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Thursday, November 15, 2012

Reforming Legal Education's Finances: How to Cut Salaries

Yesterday our series focused on different ways of cutting labor costs.  Today, I wanted to focus on cutting salaries. Of course, as Orin commented yesterday, not all schools will need to consider such measures.   But if a school has decided that it needs to reduce salaries for existing faculty, what are the pros and cons of various methods? 

One way would be an across-the-board percentage cut.  A wage freeze is one version of this.  The advantages of an across-the-board cut is that is is fairly straightforward to understand and implement, and it seems fair in that it takes the same proportion of everyone's earnings.  However, some may advocate for a larger chunk to be taken from those earning the most, on the same theory of diminishing marginal utility that justifies different income tax brackets.  Others may argue for a merit-based set of reductions, based on performance.  And different types of performance could be rewarded: a school could reward scholarship, teaching, service to the school and community, or some combination of these.  Finally, one could combine a merit and market approach and base the reductions on the person's overall marketability.  Staff or faculty members that are likely to get offers from other schools would take less of a cut than others less likely to leave.

One particular method of carrying out a cut is to "furlough" professors and staff for a certain period of time; it's a de facto across-the-board reduction in salary.  The furlough may seem more palatable to university administrations, since it gives the employee the day "off."  Since faculty are generally not allowed to cancel a class, however, in choosing a furlough date, they would not experience the furlough as a day off and would likely be angry that their reduction in pay is not acknowledged explictly as such.

One question that seems murky to me: to what extent can a tenured faculty member's salary be reduced?  I have heard that even a 1% reduction could trigger a grievance.  If a school has promised a certain salary for a certain period of time, it would have to abide by that promise.  But it's unclear to what extent a prospective salary reduction would be infringe on tenure protections.  Here's an Inside Higher Ed article about a plan at UMaryland that would have allowed pay cuts after three poor reviews.  It was voted down by the faculty in part because it was seen as an infringement on tenure.

As an example of a moderate method of reducing salary costs over time, here's an excerpt from Brian Tamanaha's "Dean's Vision" speech where he lays out his approach:

During my full first term as your dean, I will not award a raise to any faculty member who currently earns in excess of $180,000. Faculty members who earn between $160,000 and $180,000 may receive merit based raises in flat amounts (not percentages), not exceeding $2000 annually. Those who earn between $140,000 and $160,000 will be eligible for merit-based raises of up to $3,000. To supplement these restricted raises, each year I will award several $1,000-$3,000 bonuses to faculty members who have made outstanding contributions to the school. Faculty who earn below $140,000 will be eligible for more generous raises.

So what do you think?  What are the costs and benefits of different approaches to cutting salaries?

UPDATE: TooCloseToHome points out that I neglected to discuss pay and benefits other than salary, particularly summer research stipends.  A big omission on my part.  A school could cut pay by cutting or eliminating summer research grants or other benefits such as pension contributions, forgiveable loans, and housing assistance.  Not all schools provide these benefits.  But for those that do, these benefits might seem like an attractive target, especially if they are not provided to other professors at the university.

I've spoken before (in a comment) about summer research grants.  I said: " eliminating summer stipends would be a regressive move. It would hurt those who are publishing more than those who are not, and it represents a much larger percentage of salary for junior folks than for upper-level senior folks. So if you think faculty salaries should be cut, that's fine, but simply eliminating research stipends is -- in my view -- a pretty poor way of doing it."  Eliminating other benefits might have less of a connection to merit and also less of a regressive effect, depending on how the benefits were given out.

And just to respond to James Maxeiner's point -- I agree that this set of discussions has a detached, remote quality.  We are not talking about specific problems faced by specific institutions.  I was hoping to move the ball just a little bit forward by starting to talk about potential financial decisions in a more concrete way.  But the discussions at individual schools will vary greatly depending on applicant pools, available cash, staffing levels, relationship with a university, etc.  I do think James is right -- Brian's solution is geared toward more elite institutions.  Profs at many schools would be in line for significant raises under Brian's plan.

Posted by Matt Bodie on November 15, 2012 at 10:14 AM in Life of Law Schools | Permalink

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Comments

There is a different way to cut salaries - have the tenured faculty teach more hours, and cut the extravagant research stipends and additional perks that send an already high salary through the roof. I include just tenured faculty above because I believe that most schools do not provide such perks for clinical faculty, and their course loads are already very high.

Posted by: JustAThought | Nov 15, 2012 10:56:52 AM

So what's wrong with forcing the profs to announce their course and then bid for students the way Socrates did?

That way, they could easily control class size and their own incomes. Students would end up satisfied with their profs and the profs who couldn't enlist enough students could be assigned to teach Civ Pro.

Posted by: Jimbino | Nov 15, 2012 11:04:53 AM

We live in different worlds. Cut salaries? At many law schools faculty live with low salaries frozen for years further reduced by furloughs. Tamanaha's table would mean substantial salary increases. No faculty are in the top tier, few are in the second, and most are in the bottom tier; many of them are scarcely above or are even below $100k.

Posted by: James Maxeiner | Nov 15, 2012 1:00:06 PM

Matt: Just to reiterate James' comment, above, I'm sure you know that many (most?) full professors at your home institution are nowhere near the middle tier even with a summer stipend, and now the stipend has been cut, they will be at or around the $100,000k mark. It's not clear why you don't address the stipend cut, given that it's the one that hits closest to home. One reason for not doing this type of cut is that it is retrogressive: it impacts the most productive faculty, and has a disproportionate impact on the most junior (bigger percentage of their pay; more pressure on them to write in order to get tenure). But a law school could just cut research stipends for tenured faculty. Of course, that would send a message about research. But given the tightening market, folks who aspire to high-end research institutions would continue to write, in hopes of writing out and up, and folks who want to earn bucks over the summer would teach. That would in turn increase faculty competition for summer teaching places, which could be awarded on merit instead of need. It may even have a residual quality-of-life pay off: instead of writing or teaching over the summer, most professors could holiday with their families, as (I'm sure) students currently assume we do, or engage in consulting or practice so as to refine their practice skills (as students may assume we should).

Posted by: TooCloseToHome | Nov 15, 2012 6:54:19 PM

I once had lunch with an emeritus professor who had been the dean at what was then an up-and-coming law school. He claimed to apply the following compensation structure:

1.) You get a 15% or so raise when you get tenure.
2.) You are encouraged to go on the market and get a lateral offer. If you get one, he would promptly give you an up or down decision on whether he was willing to match it plus 10%.
3.) That's it. No other raises. No COL, no research stipends, nothing. If you are making $130k today as a tenured prof, that's what you'll be making ten years from now unless you get a better offer elsewhere and he decides to match it plus a little.

Now, you obviously need to sweeten the pot for administrative deans who take time away from publishing (and possibly teaching) to do those duties -- otherwise no one would do it. But say you did that. Would that (possibly apocryphal) salary structure work? Both to weed out the deadweight faculty, and to hold down salary structure?

Posted by: Would this work? | Nov 15, 2012 7:54:50 PM

TooCloseToHome -- you're right. I've provided an update above.

Posted by: Matt Bodie | Nov 16, 2012 9:29:27 AM

Why not focus/think about health care costs?

Posted by: dave hoffman | Nov 16, 2012 10:24:06 AM

I thought about including those, but aren't they generally a university-wide issue? Schools have cut health care costs in various ways, but faculty members are almost never consulted. I guess what I'm saying is: health care costs have always been a concern/obsession of HR departments, but faculty and law school deans have a bigger impact on other aspects of compensation. But I could be wrong about that.

Posted by: Matt Bodie | Nov 16, 2012 11:09:26 AM

They are university wide, but of course that could be said about many kinds of resourcing decisions - i.e., how much do we pay for food services; what about "activity fees"; must we go through a university travel broker; can you book visitors in the cheapest hotel or only one from an approved list; etc. I thought it was widely acknowledged that health care costs are driving a large percentage of the overall rise in tuition, in turn directly connected to the combination of tenure & the elimination of mandatory retirement.

Posted by: dave hoffman | Nov 16, 2012 9:10:27 PM

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