Should Compensation Be Transparent?

The Texas kerfuffle has raised many questions, some of which have already been discussed at length on other law blogs.  But for me, the news brings up a larger question that I’ve been thinking about for a while now: should law school compensation be transparent, at least to other faculty members?  

Some schools – for example, many public schools – have very little choice in the matter of whether to reveal salary information, as state statutes require them to reveal that data in some manner.  For example, Illinois appears to publish all salaries in the Daily Illini, which I assume is a legislative mandate, rather than a choice on the University’s part (Illini insiders should feel free to correct that impression, if erroneous). 

But there appears to be a great deal of variation, even among schools operating under some sort of transparency mandate.  For example, I have seen schools that interpret the requirement to make salaries publicly available to mean that they are in a file in the central library, such that one has to make an affirmative effort to discover them.  I have seen others distribute salary information in a yearly memo to faculty, such that everyone is confronted with everyone else’s salary, whether you want that information or not.  And I have seen some schools following what appears to be the Texas model, under which the reported salary numbers give little useful information about total compensation, because so much compensation comes in the form of benefits that are not required to be reported – children’s tuition, housing, loans, foundation grants and fellowships, etc.

But what I want to address is a different question: assuming flexibility in the matter of whether faculty compensation is transparent to other faculty members, should it be? I’m going to answer that question with a tentative “no” despite the admitted costs of secrecy in compensation information. 

As many Loungers already know, there is a reasonably large body of research on salary transparency.  Although I’ll draw on that for some of this discussion, I also think that academic institutions – with their limited ability to fire nonperformers and the relative lack of professor mobility, as compared to some other occupations and industries – may not be the best fit for some of that research.  Moreover, law schools -- which tend to have less external quality verification, such as grants and peer review – may present different challenges than other academic units.  I’ll leave that question to others with more comparative knowledge. 

Let me begin with some assumptions about the ideal academic salary system.  First, it should be meritocratic, meaning that faculty members are rewarded for excellence in the pursuit of shared institutional goals – for example, scholarship and teaching.  Second, it should be fair, in the sense that faculty are neither rewarded nor penalized for traits, behaviors, and the like, unrelated to those goals.  For example, the system should show no race or gender bias, “squeaky wheels” should not be able to increase their compensation beyond their due through constant complaints to the dean’s office, nor should more unassuming faculty be passed over for deserved compensation.  Third, it should be transparent, in that each faculty member is aware of the total compensation of other faculty members.  This transparency enables verification of features one and two – i.e. that the system is meritocratic and fair. 

Ideally, a law school’s salary system should embody all three of these characteristics: meritocracy, fairness, and transparency.  In my experience, however, real-world law schools rarely embody all three traits.  And having worked under both the transparent and non-transparent systems, my vote (for today anyway) is for the imperfect, but better, non-transparent model. 

What happens when compensation is not transparent?  Well, the fear, supported by some research, is that decision-makers will indulge biases.  Some argue that pay secrecy exacerbates pay inequity and the gender wage gap.  Others argue that salary secrecy can fuel inequity fears, even when wages are being set fairly. 

What happens when compensation is transparent?  In a recent NBER working paper, David Card and his co-authors find that pay transparency reduces aggregate employee utility – below-median workers experience lower job satisfaction while those above report no greater satisfaction.  Fine, but what does this mean in terms of real life around the law school water cooler?  Like most of you, I have seen people obsess nearly to the point of needing medical attention about the one person making $372 more than she is, even if – in the absence of information – this individual would feel perfectly content with her salary. Forget above and below the median – most of us freak out at even the smallest perceived pay inequities.  And unlike the widget factory, where there are concrete and objective measures of quality to point to in defense of salary disparities, law schools have only contested and somewhat subjective measures of quality with which to defend disparate salary structures. 

Now, I don’t mean to overstate the indeterminacy of academic quality here – usually there are some superstars and some non-performers about which almost everyone can agree.  But in between those extremes, salary distinctions have to be defended through a set of contested and subjective criteria about both quality, and the importance of the various aspects of the law school mission.  How much does good teaching offset poor scholarship?  How do we judge scholarly quality?  How much do we rely on objective measures such as citations and downloads?

What is the end result?  My experience – which, of course, is not universal – is that extremely transparent systems lend themselves to lock-step compensation based on easily identifiable criteria, such as seniority.  Because then the dean always has a clear non-discriminatory metric to point to in defense of pay structure, and the rest of us don’t have to argue about difficult things, such as quality.

And this, to me, is not a good place for a law school to be. The system may be fair (nondiscriminatory), but it is not meritocratic.  Nearly everyone feels cheated anyway and the highest performing young folks – i.e. those most likely to be picked off by another school – legitimately so.  It just seems to me to be a recipe for a system under which almost everyone is unhappy, there are few incentives for productivity, the highest quality folks have every reason to try to leave, and those who are geographically constrained for family or other reasons (and who, as long-termers might otherwise be institutional building blocks) feel cheated by the institution and thus are less likely to give back. 

Now, before someone extols the virtues of lock-step systems (long the norm at many law firms, but increasingly under pressure), I agree that there are some arguments in its favor: the reduction of internal conflict and competition and the fostering of a collective sense of purpose.  But law schools are not law firms.  The lesser mobility of academics, the reduced ability to fire non-performers, and the lack of the big “carrot” of partnership profits at the end of the day render the two environments too different to map one compensation system onto the other.

These outcomes aren’t inevitable, of course.  I’m sure it’s possible to craft a compensation system that is fair, meritocratic, and transparent.  But are most law schools inclined to do so?

Comments

[Larry Catá Backer]

Excellent and very thoughtful. Greatly appreciated! The issue of morale is generally underrated and tends to be brushed under the carpet. For people who cannot vote with their feet, the only alternative is to "check out." The vicious cycle begins.--where a faculty member assumes no fairness (and shame meritocracy) she will perform only to the extent of the value of expected reward, which of course can then be used by the amoral administrator to justify unfairness, though for the conventional administrator it merely buys the "peace and stability" that ensures contract renewal when the administrator is herself reviewed. It is the rare administrator that tries to balance merit, fairness and transparency, and it rarer still for a faculty, the members of which think that by pleasing their master they might procure the fruits of UNfairness, to insist on a change of culture. The result is the sort of systemic corruption that many of use criticize in the public sphere in developing states.

[disillusioned]

In an ideal world, we would trust the deans to do their job right, and we would keep compensation info private. But remember what the theory of second best tells us. So long as the world is not ideal, and we cannot trust the deans, opacity of compensation is not necessarily a good idea. As the Texas blowout shows, some deans simply cannot be trusted. Larry Sager gave himself a $500K bonus without informing his own boss! He also set up a vast system of payouts to his friends, most of whom had no outside offers from higher-ranked schools and were not at any risk of leaving. Can you make sure this massive self-dealing is not happening elsewhere? If not, periodic sunlight might well be the best disinfectant.

[Kim Krawiec]

Thanks for this, Larry! I agree that the cycle can be a vicious one and that one of the saddest things to see is an institution where the best people have checked out.

You raise some good points, disillusioned. Perhaps a topic for another day could be what sort of checks, other than sunlight, might address those types of concerns. central administration may be one possibility, assuming a good deal of knowledge and involvement. Might compensation committees be another? (they should not be chosen by the dean, it seems to me). But both may be impractical and/or raise other problems.

[DSL]

You've nailed it, Larry. It's so common to see the wagging of tails around the alpha male in the hopes "that by pleasing their master they might procure the fruits of UNfairness."

[Mark Fenster]

Kim: I wonder to what extent your hesitation about transparency in this context could extend beyond salary. You've identified interpretive and consequential failures of disclosure -- the fact that employees will respond to salary information in irrational ways, and then act in ways that are both institutionally and personally detrimental. Is this just an issue with academic salary (you've identified why the academy is distinct -- diminished exit opportunity from below and discipline and firing from above) or with salary generally, or does it extend to other realms?

It would be interesting to know if any dean in a private law school or in a public which isn't required to disclose salary has chosen to do so, and what kinds of effects that had, especially if previous administrations had not disclosed. And because I teach at a school (U. Florida) where all salary information is available, I'd be interested to know about the partial information that must inevitably be available in non-open schools -- surely as gossip/ information sharing occurs, and as associate deans with access to information cycle back into the faculty, some data must leak. Put another way, "open" regimes and "secret" regimes can't be entirely dichotomous. For example, one of the cool things we've learned (as if it was actually news) is the extent to which there is salary on the books, and then there is salary in practice, the latter of which might include all kinds of items from forgivable loans to housing allowances which might only be disclosed through a FOI request, rather than through the regular posting of salary information. So, just as closed regimes might in fact be somewhat open in practice, so open regimes might in fact be somewhat closed in practice.

[Eric Muller]

Mark: "cool?"

[Kim Krawiec]

Hi Mark –
“employees will respond to salary information in irrational ways, and then act in ways that are both institutionally and personally detrimental. Is this just an issue with academic salary (you've identified why the academy is distinct -- diminished exit opportunity from below and discipline and firing from above) or with salary generally,”

The Card study, and others, were not studies of academics. (It was a study of UC system employees, but a randomly drawn sample of all UC employees). So the results regarding decreased aggregate utility from pay transparency should apply across the board. My contention is really that the negative effects of transparency may be exacerbated in an academic environment, for the reasons you mention.

As to your question about whether any private schools that are not required to distribute salary information do so anyway, I’m posting separately about that – the question came up at dinner last night. No one knew the answer, everyone wanted the answer, everyone predicted that the answer was close to zero. Maybe the Loungers will help out with anecdotes.

[Mark Fenster]

Eric: I meant "cool" in the social scientific sense -- as in, what a cool data point! We knew of these kinds of deals (and by "we" I mean those of us outside the rarefied air of six-figure forgivable loans) -- but to see it laid out so starkly in official responses to FOI requests? It's a pretty neat window into institutional behavior. Call me nerdy -- you wouldn't be the first! -- but I think it's pretty cool info, and worthy of Kim's awesome posts.

[Cheap Air Jordan Shoes]

overstate the indeterminacy of academic quality here – usually there are some superstars and some non-performers about which almost everyone can agree. But in between those extremes, salary distinctions have to be defended through a set of contested and subjective criteria about both quality, and the importance of the various aspects of the law school mission. How much does good teaching offset poor scholarship? How do we judge scholarly quality? How much do we rely on objective measures such as citations and downloads?

What is the end result? My experience – which, of course, is not universal – is that extremely transparent systems lend themselves to lock-step compensation based on easily identifiable criteria, such as seniority. Because then the dean always has a clear non-discriminatory metric to point to in defense of pay structure, and the rest of us don’t have to argue about difficult things, such as quality.

And this, to me, is not a good place for a law school to be. The system may be fair (nondiscriminatory), but it is not meritocratic. Nearly everyone feels cheated anyway and the highest performing young folks – i.e. those most likely to be picked off by another school – legitimately so. It just seems to me to be a recipe for a system under which almost everyone

[David J. Garrow]

*Total* transparency (including "foundation" etc. money) should be the universal goal/standard: don't we all support the core principles of FOIA in other contexts? I'd like to imagine (i.e. dream) that the ABA could require/mandate total transparency re accreditation, but it still should be the acknowledged ideal condition.

[Kim Krawiec]

Thanks for this, David, though perhaps I'm missing something in your analysis -- I don’t see how support (or not) for FOIA in other contexts is relevant to the question at hand. The post assumed flexibility in the matter of whether salary should be transparent to other faculty, with an acknowledgement that this assumption would be false in many cases, and then attempted to outline the costs and benefits of that transparency in terms of equity, incentives, work culture, and the like. I'm not sure how FOIA’s merits in other contexts bears on that question, though perhaps I misunderstand the point you're trying to make.

[Jeffrey Harrison]

My hat is off to Larry and Mark who nail the problem. First, a published salary figure is only part of the story. Many forms of compensation or favorable treatment, all of which go into determining one's utility, do not appear. Thus, the publication of salary figures is likely to be inaccurate. One impact, as Larry describes, is drawn from "equity theory." That is people who feel underpaid do less. A dean who is not careful will find his or her salary decisions actually reduce productivity. At my school, as Mark knows, we have an insane system under which some people are given 9% raises and others get little or nothing. It's an all or nothing game. There are only so many to go around. Even if a dean plays it straight, which can happen, some will get 9% and some who are a whisker less deserving will get zero. I have observed people who do not get the 9% become disenchanted, stop writing and basically disappear. This is the result of perceived inequity.

Can the perception of inequity be avoided? Probably not. Law professors as a group have such an inflated sense of entitlement it is hard to imagine a situation in which self interest and fairness are not defined a synonymous.

I hate the system but as Larry notes very perceptively faculty would have it no other way. Each in his or her turn slithers down to the dean's office or kisses ass or inflates what he or she has done in order to play the game that each thinks he or she deserves to win. And, as Larry notes, it is not about awarding merit but about buying one's way to another few years as dean. See http://classbias.blogspot.com/2011/12/so-whats-up-texas-aint-it-cool.html#links

[Kim Krawiec]

"Can the perception of inequity be avoided? Probably not. Law professors as a group have such an inflated sense of entitlement it is hard to imagine a situation in which self interest and fairness are not defined a synonymous."

Laughing out loud at that one.