Business lore has it that Sam Bronfman, when asked what he thought was the greatest invention in modern times, replied, "compound interest." There is no doubt Bronfman, if given the choice between a penny placed in a savings account whose value doubled every day thereafter for a year, versus $100,000 cash in hand at the end of a year, would have chosen the penny. We should be as astute as Bronfman when it comes to devising our own salary structures.

Most salary structures at Canadian universities opt for a pot of gold at the end of the day even though a higher salary earlier in a career and less at the end would have been more beneficial. The key to greater wealth is career earnings. It is not a question of how high your salary is when you retire, but how much of your salary you can invest when you are younger. Money put aside as savings and investments allows academic staff to accumulate wealth. The goal is a salary structure that starts high and gets to its highest point as quickly as possible.

In many non-academic jobs, the maximum salary is reached in 10 or fewer steps. Most faculty and librarians do not reach their maximum earnings until the year they retire. They need to keep working until they reach age 65 or later to obtain a decent pension. Higher salaries earlier in careers also improve pensions.

Consider two female university graduates. Sue joins the Canadian Armed Forces while Mary goes to grad school to pursue a PhD in clinical psychology. It will probably take Mary six to seven years to complete her degree and a required internship before finding a full-time position at a university. At today's starting salaries¹ she will likely negotiate a starting salary between $50,000 and $55,000. Sue on the other hand would likely have been promoted at least to captain and earning a salary of $60,000 or more in addition to having received a good income for the past seven years. Sue will retire on a full pension at age 55 - Mary won't.

We have not only been willing victims, but also participants in designing salary structures that work against our best interests. Our "start low" and "end high" salary structures are just one example. A complex array of factors, with a merit component, is another. How many right now can state with any degree of certainty what their salary will be one year from now? How many can even state with any degree of accuracy the different factors that make up their annual salary?

The following are some compensation factors that may apply to your salary:

• adjustments to base salary (minima and maxima for ranks)
  
• career development increments/progress through the ranks
  
• promotional adjustments
  
• merit
  
• adjustment for anomalies (which may or may not include market differentials)
  
• market differentials
  
• catch-up/sector increases
  

Many of these components are forms of discretionary, performance-based pay that allow management to treat individuals differentially. Performance-based pay, merit pay in particular, is usually aggressively opposed by unions. So, what is wrong with merit pay?

Let's put aside some obvious answers such as it can be used to reward favourites and punish others who speak out on the wrong side of issues, as well as allowing some members to use it as a measure of self-esteem by feeling better than those who don't get it. There are many practical problems that speak against merit pay schemes even if you could reconcile yourself to the philosophical underpinnings.

First, who sets the performance standards? Who monitors performance? Is merit determined by a dean or by your colleagues? Are decisions regarding merit pay grievable? How many grievances are likely to arise over merit pay and what are the human and financial costs of pursuing those grievances? Since merit pay makes up about 0.5 to 1 per cent of salary, in those universities where it is in place, more money is likely spent on pursuing grievances than on merit payouts. Most important, merit pay generates a sense of injustice among both those who receive it and those who do not.

Consider the case of two faculty members, Joe and Ed. Joe publishes a book shortly after being hired and has a $2,000 merit increment added to his base salary in the second year. That increase, like Bronfman's penny, will continue to pay back large dividends regardless of whether or not Joe ever publishes another article or book or is ever again considered meritorious.

Ed spends a great deal of time in research for a book. He does not publish but presents many papers at conferences on research related to the book. The book is not published until Ed's fifth year at the university. The first four years are deemed by his dean to be unproductive and he does not award a merit increment to Ed in any of those years. Ed will be forever behind Joe in salary whether they both continue to receive further merit awards or not. Ed will never make up the difference.

Why is there a need for anomalies adjustments? Because women in the past have been willing to accept whatever starting salary was offered rather than negotiating. As well, many women were disadvantaged by merit pay schemes when they took time off work for family reasons or because they started their careers later than men. Having children and taking care of families does not earn merit awards from a university.

Why is there a need for market differentials? Because we undervalue the work of most academics and only when we are confronted by shortages in certain areas do we realize the true value of our work. Some of our colleagues have been more adept in arguing they must be paid the job rate for their work through market differentials. There would be no need for market differentials if faculty were paid what they were worth.

What should we do? Well, here's a radical suggestion. We need to emulate what is done in other industries and to put in place rational salary scales based on the true worth of our jobs. Such a system would have few steps or increments. It would start salary at a high level and in a few years salaries would max out at a "job rate." People with little or no experience would start at the floor and move up automatically, one step a year, to the job rate.

There would be a fair scheme for placing experienced people at the appropriate step on the salary scale. The salary scale is adjusted through negotiations. There would be one salary scale for each rank and merit would consist of promotion to the next rank. If someone were not promoted, they would be frozen at the ceiling of their scale. This would be a simple, fair system based on the value of what we do and designed to maximize career earnings.

I think Bronfman would approve.

¹ CAUT Almanac of Post-Secondary Education in Canada, 2004.