Thursday, July 09, 2015

Cash Give Backs - Academic Leadership in an Era of Fiscal Austerity

An item in the local newspaper this week took note of the pay for the new Dean of the Law School.  He is earning less than his predecessor (though still in excess of $320K).  The point of the piece was that the new Dean took pride in his comparatively low pay.  It is a visible piece of his strategy to hold down costs and thereby get tuition more in line with the (currently soft) market for attending law school.  Somebody else reading that piece might ask whether it might start a trend of this sort.  I am less interested in making early forecasts than in wanting in this piece to do a think aloud about what should happen.

First, let me note that the new dean was an external hire.  Salary is set as a condition of employment for each new hire.  But here long time university employees in leadership positions are my focus.  So there is first a question of whether they can take a salary reduction on a voluntary basis.  I suspect this is well nigh impossible, for a variety of reasons.  Perhaps a systematic approach to salary reduction could happen.  (See my post from a few years ago on the Higher Ed Salary Compression Function.)  But for an individual volunteering for salary reduction, let's take that off the table.  Instead, let's focus on these individuals earning at their current salaries and then deciding to give a gift back to the university, with the gift some fraction of their earnings.  That is certainly allowed under current rules.

I want to talk about the microeconomics of this first, the sociology of it second, and then the practicalities of it so the process itself doesn't need to be too difficult for those who might opt in.

When we teach consumer theory to undergraduates who take microeconomics, we talk about fundamental assumptions that underlie consumer preferences.  One of those assumptions is monotonicity - more is preferred to less.  I want to maintain that assumption here.  (So get that picture of the Beverly Hillbillies tossing cash from the window of Milton Drysdale's bank out of your head.)  Nonetheless, most people would agree that above a certain income threshold, increased income doesn't matter much for material well being.  Such people can afford to buy what they want.  The way salary matters to these people is qualitatively different from how it matters to the rest of us, who earn below the income threshold.

What matters to them is first how they compare salary-wise with their peers, both on campus and at other institutions.  Nobody wants to be at the lower end of the distribution in such peer to peer comparisons, especially if the salary dispersion can't be attributed to seniority.  Getting the short end of the stick seems unfair.  People want to be treated fairly.  They also want to be treated with respect.  On campus this means they know their voice is listened to and that their opinions matter in making decisions.  One can think of this latter desire for respect as getting a type of in kind income, one for which cash income can't substitute very well if at all.  Indeed, part of the argument I want to make here is that we need to look at both sorts of income to understand the right balance of the two.

Likewise, in considering the contributions that people employed by the university make surely the bulk of that contribution will be in kind.  The people I know on campus are very hard working indeed.  Yet one might well ask, is there a role to be played by a cash contribution of some sort, to complement the in kind contribution we expect?  Can it be rational to give cash back to your employer after the employer pays you for the work that you perform as service to the institution?

The answer to that question is yes, at least in some instances.  An in kind contribution of an individual is seen by those who participate in the transaction but is largely invisible to everyone else.  The virtue of a cash contribution is that it is potentially visible by a large number of people.  It can then have value as a way to send a message and in that sense would be similar to the function that non-informative advertising plays in the commercial world

Before getting to the sort of message I'm talking about, let's finish up on the microeconomics, by considering the matter from both the point of view of the recipient and the point of view of the sender.  Recipients are inundated with information and requests to pay attention from people they don't know well or not at all.  Most of those are screened out entirely and rightly so.  There needs to be a way to get through this sort of screen.  The economic theory of "money burning" comes to the rescue.  If a rational person burns money in a visible way, it must be to get the attention of those people who witness the act.

On the other hand, while for most people money burning is too expensive to be a sensible way to communicate, for those with incomes about the threshold described above it is not so costly.  It impacts neither being treated fairly on the job nor being respected in one's work. It therefore becomes a plausible mechanism to utilize, provided there are attendant benefits to be anticipated from its use.

Now let we switch from microeconomics to sociology and focus on the implicit message to be sent.  As I write this piece the State of Illinois has no budget for the current fiscal year, which started July 1, and the prospects for getting a budget any time soon don't seem all that promising.  So there is much uncertainty about all of this.  Undoubtedly there will be some hardship imposed when the budget finally does get resolved.  On the specifics, that is anyone's guess.

The only message that seems credible to me now and is worth sending immediately is this.  We are all in this together and burdens will be shared at the time when they must be borne.  Such a message, if it were believed, might then help maintain morale on campus, which provides the reason for sending it.

We receive a variety of massmails from campus.  As a way to distribute factual information to members of the campus community, that's probably as good a mechanism as any.  Yet as a way to communicate the message that I believe should be sent about burden sharing, it is inadequate for the task.  Cash give backs by members of the campus leadership would do a much better job here, as it would be a demonstration that some of the burden, if only a small piece of it, is being borne by these high level people.

Finally, let me turn to practicalities, normally my personal downfall.  (I'm pretty good at making the theoretical argument but then can get hung up on particulars.)   So as not to wreck everything I've said up to this point, I will only give a high level sketch of things that are necessary, meaning if people agreed with the rest of the piece there'd still be some work needed to put this in place.

First, the gifts must be unrestricted.  The gifts need to be seen as selfless acts.  Attaching a purpose to the gifts, for example to endow a scholarship fund, is not right for this purpose, even if the scholarship fund were otherwise a good thing.  How can an employee who sees an unfilled position in her office remain vacant feel good about the establishment of such a scholarship fund?  These gifts must be seen as addressing urgent immediate need on campus, to be determined by the university rather than by the giver.

Second, the gifts must not be coerced, even mildly, by the university in any official capacity.  So here I want to contrast with the Campus Charitable Fund Drive, an annual activity where employees are encouraged to participate. (There are massmails sent about it as well as messages sent within departments about it.) These cash give backs are a different sort of animal and the university should not try to encourage them in an official capacity.  This is a bit tricky, then.  One should ask, how will the idea get out that people in leadership should do this if there is no official communication about ti?  The answer is that word of mouth methods must suffice.

Third, the gifts mus be made visible to the broader community.  Some very public list of givers with the size of their gifts needs be made.  In conjunction with the previous requirement, the university itself almost certainly should not be the one who maintains this list.  What I have in mind is that some private citizen or organization accepts fiduciary responsibility, as keeper of the list and intermediary on having the funds go from donor to the university.  I hope such a thing is possible.  I certainly don't want to fret with the details about it here.

The last bit is to establish a norm about the size of the gifts, much as there is a norm about how much to tip at a restaurant.  Once a norm has been established it would be much better to get broader participation, indicating that the community has embraced the idea, than to have some individuals making overly generous gifts, which undoubtedly would bring some attention onto them, thereby garbling the intended message.  The norm itself would then aim to balance these.

Let me illustrate what I'm talking about here without making any claims that this should be the norm.  Suppose that those who are willing with salary from the university over $150K make gifts, with the size of the gift 10% of the salary increment in excess of this baseline.  So somebody with salary of $200K and who was willing to make a gift would give $5K and, if our new Law School Dean were so willing, he'd give about $17K.  I leave it for the reader to determine whether that is a good baseline and the right guideline for gift size for willing donors with income above the baseline.  I only want to argue that the norm should be of a simple form like this so it can be readily understood and easily followed.

It's time to wrap up.  In the course I teach on The Economics of Organizations, we have a second textbook so students can get a non-economics perspective as well.  The one I use is by Bolman and Deal and is called Reframing Organizations.  The fourth frame is the symbolic frame.  Organizations engage in rituals and other symbolic acts to build loyalty and public spirit within the organization.  This is just how I envision the cash give backs would work.  The time is ripe to consider this possibility.

1 comment:

diabeteshealthblog said...

geez Lanny, that is a lot of writing! Thanks for your insight - took some time to finish reading it all.