The strange dynamics of faculty merit pay

In many US universities, faculty performance is rewarded with merit bonuses or increases, the initial idea being to prevent other universities from poaching the best performers. But seeing how this is approached in a very heterogeneous way across institutions, one sometimes wonders whether the merit process is done optimally.

Finn Christensen, James Manley and Louise Laurence had access to much relevant data in a large public university. There, merit pay is distributed in each department by a committee of tenure faculty. The outcome is that about two thirds of all faculty reach the highest merit scale, three fourths among tenured faculty. Now this outcome could be justifiable with additional data, which the authors have for a particular college in this university in the form of various output measures that should matter for evaluation. It turns out that untenured faculty is as productive, but still gets less merit pay. Even worse, it appears that the output measures explain about 10% of the variation in merit.

What is going on? Christensen, Manley and Laurence show theoretically that given the institutional structure, one should not be surprised by these results. I can believe that, and this is probably compounded by compression: as new faculty commands higher pay than old, the old compensate with higher merit. The authors find little evidence of this. Internal politics also certainly play a role, as you want to avoid offending someone who may be determining your merit later. But what is clear is that there is, at least at this place, very little transparency in merit attribution.