I doubt we want to run our schools or anything else like these businesses:
Rick Wagoner, chief executive of General Motors Corp., announced earlier this month the company had to close four plants that make trucks and SUVs because of lagging demand as fuel prices soar. That followed the posting a $39 billion loss in 2007, a year when its stock price fell by about 19 percent, without adjusting for dividends.
And Wagoner? His pay rose 64 percent, to $15.7 million [Rachel Beck and Matthew Fordahl, "CEO Pay Rose Higher in '07 Despite Economic Woes," AP via Yahoo News, 2008.06.15].
Lose market share, lose jobs, get paid more. Hmm....
...KB Home lost almost $930 million in 2007 and its stock lost 60 percent of its value. But [CEO Jeffrey] Mezger still made $24.4 million, as valued by the AP, including a $6 million cash bonus.
He pocketed that bonus because he exceeded certain objectives the board had set out for him. Among them were improving performance on a customer satisfaction survey and developing senior leadership in his first year as CEO [Beck & Fordahl, 2008.06.15].
And I thought value for shareholders was the bedrock metric for corporate performance. Hmm....
...Profit at insurer XL Capital fell more than 80 percent last year, and its stock price slumped about 30 percent. But Chief Executive Brian O'Hara made $7.5 million, a raise of 23 percent.
In its proxy statement, the company called its profits "unsatisfactory" but said operating earnings, which exclude certain factors, were better than planned.
O'Hara, who plans to retire later this year, was also given 62,500 shares of restricted stock and 250,000 stock options, which were not included in the calculation of his total compensation. The company said that was to "reflect the importance of Mr. O'Hara's role in the CEO succession process" [Beck & Fordahl, 2008.06.15].
Far be it from me to expect rational behavior from the insurance industry....
Merit pay sounds great in principle. Do good work, get paid well: that's exactly how the world is supposed to work (never mind that business about the rain falling on the good and the not-so-good alike).
Alas, in practice, tying pay to performance is a mess. Someone has to pick the metrics for performance, and even corporate executive boards, the folks who should be the best experts at figuring out things like market value, appear to end up gaming the system to help their buddies. Stocks lost value? Well, we'll base pay on that customer satisfaction survey. Profits tumbled? Well, we'll getting us through the succession process was really important. Even corporations can't come up with solid, objective performance pay metrics that make sense outside their crony circles. And they are well-removed from the small-town politics that would make merit pay even harder for South Dakota school administrators to make fair, pay-determining assessments of individual teacher performance.
I remain interested in hearing practical proposals for merit pay in our school systems. Just don't look to corporate America for your model.
Update 09:24 -- Well, not every corporation gets it wrong: AIG canned its CEO (on a Sunday, no less) after seeing its stock price drop 40% in six months.
I honestly don't know how merit pay would work for teachers. It's a good idea but impossible to implement fairly. If you go on test scores to assess how well students have learned, that can depend on the subject taught. If you rely on kids or parents to determine this, it becomes a popularity contest or would be based on how well a sports team does or does not do. If teachers or administrators decide, it's definitely a popularity contest. Admittedly the way it is now isn't fair either because some of the teachers are automatically paid more based on length of service or additional classes taken and have nothing to do with whether or not they are good teachers.
ReplyDeleteAnd some teachers who take leave of absence to raise kids or such and want to come back into the system later on they are basically denied because they would have to be paid at a higher rate based on length of time teaching and higher ed classes taken, and these teachers are not allowed to take a less amount of pay just to get a job, they are locked into the system at a certain higher rate. I have a daughter-in-law who will face this same problem if she takes time off to care for a child with health problems and wants to go back to teaching a year or two later. I know a teacher who told me the same thing occurred in Madison several years ago. I am sure many good teachers are lost this way.
Nonnie
Merit pay will only work in education if it is done based on group efforts, rather than individual awards. It should be handled as a bonus for efforts by a group, let's say all the fourth grade teachers who set a measurable goal, and each teacher receives a $1000 bonus when they reach their goal. Then you eliminate the backstabbing and negative competition that could occur. Team incentives will work. As far as the corporate bonuses, it makes no sense to reward failure.
ReplyDelete