Thursday, July 16, 2009

Salary Compression

In the discussion after the post about counteroffers a couple of days ago, several commenters raised the issue of salary compression.

For the uninitiated, 'salary compression' typically refers to new hires coming in at salaries higher than those of people who are already working there. It can happen pretty easily if internal salaries are based on pre-set, lockstep raises, but the rate of change in the outside world has been faster. Incumbent employees usually perceive salary compression as unfair, since people with less seniority are getting more money.

A few years ago my college ran into that issue with Nursing faculty. At that point, nurses could pretty much write their own tickets on the job market. (That market has since cooled considerably.) Since our salary scale was one-size-fits-all, we fell so far behind the market that for a few years, every single candidate we recruited turned us down. We eventually worked out a separate scale for Nursing faculty with the union, on the argument that if we didn't, we simply couldn't hire anyone. The union grumbled, since the idea of separate tiers cuts pretty hard against the idea of union solidarity, but acceded out of a recognition of a market-driven force majeure. Simply put, we couldn't ask the rest of the world to stop to suit our own internal taste for 'equity,' so we made the adjustment we had to make. It was either that or just drop the program, and nobody wanted that. Now, new Nursing hires make more than newly-tenured professors of anything else. Interestingly, since the Nursing market cooled, nobody on either side has proposed revisiting the salaries. Salaries are sticky, so you don't want to move off an established scale lightly; you'll never get it back.

Other than Nursing, though, we've been conscientious about sticking to a union-negotiated starting-salary scale that takes account of credentials and experience, and that offers no room for individual negotiation. Given our labor environment, a new hire coming in at x (standard) plus y (negotiated) would force us to move up our entire scale, possibly retroactively. It's just not something we can do. As a result, we really don't have salary compression in the usual sense of the term. So when I refuse to make counteroffers, I'm not trapping anybody in a salary-compressed department.

(The sense in which I'll occasionally hear allegations of salary compression is when a new hire shows up with a doctorate and years of experience elsewhere, and places above a newish incumbent person with a Master's. In that case, the issue isn't actual unfairness; it's the invisibility of the previous experience. When the griping starts, I just refer them to HR to discuss the point system. To my mind, when this happens, it's a sign of hiring well.)

The downside of a rigid salary scale, obviously, is that we lose some great people to other employers with more generous offers. That's frustrating, but in a strong union environment, it's better to eat the occasional failed search than it is to start improvising. The cost of a second-best candidate is far less than the cost of the grievances, and the negotiations, and the arbitrations, and the subsequent adjustments. (Btw, the same holds true of counteroffers. The cost of replacing a current high performer with a new hire is far less than the cost of the grievances, arbitrations, and awards that would result from deviating from the scale.) This isn't a hypothetical; my college actually went through this shortly before I got here.

That's why I reject the whole "mark-to-market" argument for counteroffers. It's less costly for me to lose the occasional star than to spend the next several years in court. Nobody -- nobody -- is irreplaceable, or worth embroiling the college in the kind of battles that counteroffers would generate. Better just to wish them well and get on with it. That's not because people are interchangeable parts, or cogs in a machine; it's simply that the very real differences between individual performers are dwarfed by the staggering cost of legal settlements.

Of course, in my preferred universe, there would be a much greater 'merit/performance' component to salaries. But that's not the world I live in, and I'm not in a position to make that happen unilaterally.

In a non-union environment, salary compression could happen much more easily. If you don't have a relatively strong centralized system for determining salaries and raises, individual deans/chairs could easily upset the apple cart in the name of getting or keeping someone they particularly want. I've even heard of universities in which elected department chairs allocate merit raises, which strikes me as insanity on a stick. (Structurally, that's basically a Tammany Hall model.) This is one of those cases in which I'm happy to work with the union, since a little discussion upfront saves untold agony and political conflict later. In fact, I'm increasingly convinced that the optimal model combines a union, a substantial performance basis for raises, and multiyear contracts instead of tenure. That's not my world, but I think it would combine reasonable amounts of security, fairness, accountability, and equity in a relatively sustainable way. Maybe someday...