Students and the rest of the Oakland University community may be following the negotiations underway between Oakland University and the Oakland University chapter of the American Association of University Professors (OU AAUP). As faculty members, most of us have been asked by a student recently if there will be a strike. As a past elected president of the OU AAUP (2015-2017), and a contract bargaining team member (2015), I know a bit about the history that influenced the evolution of the OU and OU AAUP Agreement in its latest form. So, I generally start by explaining to my students how professors do their work, how we are evaluated and what the differences are between their full-time tenure-track faculty and their part-time faculty (special lecturers). I also get to explain things like the OU faculty merit pay system, which they have read that our faculty union was negotiating to resist OU’s desired changes to the merit pay system. So, I also get to enlighten them about merit pay systems. After explaining the concept of “merit pay” systems, which you can read about from many management publications, the students I talk to understand that OU faculty do not really have a merit pay reward system based on the definitions of merit pay systems. This has inspired me to explain merit pay systems in this learning moment of contract negotiations.
First, how are merit pay systems typically defined in the HR space? Merit pay systems are delivered in the form of annual raises to employees. They are usually defined to have four basic features listed below, but when implemented they may not actually have these features in the real world. Indeed, the merit pay system for OU faculty does not have characteristics three and four. Because of this, most of the opinion you will find regarding merit pay systems is not helpful because the authors are discussing merit systems with all the following components:
1) They have clear descriptions of what performance generates a specific merit score for a specific job category, including any nuances at different levels in an employee’s job category.
2) There is a process to evaluate and assign a merit score, based on some scale. Often just one to three, where workers who are doing their required job, satisfactory, get a one, and extra performance or productivity work can boost you to a two or three.
3) Each score (one to three in this case) has a specific fixed percentage or absolute monetary raise assigned to it.
4) Last, and certainly important, no matter how many people get which scores, annual raises are assigned to match the merit score for that person.
The result of these theoretical “merit pay” systems is that extra “meritorious” work is to be “rewarded” with higher raises. Fundamentally, this should be perceived as a positive reward for employees that has a positive impact, such as decreasing turnover. This is a bit different from a “bonus” reward system, where once a year, extra productivity and profits can result in extra bonus checks given to employees for specific justified reasons. Merit pay systems are typically brought in by the employer and they are typically sold to employees to “find and reward those doing the extra mile.” That reason was the one given to us (faculty) in 2015. The desire of OU to have faculty get their entire raise within a merit pay system, to find and reward those who do more with extra raises. But the “merit pay” system simply morphed into a system where the institution wanted to rid the contract of the words “across-the-board” raise, and they wanted faculty to take on all the extra work to rate each other, and to find faculty to rate as doing less than their expected work. Thus, OU faculty use a five-point scale, one to five (whole numbers only), and the idea was that a score of three means you are doing your job. The scores of four and five are available to get a higher rating for extra reward, and one and two are available to indicate deficiency. The scores of one and two were not needed because there is already an entire section of the faculty agreement (contract) that guides how the administration can deal with faculty who are not doing their required jobs. Generally, in most organizations, it is one of the jobs of your supervisor to document and figure out who is not doing their job and then act upon it based on some institutional protocols. These processes are actually outlined in the OU and OU AAUP Agreement and they have been there for decades. OU faculty already get professional opinions collected about them for all the times of their reappointments for continuance as new Assistant Professors (two after hiring), again when up for promotion to Associate Professor and again if they try for Full Professor. Promotions to Associate Professor even require the evaluation by experts in their field from other universities — who they have never published with or worked for! This very nature of the tenure-track system generally does not attract lazy, non-self-motivated people.
Being able to “merit score” someone to give them a below expectation rating and also a less than fair raise was apparently a solution in search of a problem. As to the need to address this hypothetical problem, after asking the university, we have never been provided estimates or data on what percentage of OU faculty that the university thought were not doing their job. (Beyond the odd bad apple that might be found in any profession, from airline pilots to medical doctors.)
If you hunt for articles today about merit pay systems, you will find analysis on how “merit pay” systems fail. Why both small and large companies have tried merit pay systems and then dropped them, going back to across the board raises and maybe reward by bonuses. Such failed “merit pay” systems have been a source of public embarrassment in the past for companies, such as GM, that used such systems for their managers and executives. Their systems failed because of the “fixed pie” nature of their merit pay systems, which I will explain below. The result was that executives in a merit pay pool would simply rotate who got the merit pay bonus each year. Why? Because they were not allowed to reward everyone who might have done extra performance. The reward merit pie was fixed in size. Someone thought this kind of system would magically inspire all out competition between executives to go above and beyond. No actual reasons provided to explain why they might expect that kind of result, but that was the process they went with regardless.
Other results of these fixed pie merit pay systems, from real world experience, include a shift to increasing employee turnover, increased workload to hire more often, increased perception by individual employees that their employer generally has negative assumptions about their work, increased stress at work and the addition of hundreds of extra person-hours to evaluate and manage merit pay systems that sap time from the actual real work of the organization. This history of merit pay system failure is confusing to a novice who thinks merit pay systems have been implemented with all four components listed above. This confusion is explained by the fact that one or more of those components are not present and voila. All is clear.
The most common corruption of a rewarding “merit pay” system is what we can call the fixed pie modification. Let me illustrate with our hypothetical merit pay system that rewards “extra hard workers” for their “extra hard work” and has all four of the components listed above. If 100/100 workers all worked extra hard in 2023 and got a top merit performance score, their employer would give all 100 workers the predetermined percentage raise assigned to their higher performance. At the other extreme, if the same 100/100 employees just did the satisfactory, normal job performance in 2024, they would get a lower (but fair) raise based on that performance level. For 2024, the employer will spend less money on raises (smaller pie) than they spent in 2023 (bigger pie). This merit pool money, the pie, is not fixed. Assuming that the base raise for satisfactory work is fair, (keeps employees caught up with cost-of-living increases), employees may have a positive perception about their employer’s attitude towards them. They could feel valued for their work, and feel that if they do more than required, they can be appreciated with some extra reward.
Now let’s compare this to the very common implementation of “merit pay” that has the “fixed pie” modification. Merit pay systems are often sold by employers as a new reward system, but they are then actually set up with a limit on the size of the total merit cash that will be available across their organization. You need to watch both hands of a magician. Surprise. While you are distracted by the nice sounding words “merit pay,” you end up with a fixed pie, which will have to be divided up between all the employees. You will notice that starting in 2015, the OU Faculty’s agreement no longer uses the words “across the board” for any raise components. My educated guess is that in a time of state legislators attacking higher education, it looked better to have an agreement that seems to show that OU faculty only get raises based on their meritorious performance. Historically, we always had a tiny reward system, called merit pay, in our Agreement prior to 2015, but most of the raises for faculty were based on negotiated agreements, over three years, with fixed across-the-board raises with a small fixed pool of merit cash that departments could divide up among their unit’s faculty based on a documented justification process. “Merit pay” was not that much to be excited about because the OU faculty merit pie was so tiny it was almost funny. No, it was not almost funny, it was the fodder for many jokes. The scale was such that faculty members might get an extra $25 to $150 per year from a fixed merit pie. However, that was not responsible for most of a faculty member’s raise. A standard negotiated across-the-board raise was most of our raise. So, merit pay was not of much concern for most full-time faculty other than those faculty in much lower paying fields.
Then in 2015, OU wanted to have a faculty member’s raise based fully on a merit system. No more “across-the-board,” those words that must not be spoken. We did not get a merit pay rewarding system with the four components above, we got the same fixed pie for raises, now to be massaged and divided up by a “merit pay” system. Now, based on a merit score, that fixed pie is divided up unequally between faculty. The total average raise for faculty still failed to keep up with cost of living and inflation, so not much different to pre-2015 in total effect. So, in this system sold to “reward higher performing faculty,” this is not truly the provision of an extra reward. We cut up the same fixed pie and make some faculty take a smaller piece so the knife can carve out bigger pieces for others. We take from Peter to pay Paul. So, not only have most OU faculty lost buying power over the last several years, but most faculty doing a satisfactory job get a bit less than that. The pie is fixed.
This immediately creates the very real perception that our faculty’s standard annual raise process is a punishment and reward system. I am sure that no one at OU would want to describe it that way, but I have talked to enough faculty over the last nine years to know that this is how it is perceived. In 2015 our union was able to ensure that faculty with the lowest relative scores would at least get a 0.5% raise. Sort of a type of raise we had before — the name of which should not be spoken (across-the-board). So, in the merit pay system that your full-time OU professors have now, the university has not had to increase its investment to reward those who do more than expected. They just make faculty cut up the same fixed pie into different sized pieces for different faculty. This is no actual bonus system, but the name sounds nice on paper and in new articles, “merit pay.”
Along with the new merit pay system came hundreds of extra person hours to fill out merit reports, collect and organize merit reports, compare and assign merit scores, and then our administrators are supposed to read the merit reports. Hundreds of them. It does not take long using a back-of-the-napkin estimate to figure out that there is not enough time in the day for already busy administrators to read and approve hundreds of these merit reports. So, faculty must run committees to do all the actual analysis work to calculate merit scores for their unit’s faculty, each May, after classes are done. Affected faculty are now working those hours after the end of their academic pay period. (Professors get an academic salary that is based on eight months for those who may not know.) We may as well face the big gorilla in the room. The merit pay system is a drag. If we are going to be forced into this sham of a merit pay system, it’s high time that all the work required by faculty to process merit pay should be limited to using their academic pay hours from September to April (eight months). Either that or the university should compensate faculty for the merit pay committee work they do in the summer months. The administrators in this process are paid 12 month salaries, they have to work in the summer and they are compensated.
The problems that come with fixed pie modified “merit pay” systems are those reported over a decade ago when many companies dropped them. These pitfalls were also brought to the university’s attention in 2015 by the OU AAUP. Now, various levels of merit analysis try to stream-line the merit pay process, because of the insane and impractical amount of work hours required to manage it. In the process, sometimes the institution does not follow the requirement of the Agreement, which is a legal contract, and our union (OU AAUP) had to file grievances in the first year of the new merit pay system. Without going into details, grievances were filed by the OU AAUP on the incorrect management of merit pay implementation and the union won before an outside arbitration system, easily.
What a hassle and negative impact this has had for Oakland University. How much time we waste on the process of merit pay raises simply does not make sense for an organization that wants to be “efficient to get the most out of its budget.” When I read that OU wanted to modify the merit pay system this round again so they could force distribution of merit pie pieces to make them different, even for those with the same merit, I was not surprised and surprised. Not surprised, because the current system is so flawed and what is yet another flaw? Surprised, because the university just keeps ignoring the reality of what we have now. Who comes up with this stuff? Another bad idea, to make this process feel even more negative to the faculty. God knows our merit pay system is no help in competing to recruit new assistant professors.
As a scientist, looking at our merit pay system as it exists now, I see only negatives for both the faculty and the administrators. So now you know a bit more about the OU faculty merit pay system, which was a recent topic in negotiations.
P.S. Dear business students, should you ever be asked by your company to investigate merit pay systems, be ready to warn them about the fixed pie problem, and the costs of extra person hours they will take on.
Sincerely,
Ken Mitton
Associate Professor of Biomedical Sciences
Oakland University
Former OU AAUP President
