Salary System Modeling: Thinking Through Your Decisions

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Salary System Modeling: Thinking Through Your Decisions

Most independent and international schools have a salary system that resulted from administrators and faculty tinkering with the original model over time. The original model was most likely an adaptation of one borrowed from another private school or more likely from a public school district. Heads of schools usually inherit these systems and have little or no idea of how and why the current model evolved.There is often no paper trail that offers a cogent explanation .

Similarly, many boards cannot describe the current model and how it functions . They may not realize that it does not reflect the school’s mission in any rational way and yet it drives the expenditure of up to 85% of many schools’ operating budgets.

Often among the longest serving faculty are teachers who at one time or another served on or led a compensation committee that worked around the edges with the current system usually in a manner that would favor their particular cohort, age group or demographic profile. There is nothing selfish about that. It is simply the way it is. When a school has no philosophy of compensation and no guidance, such changes occur over time on an ad hoc basis depending upon the hiring crisis at the moment or the current issue causing faculty disgruntlement.

II. One Example: The Pendulum Swings

A recent Client provides a prime example. It has no published salary scale or system. It has an age-based “platform” model whereby it sets a base salary and periodically raises it to reflect local trends. It starts at 35,000USD dollars per year and 600USD dollars is added for every year of service, plus a possible cost of living increase.There is no limit to the steps.Thus a 40 year veteran teacher is at step 40, and theoretically next year will be at step 41. It never stops.

About 20 years ago, a faculty compensation committee at this School decided that more senior faculty (and few leave the School) should receive recognition payments for years of service. It created a system of payments, ranging from $650 to almost $7,000, added to base annually for each five years of service. The Board froze this expensive recognition payment several years later, however, because the School now faced the challenge of attracting younger teachers.

How to hire more young teachers besides periodically raising the starting base salary? Because the School has never really been able to compete in the more highly paid public school market in an affluent area, it brought tuition remission back again for as many children as a teacher wishes to send (in addition to free summer school). This practice of tuition remission with no limit is increasingly rare among US independent schools.

The School replaced tuition remission years ago with need-based financial aid but few teachers applied. At that time, the School did NOT do what many schools have done: exclude the teacher’s own salary from the need based calculation. That formula might have been more effective in helping them to recruit young new teachers with school age children as more would have qualified for aid. The School is not full currently so this may be viewed as “easy money”, but if the School reaches full enrollment at some future point, this policy of unlimited tuition remission may come to represent a substantial cost to the School.

In addition, recognizing that tuition remission is a benefit that equates to thousands of dollars over the years that those without children or singles will never earn, the School then decided to pay $1,000 per year to teachers without children at the School. While very well-meaning, such a practice is unheard of and the School did not receive much credit for it.

The School had generously taken care of the older teachers’ cash and restored an expensive benefit for the younger teachers, but now the pendulum swung BACK to the plight of the older teachers as this aging cohort began to worry about retirement. The School had not required the faculty to contribute at any level to TIAA-CREF so few had accumulated a retirement asset, if any. At this point, the School did NOT create a one-time plan to buy out senior teachers (thus freeing up more money for the younger cohorts) but rather an early retirement plan.This plan offered teachers who were at least 60 years of age and with 20+years of experience a two-year package of 25% of base pay to substitute teach for 42 days during the school year. For one individual, that equated to $600 per day. These teachers could also keep their medical plan and TIANCREF contributions until age 65 and their medical benefits beyond 65.

What about the mid-career teacher at this School? There are two indicators of a healthy salary system. First, the highest base salary should be 2.5 times the starting base salary. Second,the average salary of each five-year cohort should be at least $5,000 to $8000 higher than the average salary of the prior five year cohort. If these criteria are met, then the salary system avoids compression , or a lack of consistent, meaningful long-term growth in earning power. At this School, the current salary model satisfies neither criterion. The average salary from the first to second cohort is about $6,000;from the second to third about $2,000,from the third to fourth about $800; from the fourth to the fifth about $8000 , and so on with no rationale. This means that certain mid-career cohorts tend to suffer while other cohorts do better.

As salaries are relatively low, the School added coaching pay, healthy department head stipends, summer school teaching and maintenance jobs . It did NOT make the mistake, however of traveling too far down the road that undermines long-term financial sustainability : paying stipends for titles AND reducing workload for these positions. Some teachers also tutor to make ends meet.

III. The Way Forward

This School is an example of one which tried to respond genuinely and with empathy to the needs of each teacher group in good faith with the information and financial resources that it had available at the time. Almost everything that this Consultant found was not proactive but reactive, that is, the result of certain teacher cohorts periodically applying pressure to shift the salary system in their favor and of the Board’s and Administration’s well-intentioned responses to meet their demands.This is by no means unusual in this Consultant’s experience on this topic worldwide.

With enrollment slipping and the realization that a hodgepodge of compensation and benefits decisions have left certain groups still underpaid, this School is determined to take a holistic look at their compensation and benefits model and to begin to make decisions going forward that are rational, based upon compensation theory, and will meet the avowed mission of the School. This will entail addressing relatively low workload , very small class size, and a shortened school year, but this Leadership has the courage to enter into these difficult discussions to improve the financial picture of this very fine School much loved by faculty and parents alike. It is never too late.

An understanding of teacher compensation theory and practice is a critical talent heads of schools and senior administrators need to possess. Boards need to have a much better handle on how and if the school’s mission has any impact on the design or implementation of the school’s salary system and how effective that system is in recruiting, retaining, growing and rewarding teachers .

John C. Littleford
Senior Partner