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COPYRIGHT 2005 C.D. Howe Research Institute
In this issue ...
Canadian universities differ in the way they compensate professors and these differences have noticeable effects on faculty performance in teaching and research. Universities with seniority-bases salary structures should imitate those with merit-based compensation.
The Study in Brief
Academic salaries now total more than $4 billion and account for more than twenty percent of total university operating expenditures. Salary structures set the incentives for faculty to advance the mission of their university: the transfer and creation of knowledge.
The job of professor involves multi-tasking and the productivity of professors is, largely, independent from that of their colleagues. Universities do not have the same loyalty needs of some other knowledge-based employers and they have an effectively flat hierarchy among their faculty. All these aspects suggest that determining the salaries of university professors should give substantial recognition to performance.
The arrangements for salary advancement at Canadian universities are many and varied and appear to be closely related to whether faculties are unionized or not and to the type of university. They differ with respect to the granting of salary increments, the existence of salary ceilings, the granting of lump-sum awards, and provisions to provide salary supplements to reflect market pressures. Of these arrangements, the provisions that determine annual salary increments together with salary ceiling are the most important in shaping the structure of faculty salaries.
The salary structures at Canadian universities appear to matter. Evidence shows that the performance of universities with merit-based salaries exceeds that of other universities. They perform better in a variety of research-based and quality measures such as entrance grades, the success of faculty in gaining research grants and the citations received by faculty publications.
Elimination or reduction of the seniority-based element in university salaries would benefit higher education. Funds would not longer be committed to raising the salaries of faculty members who fail to demonstrate adequate performance, allowing these funds to be directed towards attracting, retaining and encouraging more productive faculty; or toward financing other priorities in higher education.
Provincial governments may need to foster greater competitive pressures among universities by making funding follow students, rather than the other way around. Such pressures may force universities to rethink their salary policies.
The pay of university teachers was, in Adam Smith's view, "set as directly in opposition to his duty as it is possible to set it" when it was set independently from the teacher's success and reputation (Smith 1776). The concerns Smith raises are just as relevant today when academic salaries total nearly $4 billion and account for more than twenty percent of total university operating expenditures.
The resources of Canadian universities come mainly from the public through government grants or from students through the fees they pay. Consequently, universities have a responsibility to these groups for husbanding their resources. They must be especially accountable for the salaries they pay since they represent a large share of overall expenses. To fulfill their responsibilities, universities must ensure that their compensation arrangements encourage faculty to advance the mission of their university to transfer and create knowledge.
This paper deals with the structure of professors' salaries at Canadian universities and its consequences. It is especially concerned with the way the progress of professors' salaries over their careers reflect their performance. Too often salary structure is dismissed as an administrative detail far removed from the central academic concerns of the university. However, salary structures are vital in determining the quality of faculty that a university can attract and retain.
Salary structures also set the incentives for faculty in the performance of their duties. Faculty will be less inclined to strive for excellence if their efforts, relative to other faculty, go unrewarded.
Salary structures at Canadian universities are the result of continuing negotiations between professors often represented by their unions, and administrators acting on behalf of boards of governors ultimately responsible for the business of the university. (1) A university's failure to put in place salary structures that provide incentives for productivity represents a breakdown of governance. This paper suggests that incentives are vital to the performance of universities and supports the efforts of university administrators who have maintained incentives at the centre of their salary structures. Under current conditions, the prospects appear dim for reforming seniority based arrangements at other universities. University administrators have little incentive to fight for incentive pay because funding is tied to institutions through rigid enrolment quotas. This system forces students to follow funding. If, instead, governments substantially replaced their current grants by issuing vouchers to qualified students who could apply them to the institutions of their choice, universities would have stronger incentives for raising their performance. Such pressures may force universities to rethink their salary policies.
The Role of Universities and Professors
The jobs and compensation arrangements of employees are derived ultimately from the objectives and activities of their employers. Therefore, professors' jobs and compensation arrangements should intimately tie in to the functions of the university.
Universities are sometimes characterized simply as post-secondary or tertiary level educational institutions. This suggests that they are just a continuation of previous educational experience, no different from other post-secondary institutions. Universities, like other educational institutions, including secondary schools and community colleges, do devote much effort to conveying knowledge to their students. However, universities do more. They transfer to students an understanding of how knowledge is advanced. The greatest difference distinguishing universities from other post-secondary institutions lies in their approach to knowledge: universities are deeply committed through their research to extending the boundaries of knowledge.
Universities direct themselves to research for a number of reasons. Research can create new knowledge, and new knowledge can make a valuable contribution to society. Some new knowledge has commercial value and spawns new industries. Some research directly enhances individual welfare. Medical research allows many people to live longer and more fulfilling lives. Research also contributes to better public policy. Finally, research contributes to public understanding of our society.
Not all research can boast such achievements. By exploring the unknown, research must inevitably have an uncertain outcome. This unpredictability means that a broad net must be cast to produce significant achievements. (2) A society must judge the value of research by the benefits of its entire research enterprise.
While the fruits of research can justify the resources society directs to universities, they do not necessarily justify the conduct of research in those institutions. Universities do have some advantages as sites for research. By teaching the current state of knowledge, they possess the well-educated staff necessary for expanding the frontiers of knowledge. Their role in educating the students who will themselves work to extend knowledge provides a further justification for the role of universities in research. This education requires teachers who understand the current boundaries of knowledge and who themselves struggle to advance these boundaries. In addition, the research universities conduct differs from that done elsewhere since universities, more than other industries, focus on early stage research that may not have an immediate payoff.
Research and teaching at universities are not independent of each other: rather they are closely linked. It is not enough that the university embraces both teachers and researchers to gain the benefits that research bestows on teaching. While the university has a place for instructors who teach general undergraduate courses as well as some research professors who teach no formal courses, the core of a university's faculty must be able to convey the insights they gain from pursuing knowledge first hand.
The way in which research contributes to teaching defines the job of professors. This dual role of professors as researchers and teachers distinguishes them from other instructors at secondary schools or at post-secondary institutions such as vocational institutes and colleges. It also distinguishes professors from workers at think tanks, government research institutes and the research and development arms of corporations. It is this link between teaching and research that defines a university and which must be a foremost consideration in determining the job of most professors and in setting salary policies for their jobs.
The Professor's Job
Jobs differ greatly in the characteristics that shape the pattern of appropriate rewards. The job of professor involves multi-tasking and the productivity of professors is, largely, independent from that of their colleagues. Universities do not have to the same degree the loyalty needs of some other knowledge-based employers and they have an effectively flat hierarchy among their faculty.
Multi-Tasking
The tasks that make up the job of university professor include teaching, research, participating in the administration of the university and providing community service. Such multi-tasking appears to conflict with the logic of specialization and practice elsewhere. The earlier justification for research activity at universities shows it is to a large degree inseparable from teaching: research informs teaching and teaching informs research. The institution achieves this cross-fertilization to the degree that the same individuals carry on both activities. Participation of professors in university administration reflects the long tradition of academic freedom. While non-academic professionals increasingly do many tasks such as human resources, finance and research services, professors still determine what is to be taught through their control over curriculum and judge the performance of their peers.
The need for workers to multi-task complicates the employer's approach to compensation. Workers are likely to weigh the costs of performing each task relative to the incentives for success. Where salaries are independent of success in different tasks, workers will tend to emphasize those that bring them the greatest satisfaction and direct less effort to the others. When the less emphasized tasks are important to the employer's mission, they must build the incentives to perform these tasks into compensation.
Independence
The contributions of professors to teaching and research depend not only on the professor's own contribution, but also on the efforts of the professor's colleagues. A professor's teaching of a subject depends on the grounding students have gained in other courses. Similarly, professors' research success may depend on the efforts of other members of their research team. Collaborations, however, are voluntary and usually involve a small share of the members of any academic department. Teams often include professors at different institutions together with their post-doctoral and graduate students. Faculty members within the same department generally follow a variety of lines of research so that, for example, the success of the high-energy physicists does not compromise the success of their colleagues in astrophysics or molecular physics. The independence is not, however, complete: interactions with colleagues through workshops or in one-on-one discussion may sharpen and stimulate a professor's research.
The degree to which this...
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