Tuesday, May 31, 2011

Revisiting LeBron (and Retaining Employees)

cross-posted from Dagblog

So, last summer LeBron James decided to leave Cleveland, leading to a massive outburst of Clevesentment and a widespread belief that Cleveland had burned down among my friends and family who don't live there (and not just among them, judging from the search terms that old post collected). A year later, he's gotten himself to the NBA Finals for the first time in his career. So, I would say his career decision is going much the way he planned.

I won't defend the gross narcissism that LeBron displayed while announcing his decision, or while taking his arrival victory lap around Miami. But the decision itself was perfectly legitimate and reasonable. It's America; you're allowed to change jobs when your contract is up. And let's review what LeBron did:

He gave up millions of dollars (that only his old team was allowed to pay him) in order to be on a team that had a better chance of success, and where some of his teammates were paid as well as he was. (And yes, LeBron makes an obscene amount of money with the Miami Heat. But that obscene amount is exactly what Miami pays Chris Bosh, and not quite 4 percent more money than the Cavs currently pay Baron Davis.)

This goes against the teachings of modern American business, which says that the most important thing is to pay the best (or "best") employees as much as possible, and to keep other salaries low. Think about corporate CEOs, who are now paid ludicrous sums on the grounds that you need to pay for the vision and leadership, while the wages of ordinary workers in those companies stagnate. The current handbook of American business is to pay the "stars" lavishly and make the gap between those "stars" and their peers as great as possible. Part of this is penny-pinching, because it is cheaper to give one person a $20,000 dollar raise than it is to give ten people $2500 apiece. But another part is the ideology of our post-capitalist business class, which believes in income inequality as a good in itself. If they have $20,0000 to spend on raises, they would rather give it all to one person rather than split it up four or five ways, because by paying someone a lot of money they convince themselves that they have created "excellence."

LeBron's definition of "excellence" is apparently different. Rather than making $3 million a year (or $8 million a year) more than any of his teammates and losing to the Celtics every year, he preferred to be on a team where other, comparably-paid stars would help him beat the Celtics and the Bulls and go to the Finals. The man's motivated by money, but not just by money. He wants to succeed.

The same day LeBron played his first game in the Finals, Inside Higher Ed ran a piece about public universities losing star faculty during the current recession. Private universities have always poached public university professors, and increasingly so over the last twenty or thirty years. In the current downturn, it's gotten manic.

The IHE piece starts with the basic presumption that it all comes down to money, which is certainly a factor. A few years of pay freeze will cool employee loyalty right down. Then it shifts to saying that many such decisions are "idiosyncratic." But gradually, as the IHE goes through typical cases, another pattern emerges: top faculty often abandon schools where the quality of their department or college is being undermined, and are more loyal to places where their department seems to be growing and getting stronger. One professor mentioned in the article fled the University of Wisconsin because he was tired of having the university attacked by state politicians, and because year after year of budget cuts made it harder and harder for him to fund his doctoral students. Sometimes, IHE quotes Brian Leiter saying, it's a chain reaction:

Sometimes, he said, one or two stars in a top department at a prestigious institution can move elsewhere and trigger a larger-scale migration of talent. A herd mentality then sets in. "If too many of your good colleagues leave, then people start to think the boat is sinking," he said. "That’s probably the most common reason."

But on the other hand, this can be turned around by hiring more people:
Diehl [the Dean of UT-Austin's College of Liberal Arts] said he knows what it's like to be on the other side of a migration. Not long ago, he said, two top economics professors left for, of all places, Madison. Diehl said that one of them had told him that the then still-emerging issues with the regents played a role in his decision to leave.

Diehl feared the departures signaled that the economics department was at risk of imploding. "A department needs a certain critical mass," he said, not just in numbers but also in quality. "If the feeling is it’s a sinking ship, the talent will go elsewhere, especially in economics where there's a robust job market. We had to act decisively to stanch the bleeding."

He set about persuading Sandra E. Black, who was then a visiting professor from the University of California at Los Angeles, to stay. She agreed and, as a top labor economist, created enough of a buzz, Diehl said, that Austin was able to hire six more junior faculty. It was, he said, a case of a good offense serving as the best defense against a migration.

Now, hiring six new colleagues is fantastically expensive, much more than giving your top two or three economists fat raises. And neo-liberal economics would suggest that it's precisely the wrong approach, since you spend much more money and the people you're trying to keep get none of it. The standard MBA playbook would be to throw five-figure raises at the stars. But it's like LeBron and the extra $3 mil he doesn't really need. Employees who are competitive and attractive on the job market want personal rewards, but also want to be part of a successful enterprise. Econ-1 neoliberalism would tell you that it's much smarter to give one person a $25,000 raise than it is to give that person a $5,000 raise and then spend $250,000 hiring junior colleagues for her and $20,000 increasing her funds to pay grad students. But that is often the better way to go. Many ambitious and talented people would rather be paid handsomely to succeed than be paid obscenely well to be mediocre.

Scientists love a nice raise, but they also want lab budgets and funding for grad students and money to hire post-docs. Humanities professors want to be able to fund good grad students, and want good colleagues to talk with. (The highest-end endowed chairs, the apex of the professor track, often come larded with special funds and other goodies, some of which (like research funds) directly benefit the holder but many of which are designed to keep the holder happy by directing money to other people: money to fund a prize doctoral student, or to give to colleagues for their research.) Everybody wants to be in a department that feels like it's moving forward. It's the same with us as it is with LeBron, although the salary numbers are two or three decimal places off: it's about winning. It's about teammates.

And almost everybody wants to be in a place where they feel that the students are learning successfully, where there are enough resources to fulfill the educational mission. Administrators can save money by crowding classrooms with too many students, and off-loading lots of teaching onto ill-paid part-timers who get little instructional support, and then spend a fraction of those savings on one or two fat raises for "star" professors. But most faculty would rather have a modest raise and thriving students than a massive raise and a huge crowd of struggling students. Of course, there are a few who don't care whether students succeed or fail, and who would rather just take the money. But those aren't the people that you want to keep.

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