Revisiting Buyout Ethics

I've written on this before, but even more so now than before, it’s buyout season in American legal academia.  While there are only a few law schools’ buyout programs which have been made public, many suspect that most law schools have tried to handle their declining enrollments, in part, by buying out tenured faculty.  For the most part, buyouts are handled confidentially, lending inscrutability to their parameters—and also their ethics.  In this post, I’d like to revisit this topic and suggest again some ethical queries that should be a part of the design of every law school’s buyout program.  The following set of queries is certainly not exhaustive;  I’m sure there’s many others that could be—and will be—raised!

The first issue that some people might surely raise, with respect to all this, is an ethical query about the existence of a buyout program itself.  Isn’t this just a bonanza for anyone who gets and takes a buyout offer?  The answer to that question is, most likely, institution-specific and also contingent on the parameters of what’s being offered.  For example, if the buyout program is only available to faculty 70-years-old and above, and involves a 10-year salary package, some serious questions can surely be raised about whether this ‘buyout’ is effectively just a bonus for people (most likely men) who otherwise seem bound to retire sooner rather than later.  Of course, this example is a straw-man of sorts—hopefully, it doesn’t exist anywhere—but I can imagine that some schools’ buyout programs have some dubious parameters that endanger their very status as a ‘buyout.’

My analysis here suggests that there are some serious inter-generational equity concerns implicit in buyout programs.  In turn, these can serve as proxies for some serious inter-racial, inter-gender, and inter-sexuality ethical quandaries.  To the extent that buyouts go to faculty of a certain age, or a certain number of years of law school service, these buyouts can end up as a salary surplus to a demographic of law professors that is fairly different than younger/more junior cohorts in the profession.  In short, newer tenured hires have more women, more racial minorities, and more gays in their cohort than older tenured hires did.  (Again, much of this will be more or less true depending on the institution.)  And if buyouts represent something of a zero-sum game, then we could see buyouts effectively turn into a transfer of wealth from women to men, from blacks to whites, and from gays to straights. 

Relatedly, if buyouts are only available to tenured faculty, as opposed to non-tenured clinical, legal research and writing, and other instructors, then—to the extent these categories of teachers exhibit profound demographic differences—there are similar distributional concerns to those just discussed. 

More fundamentally, then, one might also wonder whether buyout programs should be restricted to tenured faculty themselves.  Putting aside, for the moment, questions about whether non-tenured faculty would be less or more likely to accept a buyout than tenured faculty, couldn’t one argue that buyouts should be structured to make up for some of the institutional inequities between categories of faculty?  Hence, perhaps buyouts should be made available to all categories of faculty, with those who have been historically paid less and suffered more job insecurity getting a bigger and better buyout package—for example, 6 years of salary versus 3.

Finally, I think some ethical questions can be raised about the effective unit of buyouts:  the ‘year of salary.’  On this note, to the extent that salary discrepancies between professors suffer from gender disparities, racial disparities, and all sorts of other implicit biases that affect evaluations of one’s institutional worth, a buyout program that is configured in terms of “X years of salary” will just encode all of these previous problems.  While there are certainly tensions between designing a buyout program that is effective—namely, one that is attractive enough to enough faculty that the institution ultimately saves money—and one that is fair and ethical, perhaps buyouts need to be more ‘flat’ than ‘graded.’  In other words, ‘500,000 tacos’ for everyone rather than ‘5 years of salary’ for everyone.

Comments

[Sy Ablelman]

This can all be avoided: Oversaturation of the legal market and lower law school enrollments and ultimate your jobs. Get governments to start hiring attorneys again. It all started with Richard Nixon and the huge distrust in government he created and gained traction when Reagan "killed the beast" and noted that government is the problem. It continues to this day with sequesters, shut downs, fiscal cliffs and threats of default. We need to restore trust, that government aka lawyers provide stability and certainty (justice) in everyday affairs. I have been to many court rooms where one lowly prosecutor and public defender works the entire room of 300 defendants, witnesses and families, This is replicated throughout the country in nearly every court house, rural and urban. My State's Attorney buddies and colleagues suffered from furloughs and work late into the night prepping their cases for the next morning. They need to hire, but big lips once said NO NEW TAXES and it stuck. If the govt. hired 20,000 new lawyers every year as new hires or as attrition demands, we wouldn't have this crisis. By saying "Kill the Beast" Reagan really meant, kill the legal profession.

[Twbb]

For many law schools I would think buyouts are unnecessary; they are at the point where financial exigency allows terminating faculty, even tenured faculty. In most states the officers and board of a nonprofit have a fiduciary duty to the nonprofit and generous buyouts where such buyouts are not necessary; a court might easily find directors and officers personally liable for siphoning off scarce assets to former employees.

[PaulB]

The logical response to Jeff's concerns is to save money by instituting across the board pay cuts, perhaps 15-20%. Most law school faculties receive far more than liberal arts professors do. The largest cuts would fall upon the more senior tenured faculty members who are disproportionately white, male and straight. At many public universities this would also have the effect of encouraging the most senior members to retire as their pensions are often based on the last three or five years salary.

[billy]

I find it somewhat humorous that a post on the ethics of buyouts would fail to mention the rather obvious ethical problem with buyouts: that the best way to make yourself attractive for such a payout is to perform your job as awfully as possible. Buyouts may be a necessary evil in a system where tenure protects faculty members from being fired when they cease doing their jobs, but they are essentially a ransom paid to faculty who would otherwise hold a faculty line hostage by remaining in a position they no longer perform adequately. That, rather than the color or sexual orientation of the recipients, is the true ethical problem.

[Leo]

billy is correct, having seen buyouts offered at various law schools. The idea, even before the law school crash, was to "get rid of the dead wood" and it often worked.

I think most schools are finished with offering buyouts. My understanding is that schools that intended to do so, have done so.

[Deborah Merritt]

I agree with PaulB's suggestion. In fact, this alternative (lowering salaries for all professors) underscores the bias described in the original post. When a school needs to reduce salary expenditures, buyouts aren't the only option; they're an option that benefits some at the expense of others. At public schools, the expense often falls on the pension system; extensive use of buyouts (not just now, but in every recession) is one reason why these systems are so stressed.

I was a junior faculty member in the early 1990s, when many public universities faced a severe budget crunch. The uniform response was to offer buyouts to senior white male professors. This was a relatively expensive way to eliminate lines, and it imposed severe costs on the state pension system. I pointed out to the Provost that there were a lot of more junior women on the faculty (and some men) who would have gladly accepted a half-time (but still tenured) position so they could care for young children. The Provost was fascinated by this; it had never occurred to him. He and the other university higher-ups thought only in terms of traditional career paths--and how to take care of the people who had succeeded in those paths.

The university didn't follow my advice, but I think the story illustrates the ways in which "obvious" responses to budget crises can reinforce gender, race, and other advantages. I'll go one step further than PaulB, though: salary cuts should be like tax rates, with larger percentages at the highest salaries.

[Sy Ablelman]

What happened to my posts about LaSalle Extension University and Blackstone College of Law?

[Barry]

Jeff, thanks for posting this. It's something that I have not thought about.

[Barry]

...both in terms of equity, and in likely upcoming scams.

For example, awarding 'buyouts' (e.g., five years of salary) to senior tenured professors might help them a lot if the school closes or goes through major financial restructuring.

[anon]

Every time faculty buyouts come up in conversation, I feel compelled to point out the following:

Buyouts or salary reductions done at any scale that still allows the law school to function primarily help the university/law school by softening the impact of a present cash crunch. Contrary to what is often assumed, however, such buyouts could not help students much because they likely cannot really be large enough to translate to an amount sufficient to substantially lower tuition or increase financial aid by a truly significant amount.

Example, using hypothetical even numbers: Assume a medium-size law school with an annual full-time faculty compensation budget of $10 million. (60 faculty members X average salary of $125K plus the additional fringe benefits rate (university contributions to health care, etc) of, say, 30% for each faculty member = $10 million.

Reduce that $10 million to $8 million, either through an across the board (whether flat or progressive) salary reduction of 20% or by buying out the equivalent dollar amount of faculty members. So now you've saved $2 million annually (gross, not net: I'm not taking into account the cost of the buyouts if buyouts are the mechanism). If this average school has an enrollment of 600 students, you could reduce annual tuition by, or give each student an additional financial aid grant of, $3333. If this average school has tuition of $40,000, you could reduce nominal tuition to $36,667, saving each student $10,000 over the course of three years. Certainly not chump change, and every bit helps (especially given compound interest on loan debt). but not earth-shaking either: $110,000 in nominal tuition over three years versus the prior $120,000 in nominal tuition. My numbers may admittedly be slightly off, but you get the picture.

In sum: buyouts or equivalent salary reductions of any amount that avoids crippling the law school will indeed help the school continue to operate during a cash crunch. They are not likely to be large enough to significantly change the cost structure from the students' perspective. So what likely happens is that most of the resultant savings go toward minimizing the university's/law school's annual operating deficit, with some modest additional amount being deployed to selectively increase "merit" aid, not to reduce students' costs across the board.

[anon]

Additional comment:

If my math above is correct, then in addition to the equity concerns pointed out by others: If a school needs to capture a 20% cost savings from faculty, then it may be better from the students' perspective to do so via salary reductions than buyouts. That is, using my math above, buying out 20% in compensation would require buying out roughly 12 of the 60 hypothetical full-time faculty, leaving 48 faculty members to teach the same total number of courses and perform the same amount of other student-related functions previously carried by 60 faculty members. Better, then, for the students to have 60 faculty members getting paid 20% less than 48 faculty members getting paid the same as before (because the number of courses and faculty support for students in terms of job searches, etc., would either drop quantitatively or decline qualitatively).

On the other hand, qualitatively, one could imagine the salary reduction route resulting in a greater drop from the students' perspective, because a 20% salary reduction will prompt the best teachers and most productive scholars, who are the ones who are the most mobile on the job market, to seek employment elsewhere. The only way to avoid that would be coordinated salary reductions across law schools, which (1) simply isn't going to happen and (2) even if it did happen, would likely be illegal (antitrust).

[anon]

This is a wildly ill-informed post and comments. Buyouts in academia have been common since at least the 1990s as a result of changes to the Age Discrimination Act. There is nothing distinct about law schools here, and no school would offer them only to white men as seems to be suggested above, though it is possible that the more senior faculty hired in the 60s were predominantly white men. The cost savings are substantial, and again have been used for decades and there is a lot written on it. If done properly, they would allow many schools to reduce their class size, and Universities often chip in so the law school has real savings. Salary cuts are not a substitute, if for no other reason than that salary cuts of top faculty are likely to cause them to leave or try to leave, whereas with buyouts, one is expediting an impending retirement. But again, not new issues, not unique to law schools, and nothing nefarious about them.

[Jeff Redding]

Thanks everyone for the thoughtful and informative comments. For the sake of argument, I'd like to push back (a bit) on the salary reduction idea, or at least complicate it. This is all complicated, to be sure.

So not to respond to anon@11:17am only, but to pick up on something he said, it's not clear to me that having 60 faculty working at 20% less is better than having 48 faculty working at full salary, at least from a student's perspective. (On a side-note, there are very big equity concerns at trying to get at 20% through a flat tithe rather than a graduated reduction, as Professor Merritt pointed out.) To the extent that buyouts are targeted at the least productive faculty--and it's not clear they are--then it may be better to just have those people gone. If they aren't active scholars, active teachers, and active committee members (all three usually go together: note the 'active' in common), then they can not only be deadweight but actually pernicious. "A little bit of knowledge is a dangerous thing," etc. Furthermore, it can be demoralizing for the 48 active faculty members to see their salaries reduced for no fault of their own, especially if they see that they are expected to work the same but for 20% less. This demoralization isn't good for students or for the institution.

[not so sly]

I believe the economic term Jeff Redding is looking for is 'downward nominal wage rigidity'.

[Anon]

Buyouts can't likely target only the least productive faculty unless they are "take the offer or be fired" rather than actual voluntary buyouts. That is, voluntary buyouts are both over and under-inclusive: Some productive faculty who you don't want to take them will take them; some unproductive faculty who you do want to take them won't take them.

[Norman Stein]

If a buyout is a disguised cash bonus to older, white men, yes, the author is right. But buyouts are generally a means to strip the faculty of higher-paid individuals who, at least in terms of producing scholarship and contributing to service activities inside and outside the university, are probably in most cases less productive as a group than younger, less-expensive faculty. Shedding higher cost faculty and replacing them with new faculty (who will typically add various types of diversity to the faculty) can also be an effective strategy in itself. Yes, if the school's programs are going to contract and tenure can be removed, it may be less expensive to remove people that way, but it most tenure systems junior faculty are likely to go first and revoking tenure for programatic reasons takes time and uses a fair amount of university resources. And firing older faculty raises age-discrimination issues (concerns about legal liability but also moral issues, for age discrimination is a real issue, even in the academy). To be effective, a buyout program needs to be carefully constructed to create the lowest-cost incentive to get people to leave say 5 or 10 years before they would otherwise retiree and at the same time not prevent future retirements as older people wait for the next buyout offer. Not easy but possible if smart and experienced people are constructing it. Also, in my experience, buyouts are typically offered to older people by academic leaders a generation younger than they are, so such offers seldom seem to me an attempt of senior faculty to milk resources from younger folks. Not to say that never happens, but certainly not all buyout programs fit that model.

[Douglas Kmiec]

The movie "the big short" is both more enlightening and entertaining, and says all that needs to be said about the inter- generational, inter-racial, inter-whatever ethics and with more gratitude and respect and in importantly human ('oh, this is your life's work') terms than much encapsulated in this thread. Dan Correl and Brad Pitt both give emphasis in the film to the inevitable pain borne by the little guy, and so too it is or will be here.

[Barry]

Anon: "On the other hand, qualitatively, one could imagine the salary reduction route resulting in a greater drop from the students' perspective, because a 20% salary reduction will prompt the best teachers and most productive scholars, who are the ones who are the most mobile on the job market, to seek employment elsewhere."

In the present day, faculty are not likely to be able to leave on their own; nobody is hiring. It would make sense for the central U administration to take advantage of that fact.

[Cent Rieker]

Age discrimination liability is not as big of an impediment as it theoretically can be, as the heightened pleading standards and need to prove "but for causation," has rendered age discrimination protection toothless. Law schools and central universities would also be able to demonstrate legitimate, non-discriminatory defenses given their financial situations.

[Anon]

Barry,

That's not correct. Someone is always hiring. It's harder now than in the past, but I have no doubt whatsoever that the more productive faculty at the various schools I've taught at could secure a lateral offer. They may have to be more flexible in terms of timing, geography, and perceived prestige than in a more robust hiring market, but there's no question that lateral movement is still possible and, indeed, still occurs quite routinely. See, e.g., http://leiterlawschool.typepad.com/leiter/2015/06/lateral-hires-with-tenure-2014-15.html