Merit-Based Pay Cuts: Why Not?
By Bryan Caplan
Many universities now have pay freezes or even nominal pay cuts. Under the circumstances, several professors have told me that there’s little point in doing faculty evaluations. If there’s zero – or negative – money for raises, why bother saying who’s doing well and who’s not?
It amazes me how much these remarks take for granted. Suppose a department is 5% over-budget. It may be obvious that it needs to cut total compensation by 5%, but it isn’t obvious that any particular professor’s salary needs to be cut by 5%. If raises can depend on performance, so can cuts! If a chairman normally gives a 0% raise to his worst performer, and a 5% raise to his best performer, why not respond to fiscal austerity by simply changing the range from -7.5% to -.2.5%?
I guess you might say that professors resent equal pay cuts less. But I doubt that. Yes, under-achievers resent them more, but they frankly don’t contribute much even when their morale is high. And I bet that over-achievers would feel a lot better about pay cuts if they know that their good performance was still rewarded at the margin.
If there’s any good argument against merit-based pay cuts, I can’t think of it. Anyone?