DOCUMENT RESUME ED 368 256 HE 027 271 AUTHOR Moore, Kathryn M.; Amey, Marilyn J. TITLE Making Sense of the Dollars: The Costs and Uses of Faculty Compensation. ASHE7ERIC Higher Education Report No. 5, 1993. INSTITUTION Association for the Study of Higher Education.; ERIC Clearinghouse on Higher Education, Washington, D.C.; George Washington Univ., Washington, DC. School of Education and Human Development. SPONS AGENCY Office of Educational Research and Improvement (ED), Washington, DC. REPORT NO ISBN-1-878380-26-5; ISSN-0884-0040 PUB DATE 93 CONTRACT RR88062014 NOTE 139p. AVAILABLE FROM ASHE-ERIC Higher Education Reports, The George Washington University, One Dupont Circle, Suite 630, Washington, DC 20036-1183 ($18). PUB TYPE Information Analyses ERIC Clearinghouse Products (071) EDRS PRICE MF01/PC06 Plus Postage. DESCRIPTORS *College Faculty; Compensation (Remuneration); Economic Impact; Employment Practices; Faculty College Relationship; Fringe Benefits; Higher Education; Labor Market; *Personnel Policy; Policy Formation; Salary Wage Differentials; School Holding Power; Teacher Motivation; Teacher Recruitment; Teacher Retirement; *Teacher Salaries ABSTRACT This monograph takes a detailed look at higher education faculty compensation policier and the role of these policies in improving and preserving the professoriate and the higher education enterprise. A section on compensation structure examines key decision points involved in determining appropriate structures, collective bargaining agreements, and retirement and early retirement issues. A section on factors that affect the structure of compensation looks at the academic labor market, external issues such as the expected drop in numbers of senior faculty due to retirement and the possible lack of replacements, and internal issues such as the role of faculty as independent professionals. A central section looks at how institutions can use compensation to motivate faculty, reward productivity, foster teaching and research, recognize rank and seniority, facilitate productivity throughout a career, and recruit and retain faculty. This section also treats the prevalence and uses of supplemental compensation. A section on equity looks at how hiring pressures have increased with demand for more sophisticated policies and procedures to deal with gender, race and age factors. This section treats legal and regulatory development and various approaches to meeting these requirements. A final section on building an effective compensation system argues that policy must address internal consistency, external competition, individual contributions, and systen administration. Includes an index. (Contains over 200 references.) (JB) MAKING SENSE OF THE DOLLARS THE COSTS AND USE3 OF FACULW COMPENSATION KATHRYN M. MOORE & MARILYN J. AMEY REPORT FIVE 1993 ASHE-ERIC HIGHER EDUCATION REPORTS I BEST COPY AVAILABLE U.S. DEPARTMENT Of EDUCATION Once ol Educational Reward, and improvement EDUCATIONAL RESOURCES INFORMATION CENTER (ERIC) ars documen1 has been reproduced as received trom the person or organization onginabnia it 0 Minor changes have been made to improve reproduction quality Points of vow os opinions staled in this docu- mant do not flOC*Illarily represent Orval OEM positron or POIrOy Making Sense of the Dollars: The Costs and Uses of Faculty Compensation by Kathryn AL Moore and Marilyn]. Amey ASHE-ERIC Higher Education Repwi No. 5. 1993 611 Prepared by ERIC Clearinghouse on Higher Education The Geouge Wiishington Ilniversky Iii coveration with Association for the Study ASH* of Higher Education Publ&hed by Therge Tin School of Education and Human Development ton The Geo tge Washington University nwe WASHINGTON DC Jonathan I). Fife, Series Editor 3 Cite as Moore, Kathryr. M., and Marilyn .1. Arney. 1993. Making Sense of the Dollars: The Costs and Bes of Faculty Compensation. ASHE-ERIC Higher Education Report No. 5. Washington, D.C.: The George Washington University, School of Education and Human Development. Library of Congress Catalog Card Number 93-61675 ISSN 0884-0040 ISBN 1-878380-26-5 Managing Editor: Bryan Hollister Manuscript Editor: Barbara Fishel, Editech Col'er design by Michael Dwid Brou,n, Rockville, Mwylwid The ERIC Clearinghouse on Higher Education invites indi- viduals to submit proposals for writing monographs for the ASHE-ERIC Higher Edvcation &port series. Proposals must include: 1. A detailed manuscript proposal of not more than five pages. 2. A chapter-by-chapter outline. 3. A 75-word summary to be used by several review commit- tees for the initial screening and rating of each proposal. 4. A vita and a writing sample. :g.F:0_4; Clearinghouse on Higher Education School of Education and Human Develwment The George Washington University One Dupont Circle, Suite 630 Washington, DC 20036. 1183 This publication was prepared partially with fiinding from the Office of Educational Research and Improvement, U.S. Department of Education, under contract no. El) RI.88-062014. The opinions expressed in this report do not necessarily reflect the positions or policies of OER1 or the Department. EXECUTIVE SUMMARY The well-being of the professoriat depends on a solid financial foundation in institutions of higher education. Simply put, unless adequate remuneration is available, talented individ- uals will seek other employmentboth faculty who are cur- rently in the professoriat and those who might be recruited to undergo the preparation and enter the professoriat subsequently. During the 1970s and 1980s, faculty salaries declined sharply, in both real and relative comparisons, and the decline was combined with a widening dispersion of salaries across disciplines. It has resulted in a variety of inequities and dis- continuities for individuals and for institutions. In light of an increasingly dynamic job market for faculty in the 1990s, it is important that both faculty and institutional decision mak- policies ers understand what is involved in compensation and practices to improve and preserve the professoriat and the higher education enterprise it serves. What Is the Current Context? The current context for decisions concerning compensation is extremely turbulent. The financial situation of many states has reached crisis levels. Public higher education is under duress. Many institutions have had to make deep cuts in their budgetsas much as 15 to 20 percentand no relief is in sight. Because personnel costs amount to approximately 80 percent of most institutions' operating budgets, there is vir- tually no way the faculty can be sheltered from such cuts. In addition, today's faculty are far more diverse, certainly informed more sophisticated about the marketplace, and more of the general state of affairs affecting their institutions and the professoriat generally than were their earlier counterparts. In return for their contributions, they expect institutional lead- and dedicated ers to provide wise policy, humane practice, service in return. Compensation policy and practice are at the center of an institution's relationship with its faculty. Indeed, compensation policy and practice reflect the essential mission and philosophy of each institution through what it rewards, whom it rewards, and how it treats its most important human resource. How Is Compensation Structured? Compensation usually refers to salary plus other monetary benefits. payments or quasi.monetary payments, such as fringe iii The Costs and 1:ses of Faculty Compensation 5 It might also include nonmonetary compensation like leaves of absence, released time, and sometimes even laboratory or other work space. Most depictions of faculty compensation tend to focus exclusively on the salary portion. Making Sense of the Dollars: The Costs and Uses of Faculty Compensation takes a more comprehensive approach, however, examining the structure of compensation and key decision points in- volved in determining institutionally appropriate structures of compensation, including linking compensation to insti- tutional mission. While not a factor at every institution, col- lective bargaining agreements play important roles when they do exist. Retirement issues and their impact on the structure of compensation, including early retirement programs and incentives, are important also. How Do the Academic Labor Market and Other Factors Affect Compensation? Recent federal legislation uncapping retirement has called attention to the age structure of the academic work force and indirectly to how faculty are remunerated. Projections for the academic work force for 2000 make two principal observa- tions: (1) Senior levels of faculty will be reduced as much as 40 percent because of retirements; and (2) replacements for these departing scholars are not entirely evident. The overarching perspective is one that considers insti- tutions as markets and the ability of various types of insti- tutions to preserve and protect their mission and direction through practices of hiring and compensation. External market issues affect institutional polices and practices regarding corn pensation, including dimensions of the current and prospec- tive faculty labor pools and the dispersion of Salaries across academic and nonacademic markets. Internal market issues include the role of faculty as independent professionals within a multidisciplinary market and new contractual and compen- satory arrangements for faculty, including retirement. How Is Compensation Used? Institutional quality is inextricably bound to the quality of the faculty, yet hiring and retaining high-quality Faculty members are likely to become increasingly difficult in the years bead. Does compensation motivate faculty? What is the rationale behind using merit pay to reward productivity, and are teaching, research, and service rewarded differently? ii' 6 How is compensation used to reward seniority, and what com- pensation practices reward faculty activity across the career span? How is compensation used to enhance recruitment and retention, and what institutional issues are associated with the use of supplemental compensation? Making Sense of the Dollars examines these questions and provides some answers for faculty and administrators. Are Faculty Paid Fairly? Equity is a central concept in pay systems generally. Inequita- ble policies and practices of compensation can result in poor use of human resources, individual frustration and discord, and lower institutional productivity. Compensation policy and practice are underwritten by sev- eral important federal laws and regulations, and state statutes. The Equal Pay Act of 1963 and Title VII of the Civil Rights Act of 1964 are particularly defining. Considerable controversy surrounds the idea of equity and its application to various individuals and groups within higher education. Claims of salary discrimination have played a crucial role in shaping the nature of the debate since these federal laws were passed. Considerable research has focused on three aspects of salary discrimination: studies that document the existence of salary discrimination; studies that attempt to explain or examine the causes of salary inequity; and research concerning various methodological tools used to prove or disprove salary dis- crimination nationally and on campus. How Can We Build Effective Compensation Systems? Academic compensation has evolved piecemeal in response to changing markets, individual expectations and behaviors, and institutional circumstances. It is a highly complex system that nevertheless strives to achieve a reasonable balance between the faculty's personal and professional needs and A a college's or university's mission, goals, and resources. col- set of policy dimensions forms the foundation of most legiate compensation systems. These policies address inter- nal consistency, external competitiveness, individual con- tributions, and the way the system of compensation is adm in istered. Increasing external pressure for colleges and universities to be accountable and open in their operations will sooner While many insti- or later affect their compensation systems. The Costs ancl tces of Faculty Compensation 7 tutions have open salary information, others do not. Some have clearly written policies and procedures; others do not. In the long run, the productivity and satisfaction of the facultyindeed, the overall quality of the institutionwill depend on its compensation system and the wisdom with which it is administered. t'i 8 ADVISORY BOARD Barbara E. Brittingham University of Rhode Island Jay L. Chronister University of Virginia Rodolfo Z. Garcia Michigan State University Elizabeth M. Hawthorne University of Toledo Bruce Anthony Jones lniversity of Pittsburgh L. Jackson Newell University of Utah Carolyn Thompson State University of New York-Buffalo The Costs (out I 'ses of Family Compensatim 3 CONSULTING EDITORS Louis C. Attinasi,Jr. UniversLy of Houston David W. Breneman Harvard University Kimberly Brown Portland State University J. Kent Caruthers MGT of America, Inc. ".4 Elsa Kircher Cole The University of Michigan Jane F. Earley Mankato St:tte University Walter H. Gmelch Washington State University James 0. Hammons University of Arkansas Robert M. Hendrickson The Pennsylvania State University George D. Kuh Indiana University Barbara A. Lee Rutgers University James L. Morrison The University of North Carolina-Chapel Hill Patricia H. Murrell Memphis State University Amaury Nora University of Illinois-Chicago Robert M. O'Neil University of Virginia Raymond V. Padilla Arizona State University Barbara S. Plakens Iowa State University William Rittenberg Micliigan State llniversity ix of Faculty thmponsation and 'ses ne Costs 1 0