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Human Resource Management in Higher Education - Cases Studies and Future Scenarios

CHAPTER FOUR

Performance-Related Pay for Academic Staff in Higher Education Institutions

Thanh Binh Ha and Sofya Kopelyan 


Introduction

In the late 1970s - early 1980s, a “new global paradigm in public management” was adopted, and a series of economic and administrative reforms that followed in many countries was later consolidated under the label of New Public Management (NPM) (Hood, 1995; Dunsire, 1995, p. 21). The application of this mechanism to higher education is no longer an original idea. De Boer (2007) emphasizes the importance of NPM as an integrated approach to redirecting university system: output control requires post evaluation and effectiveness of service delivery, which can be achieved through the use of private sector management techniques. One of them is performance-related pay (PRP). At the institutional level, pay for performances in higher education usually necessitates the alignment of funding streams with the fundamental goals of higher education (degree production, graduation rates and research output, recruitment rates), which requires effort from both faculty and administrators (Scott, 2013).

Even though PRP can be applied on various levels of higher education institutions, this chapter focuses mainly on PRP issues related to academic staff. Traditionally, faculty members were paid according to years of experiences and credentials. Nowadays, there are various practices of linking pay for academic staff to their performance. Faculty work itself is hard to define. Key factors, such as research output, classroom teaching and various kinds of institutional, professional, and community activities (Magnusen, 1987) create a relatively complicated picture of PRP for academics. Moreover, it has been debated whether it is appropriate to evaluate and measure performance of the academics, or whether it goes against the nature of their enterprise and academic culture. This paper analyzes the advantages and disadvantages of PRP for academic staff, presents a number of PRP management solutions and performance indicators, and discusses the effectiveness and applicability of PRP in different contexts.


Overview of Performance-Related Pay

Being one of the leading human resource management initiatives, PRP characterizes a ‘tougher’ climate, within which organizations, driven by the search for competitive advantage, increasingly have to operate (Lewis, 1993, p. 11). PRP can be defined as “a re-orientation of pay and reward systems away from traditional methods of job evaluation and time-based pay, carried out on a collective basis, to a more individualized approach which recognizes employee contribution” (Shelley, 1999, p.443). Shelley’s research on the diversity of PRP shows that in the UK, 65 per cent of pre-1992 universities currently operate a system of PRP for all academic staff with a big emphasis on individual unconsolidated bonus, derived through forms of peer and colleague assessment. Likewise, in Japan in 2007, Prime Minister Abe’s Educational Reform Council emphasized a need for PRP that would put an end to seniority pay in university and to the automatic granting of research funds to departments on a historical basis (Goodman, 2010).

The fundamental purposes of PRP are evaluation and development (Flaniken, 2009). Closely linked with evaluation, PRP assesses faculty achievements toward the institutional and their own goals in the past, and further directs and adjusts their capacity in the future. The traditional payment system of basic scale aligned with years of experiences does not have this function. It produces two types of academics: those who only concentrate on doing research and disregard in-class teaching quality, and those who only teach courses without any motivation to do research. Despite the academic autonomy of faculty members, it is important to perform evaluations of their activities in connection with PRP. Although difficulties arise when it comes to measuring the performance of academic staff in teaching, research, and services, PRP becomes more and more prevalent in higher education institutions. Advocates of PRP suggest that managers have the ability to enhance university success by linking the system of faculty remuneration with university strategic goals (Schulz & Tanguay, 2006).


Benefits of Performance-Related Pay

First and foremost, PRP is widely believed to increase the motivation of academic staff. Davidovitch, Soen, and Sinuani-Stern (2011) point out that since 1990s, economic hardships and tight budgets have resulted in the fact that only strong academic performance leads to higher financial awards. In other words, incentive pay method that is based on past achievements has been designed to motivate and encourage better performance in the future. In developing countries, where basic salary for faculty members is averagely low, PRP can be the major motivation for them to increase efficiency and productivity at work. Thus, for instance, the Resolution on Innovation in Higher Education 2010-2012, issued on January 2010 by the Ministry of Education and Training of Vietnam, suggests a PRP mechanism, in which presidents/rectors of higher education institutions determine the pay scale for faculties in accordance with their contribution, and calls for a more effective annual evaluation of academic performance (Regional Training Center, 2014).

PRP has also been involved in the process of selection and recruitment of academic staff. With the above assumption that the system accurately identifies productivity, basing pay on performance can attract and retain most productive human resources. In addition, PRP can serve as a tool for promotion in the institutional context, as it justifies promotion as a fair reward for excellent performance. At the same time, output-based pay creates a market that values teaching and research quality and helps faculty members move to institutions where their talent is rewarded most highly (Lavy, 2007). Thus, higher education institutions possessing a PRP system that rewards effectiveness may attract academic staff with higher abilities. Muralidharan & Sundararaman (2011) demonstrate that more educated and better-trained employees responded better to the incentives, and highlight the potential for incentives to be a productivity-enhancing measure that can improve the effectiveness of the institutions overall.

PRP is strongly linked with quality assurance in higher education, where quality and standards have many different implications (Yorke, 1999). Faculty members who deliver teaching and research activities play the main role in defining institutional recognition. While quality relates to the educational process of teaching, learning, and carrying out research, standards refer more to the intended or actual achievement or outcome. Therefore, ‘linking quality and standards’ is the contribution of educational process to the attainment of a defined standard (Newton, 2006). Here, standard can be viewed as learning and research outcome, which is very often integrated in accreditation process for quality assurance. However, it may not be desirable to apply the concept of quality as mainly related to assessing output to every institution. Burrows, Harvey, and Green (1992) define quality as effectiveness in achieving institutional goals, meeting the stated or implied needs of the customers. Thus, it is of great importance to clearly define the criteria that the faculty should meet in order to contribute to institutional quality, and the criteria for the evaluation of their performance.


The Other Side of the Coin

Motivation derived from PRP is a paradox. In certain cases, PRP fails to motivate academic staff. Studies conclude that PRP schemes have little or no effect on employee motivation, and at worst demotivate them. Employees are rather motivated through non-pay factors, such as job security, satisfaction, personal development opportunities, and peer recognition (Lewis, 1993). Within a single institution or department, the level of motivation, in fact, differs from one faculty member to another. Motivation that is directly connected to payments might increase individual competition, thus weakening academic collegiality and rupturing the relationships among the faculty. To some extent, PRP reduces the possibilities for cooperation, and without teamwork, there can be no quality assurance (Kohn, 1993).

Moreover, there is a major difficulty in defining academic staff performance and in developing measurement schemes and scales at the institutional level. Performance criteria can be chosen and effectuated in an inappropriate way, or may not lead to accurate measurement. Questionable methods include student evaluation to scale teaching effectiveness, peer evaluation, and measurement of research outcomes related to quantity rather than quality (Honoree & Terpstra, 2008). Furthermore, there is an issue of human resource capability: which managerial staff is competent to carry out PRP assessment? It is necessary to take into account that the nature of academic work performed by faculty members makes it difficult to assess the quality of the outcomes:

Teaching assessments produce disputes concerning the proper weighting of student evaluation of teaching… and classroom visits made by peers. Assessing academic service proves problematic in evaluating the institutional and professional impact of the service and distinguishing between substantial contributions and mere presence at committee meetings. Research assessment stirs controversy in assessing the quality and impact of publication. (Schulz & Tanguay, 2006, p. 73)

PRP is not only outcome-driven but also budget-control imperative. Inadequacy of available funds for the required performance results in disagreement and conflict between academic staff and their employers. Lewis (1993) perceives it as a possibility of demotivating staff: since fixed budget does not allow the award distribution to stretch far enough, the academic staff that really has performed above average will be given an average award. In case university funding is totally dependent on performance as a whole, and if institutional performance is low, there will be even no budget available for PRP. With restrained budgets, higher education institutions are required to perform better at a lower cost. In this reality, it is a major challenge to ensure sufficient financial rewards in a long term manner.


Performance Indicators and Performance Management

It is generally agreed that performance indicators and methods of measuring performance should be designed in a way that would ensure transparency and fairness of monetary payments (Hall, 2009). Nevertheless, as it has already been indicated above, this task is not as simple as it may appear. Not all outputs of the academics’ and administrators’ work are quantitative, can be assessed objectively, and should be directly associated with a financial reward (Lewis, 1993).

By definition, patterns of PRP cannot be uniform. Although the number of PRP methods is rather limited, their combinations may vary from institution to institution. Assessment criteria, for instance, can be set managerially against the objectives of performance agreements between universities and their stakeholders (governments, sponsors, etc.), and can be formulated in terms of the achievement of objectives. If a teaching-oriented university has an objective to become more research intensive, then a certain number of academic publications in peer-reviewed journals per year would serve as part of individual performance indicators and as a basis for financial reward. Institutions with a higher level of academic autonomy, on the other hand, may rely more on qualitative measures, such as peer and colleague evaluations and student feedback. Three basic forms of PRP are recurrent in the literature (Shelley, 1999):

a)         individual pay, based on time and appraisal;

b)         individual bonuses, based on targets;

c)         collective bonuses (e.g., for project group work).

In fact, remuneration methods include discretionary awards, incremental and bonus schemes, and PRP schemes proper. Non-monetary rewards, such as reduced teaching load, additional holiday time, promotion, or public recognition, can also be part of PRP schemes. These schemes can be applied either to all university employees or to some categories of staff (e.g., only to executive or senior academic staff).

In case of faculty members, evaluation generally revolves around three categories: teaching, scholarship, and service (Magnusen, 1987; Schulz & Tanguay, 2006). This division mirrors the famous notion of universities’ three missions. Assessment of teaching is a combination of student feedback and student performance (dropouts, test results, grants, awards, participation in conferences, etc.) on the one hand, and, on the other hand, teaching load, innovativeness, the quality of syllabi, course materials etc. are reviewed by peers and/or heads of the departments. For this reason, keeping up teachers’ portfolios appears to be an effective means of collecting, systematizing, and presenting information on individual performance. Scholarly achievements, in their turn, are made up from inputs (grants received) and outputs (works published; number of citations). Finally, the term ‘service’ can refer to activities within university (like organizing a conference and editing its proceedings or engaging in academic administration); other professional activities (e.g., being a referee for a professional journal); and community service (e.g., giving public lectures and expert interviews). Complications arise when each of the performance categories is assigned some relative weight and a particular scale, because most criteria are difficult to measure in a way that would be perceived as fair by all faculty members (Honoree & Terpstra, 2008).

Depending on the size of the institution, its organizational structure, national legislation, and country-specific cultural traditions, decisions about remuneration can be made individually (e.g., by a dean hiring a new professor or by a leader of a research team responsible for distributing grant money); by appointed administrators (e.g., an overall scheme developed centrally by an HR department); or by a special remuneration committee. The latter body is usually assembled in private institutions governed by a board of trustees with the purpose of determining pay conditions for senior academic and executive staff, and monitoring their performance. Its members normally include various stakeholders from within and outside the university, whose task is to make sure that senior staff members work in compliance with the institutional mission towards the achievement of common goals, and that higher remuneration rates for these people are justified, necessary, and compatible with their individual performance and reputation. Undue gaps between senior and junior staff salaries, as well as higher executive pay rates in contrast with remuneration in comparable institutions, lead to internal discouragement, confrontation and reputational losses (Hall, 2009). Collegial pay decisions should also be encouraged in public institutions and can be implemented for various groups of employees on all levels, because this form of decision-making guarantees more transparent and objective deliverables, as well as faculty approval, when faculty members are involved into the process.


Effectiveness and Applicability of PRP in Different Contexts

Effectiveness of PRP schemes largely depends on the context of their application. In general, they are more applicable in research institutions, as research outputs are easier to measure quantitatively, and are less applicable in teaching and administrative contexts (Schulz & Tanguay, 2006). They are more effective when the basic pay is low, whereas pay distinctions between various performance levels are high (Hathorn, Hathorn, & Hathorn, 2011). Such schemes are more likely to motivate employees, but they are contingent on university budgets, some of which are too meager to afford them. Hence, it would be unrealistic to expect cross-sector uniformity of PRP in higher education.

Furthermore, studies show that a comprehensive and diversified performance management policy is more effective than the ‘one size fits all’ approach (Decramer, Smolders, & Vanderstraeten, 2013; Franco-Santos, Rivera, & Bourne, 2014). Different employee groups have different tasks, needs, and cultures, and therefore need different configurations of PRP; there simply cannot exist a universal set of performance indicators and monetary rewards for all groups within one institution. For example, when implementing a scheme based on university strategic targets, it is worth taking into consideration that scholars usually identify with research targets rather than with organizational strategy. When evaluating teaching, distinction should be made between departments, between beginners and experienced teachers, and so on. Integrated systems of performance management that link strategy to measurement and balance the interests of different stakeholders, internal consistency of performance management practices, better communication between HR departments and the employees, and better managerial control are among other factors that support the effectiveness of PRP practices.

From a global perspective, assessment and remuneration of individual performance in higher education sector is more developed and common in Anglo-Saxon countries (the UK, Canada, Australia, etc.). Their best practices are spread across the rest of the world and are adopted via various mechanisms, including those of institutional isomorphism: the UK serves as a model for the US (Scott, 2013); the US serves as a model for Korea (Halx & Joo, 2012), and so on. Since the UK has been the ‘headliner’ in the modernization of pay structures in higher education, and the experience accumulated by British universities presents rich data for analysis (Universities and Colleges Employers Association, 2008), it is worth looking at a sample case from one of the UK institutions, which will then be followed by an example from a country, where PRP was introduced only recently.

The University of Glasgow has an elaborate Performance, Pay, and Reward policy that is being regularly updated. It rests upon the governmental civil service job grading (from 1 to 10) and provides corresponding salary scales. The policy is meant to create equal opportunities with respect to pay and career progression for all staff, with particular attention given to gender pay gap; to match the reward with job content and performance; to sustain excellence, and to encourage exceptional contributions by means of the Reward and Recognition Policy (The University of Glasgow, n.d.). The University tries to make sure that individual objectives of the faculty are aligned with its strategic plan, and conducts annual performance and development review in form of self-assessment and meetings with line managers. Instead of points, it utilizes a scale from ‘improved performance required’ to ‘outstanding’. The former level does not automatically lead to dismissal; it is followed by measures for improvement, a more extensive monitoring, and by application of competency procedures. The latter level entails pay rewards and promotion.

A separate policy is applied to professorial and senior professional (Grade 10) staff as playing a leading role in the realization of university ambitions. Individual profiles of the professors are measured against four ‘zones’, that is, four levels of academic excellence, from an entry level to the highest academic distinction. Criteria include research output, award generation, supervision, knowledge exchange and impact, learning and teaching, leadership and management, and esteem. Remuneration policy is formulated by the Remuneration Committee every year, depending on budgetary and institutional considerations. In this case, the University takes recourse to a points-based approach (0-4). Occasional outstanding performance (3 points and higher) is rewarded with a modest non-consolidated payment, whereas sustained high-level performance over a three-year period (9 points or over) can be rewarded with a consolidated payment for another three-year cycle. The same ‘zones’ and points are utilized for recruitment, retention, and promotion; and same procedures (with minor differences in performance indicators and salary bands) are applied to senior professional staff.

Whereas British universities have a considerable tradition of relating pay with performance, Russian universities are only making first steps on the way to PRP. In 2012, the Russian Government decided to refine on the remuneration scheme for civil servants and adopted a notion of the ‘effective contract’. It is a contract of employment with the employee, which elaborates on his/her duties, wage conditions, and the indicators and criteria for evaluating his/her performance, in order to determine incentive payments, depending on the results of work and the quality of services (The Russian Government, 2012). Since the Higher School of Economics (HSE) in Moscow won the competition for developing a nationwide roadmap, it became a model institution for the transition to the effective contract. HSE faculty members receive grants, increments, and bonuses if they publish articles in Russia and abroad, contribute to the university reputation, develop original teaching methods and electronic courses, give courses in English, engage in distance teaching, have highest ratings among the students and supervise the students that win research awards. Young faculty members are entitled to additional grants, mobility programs, trainings, and reduced teaching load. Statistical data demonstrates that PRP makes up 23-29% of total faculty income, and the number of applications for performance rewards doubled between 2010 and 2013 (Radaev, 2013).

A broader view of the reform, however, is not so optimistic. University administrators across the country struggle with its implementation, try different schemes, and echo the arguments of their international colleagues (Pavlyutkin, 2014). The major challenges are financial stress, information asymmetry, and bureaucratization. In Russia, introduction of the effective contract has been closely linked to the presidential decree to raise salary level in the education sector to the average regional level. What is more, PRP may comprise 30-80 % of the total salary (compared to 5-10% in the UK and USA; Schugal & Ugolnova, 2013). HSE presents an example of a national research university, member of an excellence program, enjoying increased federal funding. Less sustainable universities, institutions depending largely on regional budgets, and teaching-oriented universities have chosen to pay more to less employees, increasing teaching hours of the remaining academic staff and, consequently, lowering the level of quality, contrary to the reform. Even if an institution finds some means to increase the basic and performance-related shares of salary, most academics feel the remuneration is too small to stimulate better performance and prevent them from supplementing salary by outside work (Derkachev & Pinskaya, 2014; Pavlyutkin, 2014).

Furthermore, communication of the reform to faculty members is often insufficient. There are examples of good practices involving public discussions of the contract and indicators, when university administration amends the draft of the agreement in accordance with the opinion of the academics (National Research Tomsk Polytechnic University, 2014a & 2014b). In other cases, however, administrators use the reform to terminate previous long-term contracts, or set inadequate indicators that would be difficult to achieve and that, as a result, would not be remunerated (Chebakova, 2015). Formalization of indicators and bureaucratization of evaluation provoke superficial performance and imitation of quality (Kurbatova & Levin, 2013). In addition, employees are embogged in a morass of paperwork, reporting on their activities and sitting on various evaluation commissions sometimes as frequently as every month (Schugal & Ugolnova, 2013).

The reform is binding for all state-funded educational institutions, which should transfer to the suggested PRP system by 2018. Since it has not been fully implemented yet, and studies on the effectiveness of the ‘effective contract’ will be conducted at least until 2020 (National Research University Higher School of Economics, n.d.), it is difficult to assess its overall impact. Current research attests that careers in education have become more prestigious, and more young professionals are attracted to the sector (Derkachev & Pinskaya, 2014). The improvement of quality, however, has been less successful in light of managerial attempts to optimize the costs and increased bureaucratic pressure on universities and academics.


Conclusion

The logic of New Public Management dictates that in order to enhance quality and effectiveness of higher education, pay should be awarded for performance. Performance-related pay is considered a feasible solution when the institution aims at increasing its competitiveness, at rationalizing its organization chart and employee workload, and at tackling its budgetary constraints. Assuming that PRP motivates academic staff to perform better, it can effectively increase the quality and standards of the university as a whole.

Implementation of PRP schemes is far from being ubiquitous. The relevance and effectiveness of PRP in the higher education sector have been questioned by both scholars and trade unions. PRP is based on output management, whereas output measurement appears to be very controversial in the case of academic staff. Even though PRP practices are adjusted to varying national contexts, their proponents face common challenges. Arguments in favor and against PRP revolve around performance indicators and their value, academic autonomy and managerial control, collegiality and competition, methods of assessment, fairness and subjectivity, and the costs of adoption of this approach. Effectiveness and sustainability of PRP solutions depend on many factors, but most importantly on their diversification and flexibility.

All schemes assume a division between the basic and performance-related shares of salary, with percentage of PRP contribution varying from place to place; and all demand a development of evaluation system of some sort, using points, descriptors, levels, grades, etc. to measure individual academic and professional achievements and the alignment of employee performance with organizational goals. Evidently, if remuneration scheme is inadequate, or is applied inconsistently, it can become a demotivating factor for the employees. On the contrary, well-designed PRP systems can improve individual performance, help attract and retain outstanding staff, and enhance the university public image.


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