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Compensation And Tuition Setting: The Message Is Mixed

Many schools did not raise tuition for 2009-2010 but others did by 5-8% or more. A few schools pulled principal away from their endowment to bridge this crisis in hopes of stabilizing enrollment. The fear here is that being too “tight” this year could produce more dire enrollment consequences in 2010-11.

Clearly, schools are worried about “summer melt”, i.e., the possibility that moderately positive predictions of enrollment could collapse when the first tuition payments are due. Those schools that require a very large non refundable enrollment deposit hope that forfeiture of the deposit will make parents think through their enrollment decision very carefully and be less inclined to walk away.

Given the uncertainty of the global economic picture, worries about an enrollment shortfall for the 2010-2011 school year appear to be greater than they are for the upcoming year. Much will depend on the public and parent perception in the ensuing months of the value of their personal assets and their perceived return on the value of the tuition dollars they will be spending. Do parents believe that they are getting sufficient value for the tuition charged? Is the school delivering on its mission and providing excellent “customer service”? Are these enough to prompt parents to feel they are making a good investment?

Many schools (including Harvard) gave no increase in faculty or staff salaries but also clearly some schools did, from 1% to 8% or some across the board cash amount for all.

What accounts for the differences in school and therefore board behavior on compensation and tuition setting policies? These decisions are not simply the result of financial analysis and a reaction to a drop in endowment values or local employment trends. Much more comes into play: school climate, faculty culture, the head’s political capital and leadership, and the leadership of key board members and their willingness to trust the head’s instincts about what the parents and faculty will bear.

I. The Range of Choices

Some heads, in listening to parents tell truly sad stories of financial losses and stress, felt that the community needed a respite from tuition increases. This requires a tradeoff. Most could not afford to draw off an endowment that had declined sharply in value, thus they elected to cut expenses including providing no salary increases in some cases. Many of these heads also believe that it is better to avoid terminating anyone (or perhaps just not replace those leaving from normal attrition) thereby keeping the culture feeling “safe.” This is the “cultural safety mode.”

Other heads have used economics to tackle the difficult job of letting go some of those who might be deemed dispensable either due to staff redundancies or mediocre performance, while still raising faculty salaries modestly for the remainder of the staff. This leader uses a financial situation to make strategically significant decisions that help the school over time. Give this leader the benefit of the doubt and give him or her some credit for turning a crisis into an opportunity to improve the school. This is the more“moderately assertive management” mode.

Still others see an opportunity in these difficult times to remake the school, raise the overall teaching quality, upgrade the curriculum and finally “move out” under performing teachers whom the school and head may have let slide in normal and more bullish economic times. The economic agenda in these cases also represents an incentive and an opportunity to raise the quality of the staff and the teaching across the board. This is the “high risk for potential high award” management mode that many business-minded boards are in fact encouraging. Many heads are basically uncomfortable with this approach as it reflects a culture shift and requires a great deal of political capital and skill in order to survive it. Nonetheless it has been necessary and used in a number of cases.

The practices vary widely as do the goals of heads and boards in attempting to walk that fine line between on the one hand, keeping parents calm and re enrolling their children and on the other, continuing to ensure that the school offers competitive salaries to attract and retain the best teachers and that the culture remains healthy. It also touches upon the family school and business model metaphors that are often seen as conflicting. The right approach is somewhere in between.

II. The Not So Publicly (But Privately held) Goals

A. Keep the culture intact. Fire no one. Raise no one’s salaries. Do not raise tuition. Be cautious and conservative.

This risk averse thinking is quite pervasive worldwide among independent and international schools. Where the head is longer term and embedded fully in the culture, and where the head’s trust factor with the faculty is high, this may be the dominant mode. This strategic response may not, however, meet with the approval of the business oriented trustees on the Board some of whom may have lost their own jobs or are feeling the pinch of tuition more than ever before.

Some of these trustees are pushing mostly established heads to dig deeper and make some substantial reductions in overhead, expenses and even staff positions. Most of these heads are successfully resisting these pressures currently. They are betting that things will ease up in the fall, that there will not be a major summer “melt”. They worry, however, that if the scenario plays out differently they will lose some substantial political capital with their boards.

B. Keep the culture intact, let people go only through attrition and perhaps some part timers. Be prudent.

The assumptions behind this decision-making mode are not dramatically different from the first, except that it does reflect some willingness to let go of the individuals whose positions are dispensable and/or those who are part time and may not need the position as much (but often do need the benefits). It may also include easing out some individuals with a relatively low workload whose responsibilities another teacher or staff member might be able and willing to assume. When a head can accomplish these kinds of staffing shifts with grace and aplomb and without apparent damage to the culture or faculty morale he or she demonstrates real leadership talent and political skill. There is a potential long-term strategic benefit here.

C. Reshape the culture gingerly by making delicate “incisions” where teachers should go. Be moderately assertive.

This is a more assertive style than the first two and reflects both some instinctive leadership behaviors and also some board pressure on these heads to make some selective moves on teachers who need to go. The head can do this thoughtfully and carefully with buy outs and agreements so that the fall out is minimal.

Older teachers who were ready to leave the profession are deciding to delay that retirement because their retirement assets have shrunk so much. One way to address this issue is to consider again the idea of an early buyout plan. This provides the option to those age 55 or older and with 15 years tenure the option of taking a full year’s salary over two or three years while keeping them on benefits during that time. The money remaining on the table are the resources the school has available to hire a younger replacement. This is a time tested tool for providing a dignified and supportive departure for more senior faculty who clearly are ready to leave teaching but fear financial insecurity.

Without some kind of protection such as this the result is likely to be damage to the faculty culture and the mobilization of parents and students to protect the “wronged” teachers.

D. Raise tuition modestly to ensure that there is something to increase faculty salaries. Be moderately assertive again.

This reflects again a strong head of school who is willing to sell the tuition increase to the parents and to make a strong case with the Board for this decision in order to ensure a modicum of a faculty salary increase. There is no cutting of staff here. This head is making a statement to the parents, board and faculty that he or she will stay the course of continued tuition and staff salary increases despite the times. The risk here is that if the bottom drops out in the near future, these heads will be feeling the pressure to make some substantial cuts late in the summer.

This reasoning reflects a concern that the program is underfunded as it is and that a decrease in real or perceived value will damage the long-term health of the school. These heads think that by holding the line on value they will enroll and re-enroll students and be in a stronger position to respond to continued hardship should it persist.

This decision also may be in part based on what is the morally right thing to do. Why should teachers who are underpaid consistently subsidize the education of those whose families can afford to pay for the services provided?

E. When really pressed, do not raise salaries or tuition, cut some staff around the edges and reduce faculty benefits by cutting out retirement contributions for one year and/or shift more of the burden of their own health coverage costs onto the faculty. Be aggressively economically driven.

This head is already under tremendous pressure from his or her board. He or she may have prepped the faculty for no salary increases but for temporary cuts in benefits that have always seemed sacrosanct. The morale of the staff here can be maintained at least in the short term if the head makes the decisions with candor and provides regular updates on the status of the budget and enrollment. A head in this situation must also be willing to add BACK some benefits if the enrollment at school opening turns out to be higher than projected and may be able to add a one-time bonus if and when enrollment hits budget. He or she must be cultivating board support for these potential “give backs” in order to deliver on promises.

Heads able to pull off this scenario are those who may or may not be popular with the staff, but who know that there are some potentially dire consequences of waiting too long to prepare the staff for an enrollment downturn. These schools generally are already showing some substantial enrollment losses, i.e., up to 5 % or more. Failure to act would be imprudent or fiscally irresponsible. These are also schools where the board will not allow the head NOT to act in these circumstances and will expect an analysis of the causes of the downturn. The situation might have more to do with perceived value and lack of aggressive marketing than pure cost.

III. More than Just the Financials

Whichever model the head/director is using, it is a reflection of these internal factors in addition to external ones outside of the school’s control:

A. The head’s own leadership style. Is he or she directive or analytical and believes moving too fast is often worse than not moving at all? Is he or she an amiable who tends to want to “keep the peace”? Is he or she a driver who will tend to look at a crisis as an opportunity for change and improvement?

B. The board’s temperament collectively and make up individually in terms of personal circumstances and business/investment backgrounds. When the board is pushing the head for more aggressive cuts, the head must either execute that policy or take a stand against it. If the decision is to take a stand the head needs to measure the likelihood of success and the potential fallout. Keep in mind subsequent years and long range effects.

C. The climate and culture of the faculty. If the faculty trusts this head and know him or her well and if the communication is early, consistent and honest, then the tone may become more somber but not turn negative. If the head is newer or there is a long history of poor communications between administration and faculty or high head turnover, then long term harm to the already sensitive culture could ensue. Heads should follow a strategy of consistent but not too frequent communications with the faculty. You do not want to scare them. You want them worrying about the students not their paychecks.

D. Parent support, financial strength and view of the benefit/cost ratio. Never before have parents asked more forcefully and more often about whether the cost is worth the benefit relative to a state/public school or a less expensive competitor. If the school has made a powerful case that it IS, then the parents will likely hold tight. (Parents seldom seem to think in terms of hourly cost that may be only $8.00 to $16.00 per hour, certainly reasonable even compared to local daycare rates.)

Again perceived value of the investment is key. At this first stage most of our families who are feeling the financial tightening are making lifestyle choices: vacation or household luxuries or tuition; country club or independent school. The next round of decision-making will be tougher. Our schools must demonstrate added value to survive.

If the head has strong connections to the board and parents and therefore indirectly with the students, then leadership decisions, even those resulting in some pain to the staff or constituents, will be tolerated and even supported.

Where the head’s political capital is already low or where the head misreads his or her own board or staff or parent body, these difficult economic times can and will result in even more school trauma and potentially the premature departure of the head. Tough decisions will use political capital. These are the times that will make good heads think that they are starting from scratch to build loyalty. Do not take anything for granted. Do not count on too much political capital even if you think you have a substantial reservoir of good will.

IV. Conclusion

One piece of good news for heads: most boards tell this consultant that the current economic times prompt them to want their head to stay longer and avoid a search in the near future. A search represents change, transition, money spent, and risks that the schools would prefer to avoid. It also means that more boards are thinking seriously about internal succession planning. Our research shows that in the past only about 10% of our schools worldwide chose this option. Internal succession planning means more than having a familiar figure waiting in the wings. It means ensuring that the values and mission of the institution are instilled in that person who is the chosen successor.

Another lesson learned: schools must become substantially better at defining the real value for the cost of tuition and SELLING it internally and externally. That exercise is a worthy one even though it may have been thrust upon us. It should be an ongoing one. Few schools go broke for charging too much. They may go under because current parents do not perceive they are getting the value for their tuition dollars and because prospective parents are not hearing that value message.

Littleford & Associates works with schools in the areas of healthy board governance, financial management and analysis, school climate, communications, crisis management, compensation and evaluation of staff and heads, marketing, fund raising and mentoring of heads and board chairs. We can help you maneuver these difficult waters by helping you build a strong board; undertake a school climate/value assessment; recruit a marketing force of volunteer parents; help provide appropriate strategic planning; and help you redesign current salary and benefit systems to make them more effective in the delivery of scarce compensation assets.

John Littleford is also available to provide short-term assistance to heads and boards “on the spot” through consultation via teleconference.

John Littleford
Senior Partner