEO choices may lead them "to exaggerate the distinctions between the winning and losing candidates" and to "remain insensitive to the predictability of the new CEO’s future performance." According to Rick,
This sounds to me remarkably like the way we traditionally hire entry-level law faculty. Our predictors of future success, such as the prestige of law school attended, are an empirically poor predictor of future performance, so we convince ourselves that we have found a star, then are loath to recognize, even years down the road, evidence indicating otherwise.This is a very long road, but it leads to a large, beautiful, and eminently habitable house. In academia as in corporate management, reverse auctions can't eliminate imprudent hiring decisions. But they can lower the cost of all hiring decisions.
Read the rest of this post . . . .In the corporate context, Michael Dorff recommends a reverse auction for CEOs, based on "a small group of finalists based on traditional criteria, all of whom . . . deem[ed] acceptable" by the corporation's board. Since "boards cannot manage the production side of the equation, they should at least minimize cost" by choosing the CEO candidate who agrees to do the job for the lowest salary.
For his part, Rick "continue[s] the analogy to entry-level law teachers" by arguing for a variant of reverse auctions: "the faculty should recommend to the dean a slate of candidates, and then let the dean do some bargaining." In the place of salaries, which are harder to negotiate in academia (at least by entry-level faculty candidates) than in for-profit environments, Rick suggests that law schools "could bargain for [things] such as institutional service and a commitment to innovative teaching."
I find the entire analogy and analysis fascinating. I hasten to add one point. There is a way to implement a reverse auction for entry-level law professors in more explicitly financial terms: student contact hours. A single figure — number of students times credit hours per course — simulates the financial impact of a potential faculty hire. The vast majority of law schools are dependent on tuition, and student contact hours correlate strongly to the amount of tuition collected. And since students per course directly correlate with the number of hours that a would-be law professor must spend teaching, answering questions, and grading exams, the candidate who expresses a high degree of willingness to absorb those students and those hours is sending a strong signal. According to this strategy, a law school faced with a slate of acceptable entry-level prospects should hire the candidate who, relative to her or his rivals, is willing to work longer hours, to serve more students, and to accept a lower amount of unstructured time — for scholarship and for leisure — for a given salary level.