Merit pay offers a meaningful way to reward the contributions of faculty and staff, aligning individual and institutional goals, and promoting excellence and pay equity — and potentially strengthening the sector itself.

Like many other industries, the world of higher education reached a crossroads during the COVID-19 pandemic. As we navigate the aftermath, in our compensation consulting work we see institutional leaders increasingly recognize that how they compensate their academic workforce may need to change.

Merit pay, an infrequently used tool in higher education, is one such consideration. The following examines how merit pay could benefit higher education and why now is the time.

A new look at old pay practices

Traditionally, colleges and universities have rewarded faculty and staff based on factors outside merit. Examples include tenure, rank, years of service and across-the-board adjustments, prioritizing stability and academic freedom.

However, this model often overlooks individual contributions, which can be crucial in rapidly evolving educational environments. The pandemic highlighted the need for more dynamic and responsive compensation practices. In this light, merit pay emerges as a promising alternative, aligning rewards more closely with performance and institutional goals.

What is merit pay?

Merit pay rewards employees for their achievements and contributions to the organization's objectives. Unlike traditional models focusing on longevity and credentials, merit pay targets measurable outcomes. This approach encourages excellence, accountability and improvement, making it potentially a game-changing strategy for higher education institutions looking to boost performance and adaptability.

Promoting pay equity by aligning individual efforts with institutional goals

Introducing merit pay into the academic world could offer several advantages:

  • Aligning faculty and staff efforts with broader institutional priorities, such as improving student success and research outcomes
  • Supporting attraction and retention of talent and making the education sector more competitive by rewarding individual contributions
  • Increase organizational flexibility, allowing institutions to respond more effectively to changing educational needs and priorities.
  • Perhaps most importantly, promote fairness and transparency in compensation, helping to foster a more equitable workplace

Early adopters see value

Employers understand merit pay, and evidence from other sectors suggests it can positively affect employee performance, satisfaction and overall success.

While the academic setting brings unique challenges and values, early indications from institutions experimenting with merit-based compensation look promising. Benefits include enhanced faculty engagement, improved teaching effectiveness and increased research productivity. The key to success lies in clear, fair performance metrics and a transparent evaluation process.

Experiment with a pilot program

Institutions can explore merit pay using a pilot program to gather valuable insights and make adjustments before implementing a wider rollout. Establishing clear criteria, engaging stakeholders and continuously evaluating the system will ensure its effectiveness and fairness.

One large northeastern university is piloting merit pay as part of a larger effort to create a more effective and efficient campus. Components include reviews of staffing, faculty release time, use of part-time roles and considering where work happens on campus. Leaders seek to amplify these components using a pay-for-performance approach embedded in the notion of expecting great things and rewarding well those who meet and exceed those expectations.

Navigating potential roadblocks

Of course, employers that shift to a merit pay system may face challenges. Resistance to change is natural, especially in institutions steeped in tradition. Skeptics voice valid concerns about ensuring the fairness and objectivity of performance evaluations. However, HR teams can address these hurdles with careful planning, clear communication and involvement from the academic community. The goal is to create a system that recognizes and rewards contributions while upholding the values of academic freedom and integrity.

Rethinking compensation could strengthen higher education

As higher education continues to evolve, rethinking how we compensate our educators, researchers and staff could support the sector's resilience and success. Merit pay offers a meaningful way to recognize and reward the contributions of faculty and staff, promoting excellence, pay equity and adaptability.

While the transition may require careful navigation, the potential benefits make it a path worth considering to help institutions thrive in the changing landscape of higher education.

Gallagher can support you

Gallagher offers HR and compensation consulting and risk management services to help higher education institutions enhance overall organizational wellbeing. We work with you to support workforce design, compensation, classification and strategic program implementation. Further, we provide risk management, property and casualty insurance, student health and accident insurance, and alternative risk solutions.

Contact us to discuss your specific questions or issues to help strengthen your institution's ability to serve students.

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