Merit Pay and Performance

Brian Leiter posts on his blog today about a the decision of the Howrey law firm to pay its associates based on "merit" rather than seniority. I was surprised that this is seen as a radical move. Given the growing acceptance of merit pay even among unionized teachers who have long been suspicious of the idea, I would have thought the private sector would be far more accepting of the idea.

I know that many public law schools follow a lock-step approach to faculty compensation and that faculty salaries are largely a matter of public record. (Is this universally true?) At my private law school, there is much more secrecy and flexibility about compensation. The dean has flexibility to compensate entry-level candidates according to what the market will bear; he can match offers that colleagues have elsewhere; he can make allowances for over- and under-performance; etc. Furthermore, he is not obligated to share with the faculty who makes what or what the basis for any individual compensation decision is.

My MoneyLaw question is what effect these two broad approaches to faculty compensation -- lock-step and public vs. discretionary and private -- have on law school performance? Intuitively one would think that the merit pay creates incentives for performance, and helps deans reward and retain high performers. But the suspicion and jealousy that secrecy breeds can have a devastating effect on morale and collegiality. Is there a middle ground between the two approaches that might balance these two effects?

In baseball (and other professional sports) compensation is usually at the discretion of management but is public. Salaries are reported in the paper next to the ball scores. If management makes poor decisions about whom to compensate and how much, it is accountable to ownership and the public. Would this kind of discretion and accountability improve things in a law school?