Are university administrators wrongly incentivised?


In contemporary philosophy and economics, a central paradigm is the idea that rather than put our trust in people’s virtue, or overburden them with laws and regulations, we should provide them the correct incentives for them to guide their own actions. In particular, we seek to align interests, so that decision-makers, workers and the public at large all aim toward the same set of goals, despite having different goals. For example, if your money guy receives a percentage of what you make, then the theory says that his interests aligns with yours, and that lessen the risk of bad management, since both of you nowhave a vested interestin you making more money.

Obviously, there are plenty of ethical, psychological and economicissues with this theory, however, in many cases, the problem is not so much due to the theory itself; it is simply a matter of having failed to correctly align the interest in a given situation, which then predictably leads to conflicts between actors.

Being an academic, my fear is this: What if this was exactly the situation we face in the case of university administrators?

In the past decades, Canadian universities have vastly turned to non-academic professional administrators as a way to manage our academic institutions. Not only are we under the impression that they might have higher expertise in management than academics, we also believe that professional administrators have a particular interest in good governance. After all, they do not have a tenure job to go back to after their mandate, the rest of their careers rely on their current management successes.

Many have challenged that trend under the banner of academic freedom, or more broadly against the commodification of higher education. Those are fair points, but let us put them aside for the sake of argument, and ask ourselves if, once we have decided (or resigned ourselves) to employ external career administrator, their interests truly aligns with those of the public, professors and students.

Now, I think that, explicitly or not, most people involved in administrating a college or a university would say that it is indeed the case. Administrators have their bonuses, recognition and career advancement tied to the successes and growth of their establishment. They have a vested interest in the university doing well. Isn’t that a clear case of successful institutional design?

Well, call me cynical, but after only a year of teaching in a Canadian university, I see many cracks in this conclusion. And by that, I do not mean that administrators are incompetent or have bad intentions (most are dedicated and hard-working), but rather, I believe that they might be incentivized in the wrong way, which leads them to disappoint the rest of us even as they are themselves succeeding.

In particular, I see a deep problem in how administrators are facing a disproportionate incentive toward “bold leadership” (vs. responsible leadership). As it stands, they experience incentives toward big real-estate projects, opening of new campuses, creation of new programs and vast marketing campaigns, while experiencing surprisingly little push toward the main roles of universities, in terms of the long-term quality of teaching and research.

Again, it is not that these big and ambitious projects are bad per se, but rather, they bring benefits to the individual administrator in magnitudes more than they do to the academic bodies or the public as a whole(when it is not at a loss for us). And thus, we are facing a predictable situation, in which the best administrators (because many of them are in fact very good at this job) are incentivized to spend most resources in “high risks, high rewards” projects, over maintain boring sustainable long-term academic activities.

  • Around me, in the span of a few months, I witnessed a mad dance of new programs being pushed forward by administrators, as proofs of their leadership and vision, at the very same time that other programs, some created just a few years ago by their predecessors, were frenetically being closed due to low enrolments. This ruins the prospects of students halfway through, but also the careers of professors, who are then relegated to departments outside of their expertise. And on a wider note, there are doubts to be raised on how employers and grad school will value diplomas in some “interdisciplinary cultural competency” programs that will have existed only for a few years, in one institution, before disappearing. My own diplomas in philosophy might incite some laugh in a job interview, but at least it is a recognizable field (we have had a good long run, with togas and papyruses). Unfortunately, the real quality and sustainability of programs is not visible in the timeframe of a particular administrator’s list of achievements.
  • Another, more problematic trend, is the dash toward real estate projects, including campuses. This is in part due to declining financing of universities, but also due to how such projects stand as visible accomplishments for administrators. In just a year, Laurentian university has opened with great pride a new million dollars architecture school (which does look great), while at the very same time, another flagship campus project, launched only a few years ago, was being closed (with the nightmare of the repatriation of tenure faculties to a main campus already in deficit, notwithstanding the professors’ anger at relocating twice over 5-8 years). At this time, it is that I am predicting that our new building will be a financial hole (although 40+ million for 200 students in a field with little local prospects…), but more importantly, that no amount of real-estate and new campus failures can suffice to alter the frenzy of new constructions in any way. Administrators simply do not pay the price when such projects fail, leading to a situation in which even bad project are still “low risk to them, high reward to them”.
  • Finally, a third example I have witnessed is the urge toward new marketing campaigns, every time a new administrator comes in, without any inquiry on whether or not the previous one had achieved successes. At the time of their hiring, it seems every administrator promises to solve the financial crisis through higher enrolments, and thus launches a new and expensive market strategy, only to leave for the next job before any assessment of the results can be made. We professors tend to complain a lot about how vapid and “buzzwordy” these marketing campaigns are, but here, my main worry is that the measurements of the success of such a campaign do not actually involve effective results, on the side of administrators, who only need to lengthen their list of bold initiatives.

Those are just the examples that I have witnessed first-hand this year, but every colleague probably has his or her own similar examples. However, what matters here is not so much a litany of complaints, but rather to bring us closer to a rational explanation for why all these energies and resources are spent in so many directions with so little long-term results. In particular, how is it that we reliably hire and reward administrators on promises of decisive actions, higher enrolments and substantial return of investment, despite very mixed results?

At this point I am led to think that this would be due to a systemic failure rather than a sum of personal vices and mistakes. We simply provide a structure of incentives that overvalue bold moves, and undervalue maintaining teaching and research units sustainable over a long period. Administrators simply can’t afford to say, in their next interview, “over 50 years, of which I was an administrator for 5, these activities and programs have continued doing well”, even though this is what we need from them. Administrators need big numbers, big expenses classified as investments, noticeable short-term cuts, visible changes, new buildings, new slogans, and so on.

And through all this, I come out thinking that my interest, as a humble philosopher who hopes to still teach philosophy to students in 10 years, is not well aligned to those of my administrators. And nor is the public’s interest in sustainable research and transmission of knowledge to the next generation. But rather than just blaming individual administrators, or becoming jaded about all management, perhaps we should start looking for ways for our interests, as a society and as a professional body, to become concrete incentives for the administrators we hire. And this probably starts in how we value the past accomplishments of our next candidates for hire. As long as we look for boldness and promises of a silver-bullet against declining enrolments, we will have the administrators that we do.


Are university administrators wrongly incentivised? — 3 Comments

  1. This seems all too accurate. My mother is a professor at a university where I was a student and the university president had exactly the habits you describe. They were very smart and hard-working (to the point of continuing to supervise several grad students on top of their existing duties), but they routinely neglected any program that wasn’t in their immediate eye. They created at least 3 new programs since their arrival (each a good program, but fairly niche, to the point that I won’t name them because it would identify the school instantly). They have built more than one brand new building and bought/commissioned a new suite of software to manage the university’s finances and almost everything else, the roll-out of which has gone disastrously.

    I came to a similar conclusion as you, especially since I know that some of the reasons the university president above was hired involved their track record of bringing in money, building buildings, and starting new programs at their previous schools. Such short-term things look good on a resume, but they say very little about the state of a university’s core missions after the administrator leaves. And this will never change because the president has very little interaction with students or any non-administrative staff outside of meetings about their projects (meetings that they dominate quite effectively), so they will never learn the effects things have except through reports that filter up through the administration and whatever financial or enrollment data exists (which are inherently short-term in their scope).

    The incentive issue goes all the way up to the board of directors, who were responsible for the hiring decision and chose the criteria that defined the ideal candidate. Frankly, I don’t know how to fix it.

  2. In your first year of teaching you seem to have come up with some interesting observations of things not being optimal. However, are these fair or balanced observations? Where are you examples of success? Surely there must be some that are evident.

    Regarding your three examples of dysfunctionality:

    1) Society and the world evolves. Sometimes new programs are required, and old programs become dated. No one is teaching the mechanics of making horse-drawn buggies anymore in engineering faculties, since the combustion engine overtook that industry long ago. Sometimes the facilities of higher education are correct in their evaluation of the evolving trends and needs of society and students, and sometimes they are not. No one will get it 100% correct, regardless of their method of being “incentivized”. Identifying trends and predicting the future is hard. For all the rest, we have Departments of History. Change is inevitable. There will be some winners, and some unfortunate losers. What is the alternative? To place the existing programs in cement and guarantee eventual obsolescence. I would be worried if university administrators never wanted to consider the creation of new programs.

    2) Let’s not exaggerate. Real estate development is an expensive venture and does not usually happen without an appropriate business plan and due diligence. University buildings typically are high traffic areas, and with time, many university buildings need to be maintained, refurbished, rebuilt or replaced. Even if all the buildings on campus were in perfect condition, the growing populations in society and universities necessitate more buildings and facilities. Sometimes the choice of projects is fantastic, and sometimes things don’t work out, regardless of how the administrators are “incentivized”. The closing of a recently-built building that you refer to is unusual. I’ve never seen it happen. Most new buildings get used, whether for the intended purpose or another.

    3) Marketing campaigns…what is your specific problem(s) here? That administrators (wrongly?) believe that a marketing campaign will increase the student populations and reduce financial pressures? That marketing campaigns are expensive? That the administrator left before an evaluation of the results could be made? That the campaigns are “vapid” and do not sufficiently stimulate intellectual thinking among faculty? That the factors used to evaluate marketing campaings do not actually measure results and are therefore no good? All of the above? Is there anything good about marketing campaigns? We live in a free society where even institutions of higher learning have to compete. Marketing is part of that competition. Those that don’t compete risk stagnation. Even Harvard markets itself in different ways as time goes on.

    Some universities offer courses in “marketing” and “program evaluation”, so it would be surprising that a university with such expertise on campus would undertake hopelessly ineffectual marketing campaigns. But then again, you know what they say….”Those who can’t do, teach. And those that can’t teach, administrate”, so the potential lack of consultation between the administration and the faculties and your corresponding complaints should perhaps not be a surprise!

  3. I agree that university administration is an important topic. There’s at least one academic journal dedicated to it, though I can’t speak to its quality or content. There’s also analogues/research/theorizing from management theory that can be used. As Joe pointed out in “Filthy Lucre”, businesses face the problem of aligning the interests of a management class with another class as well (owners), and often fail at it. Multiple studies have shown that (very) well-compensated CEOs often don’t add nearly enough to the bottom line to cover the cost of their salary and benefits (and often then “fail upwards” to a better position while their initially hyped projects at previous companies come crumbling down, similar to the author’s points). In particular, Warren Buffett has written a lot about management both in theory and practice, from a business owner’s perspective. Including about how to encourage responsible, long time-horizon management in a modern world obsessed with quarterly numbers (esp. his commentary about Coca-Cola).

    Universities face the additional challenge of not having a clear “owner class” who have a significant stake in the outcome that the management class would be accountable to and who’s interests they should be aligned with. Who might that be? Academics? Students? The public at large?

    As a (related) aside, there’s actually a huge scandal in university administration that’s costing millions but no one seems to be talking about it (because it’s dry): costs of active management of university endowments and pensions. There was much ink spilled over OPG’s Jeffrey Lyash’s salary, but I didn’t hear anyone talking about the second person on the list: William Moriarty of UofT Asset Management (UTAM). This article from one of UofT’s student newspaper actually sums it up well:

    ‘Assessments of [UTAM]’s performance to date have been mixed. The University of Toronto Faculty Association (UTFA), whose pension fund UTAM manages, disapproves of the university risking losing money in the attempt to beat the market. “UTAM thinks that by actively managing our funds, by picking the right stocks, the right investments, they can beat the returns of similar passive investment portfolios by, say, half a percentage point every year after cost,” stated Ettore Damiano, economics professor and member of the UTFA’s Salary, Benefits, and Pensions Committee. “Maybe it’s possible, but it’s very hard because the cost structure of active management is very high. UTAM spends about 1.4 per cent of our assets every year in expenses.” In order to make that additional half a percentage point in returns, he concluded, UTAM would have to make almost two per cent more per year before costs than a passive, low-management index fund — a difficult task in the relatively efficient North American equities market.

    ‘Nonetheless, UTAM’s performance of late has been promising. In the past four-year period, the Long Term Capital Appreciation Pool (LTCAP) has returned 8.42 per cent (0.92 per cent more than the reference portfolio, all figures after costs), while the pension fund has returned 8.38 per cent (0.87 per cent more than the reference). “That’s an extra, potentially, fifty-odd million dollars each year to the university, net of all costs,” said Moriarty. “So I would say over the last four years, touch wood, we’ve been reasonably successful.” This is a welcome sign, as the university — like much of the world — is still reeling from the effects of the 2008 financial crisis, during which the university experienced a 29.4 per cent loss of the LTCAP and 29.5 per cent of its pension fund. UTAM will need to continue to perform similarly if U of T is to fully recover its 2008 losses.’

    So, this guy was paid ~$1,000,000 to…what exactly? Protect the endowment from crashes? Nope–failed to do that in 2008. Return a premium over a bunch of passive investments? Nope–that tiny premium is eaten up by the cost of getting that tiny premium and then some!