In an Economic Downturn: Intelligent Ways to Make Compensation Go Further

Mission Based Compensation and Flexible Pay: The Challenge Confronting Boards, Heads and Teachers
August 1, 2015
Persistence Pays Off
August 1, 2015
Show all

In an Economic Downturn: Intelligent Ways to Make Compensation Go Further

Faculty salaries and benefits make up 60% to 85% of the budget of most schools. In today’s challenging economic environment, boards are worried about managing the school’s endowment and about meeting annual giving and/or capital campaign targets. Equally important in the realm of financial management is for boards to ask how wisely the school is spending its money allocated for its most important resource- the faculty.

Yet this is a question that trustees seldom ask. Most often trustees and administration bargain on the size of the tuition increase based upon how much the market will bear, the cost of living and the cost of faculty and staff benefits. The decision usually trickles down to some overall percentage increase to the “pool” for cash and benefits.

The uncomfortable question for all parties is then HOW is this money spent?

A Case in Point

A Head, new to his school but with many years of experience, walked into a situation where the prior head had negotiated individual deals with teachers over the years. As in (still) 50% of all US independent schools, the new head found many unexplained anomalies and inequities: men paid more than women; upper school teachers paid more than lower school ones; coaches more than non coaches, and new hires more than long term proven stalwarts of the classroom. There is nothing new here. This has been going on for 50 years in the independent school world. The system at this school had not been challenged much as teachers had trust in the style and leadership of the prior head.

Teachers heard rumors about lack of transparency in compensation, but the culture of the school discouraged any discussion of salaries or benefits. Newly hired teachers, however, were the most likely to talk openly about perceived inequities as they viewed their own coaching and other workloads to be substantially higher than that of longer term teachers whom they saw as having increasingly “ducked” additional assignments. On the other hand, senior teachers heard some rumors that young teachers and coaches were recruited with “sweetheart” deals.

Most boards and heads in this situation form a faculty compensation committee to find a new salary system. The choice is usually some hybrid of the local public school salary system with the usual lanes and tracks based totally on years of experience, advanced degrees and graduate credits. (In international schools, most school heads come from state or public school backgrounds, so these are the systems with which they are familiar and tend to model.)

While the negotiated system has the bias and lack of transparency of a non defined, unpredictable and unpublished structure, the supposed “new” ones have all the rigidity and lack of flexibility of most public schools’ salary systems. Most heads choose these rigid scales to ensure immediate transparency and to remove all forms of judgment that tainted the prior system. Many heads tell me that they prefer not to make salary judgments. Let the salary scale do its work in order to avoid potential negative faculty fallout.

Yet in taking this route, heads and boards make two mistakes. They are relinquishing some of their leadership in this area as the faculty and staff take on the creative role of designing compensation and extra pay schemes. Second, the very methods that teachers advocate to circumvent the new systems dig deep long term holes for administrations and schools. Elaborate stipend schemes, rewards for graduate degrees and credits and reduction of loads for all kinds of activities become just as dangerous to the long term financial health of the school as the former secretive head discretionary approach. They become very expensive over time as they become embedded in the culture and almost impossible to reverse.

What Boards Do Not Know

Meanwhile at all these schools, the boards know little or nothing of what is transpiring behind the scenes even though these shifts of salary structures involve a massive shift of assumptions in school culture about why teachers come to teach at this school and why they leave (or stay).

Most of our schools have no mission based compensation. While this term is familiar to business leaders, it is alien to many heads and some members of boards of independent schools. We deal almost solely in annual increases to the “salary pool.”

While the relative lack of board attention to salary and benefit structures may have been serious oversights in the past, this lack of attention becomes dangerous neglect in difficult economic times when all leadership of boards and administration should be examining how to make each dollar, Euro or yen spent account for the greatest impact on the teaching culture and student learning outcomes.

Benefit Systems Lack Flexibility

Most benefit systems in independent and international schools are “standard”. They seldom account for career goals, family status or tax smart benefit planning. For example, most US schools still pay for the full long term disability premium even though that makes any disability income taxable to the recipient upon becoming disabled.

Many schools still provide a flat 5% and 5% or some similar low level static matching program for retirement or in the overseas context, no retirement at all but a flat payment of 10% of base salary. There are a few international schools where gratuity payments of 15% to 25% a year still exist even though unaffordable by the School.

There has been very little time devoted to understanding how to be more flexible and tax smart in designing retirement plans. In the US where most such systems are defined contribution plans (like TIAA), retirement plans are still stagnant, participation is still voluntary and long term teachers still face retirement with insufficient assets in place to enable them to leave with dignity. How does all this happen? No one is paying enough attention to the delivery of benefits or to the underlying principles and messages conveyed by those delivery systems.

The Alternative?

Performance pay or other words that smack of that “merit” word frighten teachers almost universally worldwide. They intrigue most board members worldwide. Why the massive discrepancy in reaction?

Very few people in most professions have not experienced pay that is related somehow to an evaluation of their performance. On the other hand, very few teachers world wide have ever been in salary systems where their performance was evaluated objectively and had a formal impact on their compensation. Thus each group speaks from its own experience, or the lack of it. Teachers fear what they do not know.

For those teachers senior enough to remember the head dominated systems of total discretion, “performance” seems like total head control and a loss of the autonomy in the classroom that they value and attracts them to an independent school. For board members accustomed to promotion and growth through proven performance, pay based on longevity of teaching experience alone feels like an out of date system no longer responsive to the paying, financially stretched parents’ demand for the highest level of teaching.

In this day of high tuitions in a weak economy, boards will be looking for ways to cut costs or at least ways to delivery money in a more mission based accountable manner. Teachers will be looking to avoid retrenchment, avoid performance pay or anything that resembles it, and trying to avoid the freezing of pay or the reduction of professional development money and medical benefits.

The reality is that performance systems in the business and professional world never work as well as they are purported to. Most teachers’ fear of the concept is culturally based. As most schools have little or no effective and trusted teacher evaluation process teachers cannot envision how their performance can be assessed in a way that could affect their short or long term compensation fairly. And in that they would be correct, as most schools do not evaluate fairly, if at all.

However, there IS a middle ground between the old head dominated discretionary approach (now almost totally absent outside the US) and the rigid years of experience and stipend (or positions of responsibility) dominated systems. A number of schools in the US and overseas have found it or are in the process of developing it: a culturally sensitive and culturally unique salary system for teachers that is BOTH more flexible with a modest performance component and less performance and measurement driven than most board members currently claim to demand. One popular model looks and feels much like that at the university level.

The middle ground assumes that a modicum of trust among the parties exists allowing both extremes to explore a moderate ground. What is important here is the DIALOGUE of seeking a middle path, a system that will give teachers a degree of predictability of future earning power which they always seek and some ability to influence it which they also want and need.

Boards in turn will be seeking a system that contains elements of promotion and evaluation as proof that the accountability that it expects in return for more money spent, is in place. Boards and heads also do not want to become trapped in a system with automatic salary increases without accountability and ever escalating stipend and workload reduction schemes. In the absence of flexibility within predictability schools suffer, faculties suffer, and ultimately students suffer.

Board Motivation to Pay

It has been our experience that boards will spend MORE money on faculty compensation when they are convinced that the money will be spent wisely and judiciously. Boards want to be able to trust that the school has established an evaluation process and a promotion system that are connected in some logical and objective way to money paid out and how that money is delivered. They want to know that teachers are being rewarded for exceptional dedication to the mission of the school, to quality teaching inside and outside of the classroom.

A few of the many criteria that could be fairly applied to more flexible, mission-based compensation include:

  1. Mentoring and leading both new and experienced teachers above and beyond any tools currently in place
  2. Outstanding quality of teaching in the classroom based upon agreed upon objective criteria
  3. Appreciation and support of valued traditions and culture
  4. Demonstration of innovative teaching and professional growth, such as developing a new program
  5. Exceptional advising and counseling of students
  6. Volunteering for leadership positions in non-traditional, non-paid areas
  7. Modeling appropriate behaviors in dealing with parents as clients
  8. Supporting extracurricular activities

All of the above are examples of “performance” other than simply staying another year, earning more credits or taking on more assignments which may or may not represent value added to the students’ total learning experience. These could become the basis for promotion and/or increased earning power which trustees understand and are willing to fund.

What about on the benefits side? Tuition remission may no longer be “sacred”. Has your school examined this benefit in light of changing trends and alternative options?

Young single teachers want more cash; mid career teachers tend to be financing a home, educating their children and/or paying for day care and senior teachers are worried about retirement and medical care. Does your school’s benefit package (in combination with the salary system) offer something for everyone or does it favor unintentionally one group over another? If the latter, it is time to examine the retirement scheme and medical plans for fairness and for opportunities for tradeoffs and cost savings.

Another Case in Point

One very complex and very large independent school client went through a deliberative dialogue on this topic between board, faculty and administration with the assistance of Littleford & Associates. The outcome while not revolutionary was remarkable nonetheless for these reasons:

  1. Board members, administrators and faculty leaders formed intelligent partnerships to discuss more flexible, cost effective and tax smart approaches to medical and other benefits.
  2. Teachers listened intently, challenged concretely and were open to considering change. They began to understand the tightrope trustees walk in setting tuitions that will be accepted by parents yet are high enough to fund the operations of the school.
  3. Faculty morale increased substantially as board participation made it clear that board members were not distant observers but decent, caring business and professional leaders who could work diligently along side teachers.
  4. Even volatile sensitive issues such as housing benefits and tuition remission were on the table.
  5. The final outcome will provide greater flexibility in income to young families, continued security for longer term faculty families, and a better deal for single teachers and those without children.
  6. Some areas of potential change were rejected as unnecessary or too sweeping but the process helped to define, clarify rationalize and improve the current systems.
  7. Trust among the parties improved.

Remember that the total compensation and benefit package can be divided into “buckets”. Now is the time to re-examine the absolute and relative amounts in each bucket. Reallocation need not necessarily cost more money, and it can improve morale and more effectively attract and retain those teachers who will further the mission of the school.

No Perfect System

There is no perfect system working without any glitches in any school anywhere. Littleford & Associates has worked with more than 1500 schools on this theme worldwide and we have seen no solution without flaws. However, we have seen solutions tailored to each school’s culture that involve BOTH best practice as seen from a worldwide context AND wise economic planning both for the school and for teachers.

Of all of the schools with which we have worked, none have come to the same conclusions or adopted the same salary system or benefit system design in the end. However, ALL have developed a more intelligent and thorough understanding of the effect of their current compensation practices and how they encourage or damage relationships with current and prospective teachers. Most have been able to introduce more elements of flexibility and predictability without taking the school down the slippery slope of more stipends for which no job will be done without extra pay or down the path of increasingly expensive benefits without tradeoffs, both of which the fiscally responsible board fears.

It is time for boards and heads to engage with teachers deliberately and thoughtfully, creatively and analytically on the entire topic of teacher compensation, evaluation, workload and benefits. The theme is too important and the implications too powerful not to have this reasoned discussion.

John Littleford
Senior Partner