Manajemen | Fakultas Ekonomi Universitas Maritim Raja Ali Haji joeb.80.5.253-258
Journal of Education for Business
ISSN: 0883-2323 (Print) 1940-3356 (Online) Journal homepage: http://www.tandfonline.com/loi/vjeb20
Estimating the Mark-to-Market Premium Required
to Fill Vacant Business School Faculty Lines: The
Case of Finance
Bradley K. Hobbs , Shelton H. Weeks & Howard J. Finch
To cite this article: Bradley K. Hobbs , Shelton H. Weeks & Howard J. Finch (2005) Estimating
the Mark-to-Market Premium Required to Fill Vacant Business School Faculty Lines: The Case
of Finance, Journal of Education for Business, 80:5, 253-258, DOI: 10.3200/JOEB.80.5.253-258
To link to this article: http://dx.doi.org/10.3200/JOEB.80.5.253-258
Published online: 07 Aug 2010.
Submit your article to this journal
Article views: 17
View related articles
Citing articles: 5 View citing articles
Full Terms & Conditions of access and use can be found at
http://www.tandfonline.com/action/journalInformation?journalCode=vjeb20
Download by: [Universitas Maritim Raja Ali Haji]
Date: 12 January 2016, At: 22:42
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Estimating the Mark-to-Market
Premium Required to Fill Vacant
Business School Faculty Lines:
The Case of Finance
BRADLEY K. HOBBS
H. SHELTON WEEKS
J. HOWARD FINCH
Florida Gulf Coast University
College of Business
O
ne of the most critical, yet challenging, aspects of managing a
modern collegiate school of business is
filling vacant faculty positions. According to annual faculty salary data compiled by the Association to Advance
Collegiate Schools of Business
(AACSB) International (2001), as the
supply of new PhDs has decreased over
the last decade and the average age of
faculty members continues to climb, the
cost of replacing an existing faculty
member has increased dramatically. The
escalating search and replacement costs,
however, have not affected the decision
process involving the filling of vacant
faculty lines. Particularly in public colleges and universities, the hiring process
is inextricably tied to the state budgetary process. As the fiscal year progresses and imbalances between state
revenue collections and budgeted
expenditures become apparent, active
search processes are often postponed or
terminated owing to hiring freezes
(Finch, Hobbs, & Weeks, 2000). This
situation may result in the need for a
college of business to conduct multiple
searches to fill a single vacant faculty
position, often without the recognition
of the costs associated with multiple
search processes.
A significant factor contributing to
the difficulty of filling vacant faculty
ABSTRACT. As the supply of new
PhDs in business has declined in the
past decade in the face of increasing
demand, the cost of filling vacant faculty lines with qualified professors of
business has increased substantially.
Because salaries of current faculty
members normally fail to keep up
with market salaries, when a faculty
line is vacated the college must pay a
premium by offering a higher, competitive salary. In this study, the
authors estimated the salary premium
associated with filling a vacated
finance faculty line. Results from a
national survey show that the premiums required for replacing finance
faculty members at all ranks are substantial.
lines is salary inversion. Because existing faculty salaries rarely keep pace
with market-determined entry-level
salaries, when one faculty member
leaves an existing line, the market salary
offer required to replace that person
nearly always exceeds the previous
salary (Cowling, 2002). This phenomenon has been labeled the “mark-to-market” premium required to offer marketcompetitive salaries for incoming
faculty hires (Finch et al., 2000). It is
likely that this mark-to-market spread
has created a mobility premium, which
affects both the rate of turnover and the
magnitude of the costs of turnover for
seasoned faculty members.
Our purpose in this study was to estimate the mark-to-market premium associated with filling a vacant finance faculty position. To date, little formal
research has been published that provides an estimation of the premium
needed to bring an existing faculty line
up to market salary levels. LeClair
(2004) showed that market salaries for
new finance faculty members are among
the most costly across all business disciplines. Our results from the current survey indicate that finance faculty
turnover is a very costly process for colleges of business administration.
The Market for
Finance Faculty Members
Escalating replacement costs associated with vacant faculty lines have been
particularly acute in the area of finance.
Bertin and Zivney (1991) detailed the
market factors, including salaries that
helped determine the placement of new
faculty hires in finance. In the subsequent decade, a number of factors
affected both the supply of and demand
for finance faculty members. On the
supply side, the extremely favorable
economy and job market of the 1990s
increased the opportunity costs of pursuing doctoral studies. When combined
with the fact that many doctoral proMay/June 2005
253
Downloaded by [Universitas Maritim Raja Ali Haji] at 22:42 12 January 2016
grams cut back on the total number of
students accepted and enrolled because
of the poor academic job market that
occurred early in the decade, the result
was a dramatic decrease in the available
supply of new PhDs in finance. According to Cowling (2002), by 1998 the
number of PhDs granted in finance
nationwide stood at 151—about 20%
below peak production of 191 in 1994.
To gather data for this analysis, we
prepared a survey questionnaire (see
Appendix) and mailed it to the chair or
head of the finance department of 356
AACSB-accredited colleges and schools
of business administration in the United
States. We received a total of 80 responses, yielding a response rate of 22.47%.
After deleting responses that did not
report complete salary information, we
analyzed a total of 68 usable responses
for differences in salary levels for
departing and new replacement faculty
members. In Table 1, we provide
descriptive data of the responding colleges by the institution’s total enrollment, the business school’s enrollment,
and the highest degrees offered.
Estimating the Mark-to-Market
Salary Premium
In analyzing finance faculty vacancies, an initial consideration is why
vacancies typically occur. In our survey,
we asked department heads to indicate
whether the departing faculty member
experienced a change in faculty rank as
a result of the move. We show the
aggregate responses in Table 1.
Interestingly, the majority of the
departing faculty members did not move
to experience an increase in faculty rank.
According to Eaton and Nofsinger
(2000), the top three reasons, in order of
magnitude, for faculty relocation are (a)
teaching load, (b) compatibility with
other faculty members, and (c) base
salary. Faculty weighting of base salary
as a factor in the decision to relocate was
within 5% of the top reason, which was
teaching load. This finding provides a
clear indication that the financial incentive to move to capture the mark-to-market salary premium is a primary motivation for leaving an existing position.
In Table 2, we provide summary statistics from responding institutions by
254
Journal of Education for Business
total enrollment, business school enrollment, highest degree awarded, and type
of institution. We report the salary premium required to fill a vacant finance
faculty line for each category.
The data in Table 2 lead to several
interesting observations worth noting.
Schools of all sizes, both public and private, incurred an average salary increase
when filling a vacant finance faculty
line. The smallest schools, in terms of
enrollment, incurred the largest average
salary increase, whereas private institutions had an average increase nearly
double that incurred by public schools.
In Table 3, we show the year of the
most recent finance faculty hire. Of
interest is whether or not the passage of
time has had an effect on the mark-tomarket premium required to fill a vacant
finance faculty line. The results show
that in recent years, when the majority of
new hires took place, salary lines were
generally increased by more than $8,000
in order to fill the vacancy (the small
number reporting for 2002 diminishes
any conclusion from the data that year).
In addition to the influence of changing labor market conditions (time), the
most likely influence driving differences between old and new finance faculty salaries is position rank. In Table 4,
TABLE 1. Department Head Move Classifications
Classification
No. of schools
Lateral move
Promotion in rank
Demotion in rank
No response given
43
7
2
16
Total
68
TABLE 2. Average Old Salary, Average New Salary, and Average Premium, by School Size and Level
Item
N
Average
old salary
Average
new salary
Average
premium
Institution’s total enrollment
< 5,000
5,000–9,999
10,000–14,999
15,000–20,000
> 20,000
7
18
16
12
15
$68,471
$69,333
$79,055
$78,083
$86,333
$89,000
$78,889
$87,594
$86,042
$93,973
$20,529
$ 9,556
$ 8,539
$ 7,958
$ 7,640
$65,433
$62,400
$73,603
$83,519
$81,200
$84,333
$78,200
$81,500
$94,763
$85,000
$18,900
$15,800
$ 7,897
$11,244
$ 3,800
$86,178
$72,102
$65,000
$99,821
$80,062
$71,000
$13,643
$ 7,960
$ 6,000
$76,288
$78,322
$83,872
$94,056
$ 7,584
$15,734
Total
Business school enrollment
< 500
500–999
1,000–1,999
2,000–5,000
> 5,000
Total
Highest degree awarded
Doctorate
Master’s
Undergraduate
Total
Type of institution
Public
Private
Total
68
3
5
28
27
5
68
19
47
2
68
50
18
68
TABLE 3. Average Old Salary, Average New Salary,
and Average Premium, by Most Recent Hires
Year
N
Average
old salary
Average
new salary
Average
premium
1991
1996
1997
1998
1999
2000
2001
2002
1
1
2
4
7
26
25
2
$62,000
$100,000
$87,500
$70,875
$74,143
$72,385
$78,095
$89,500
$62,000
$70,000
$90,000
$71,750
$86,313
$81,115
$91,944
$80,000
$0
$–30,000
$2500
$875
$12,170
$8,731
$13,849
$–9500
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Total
68
we show the average mark-to-market
premium by rank that colleges incurred
when existing finance faculty lines were
filled. The “hit” to the college’s fixed
cost salary budget depended primarily
on the rank of the departed faculty
member. The data in Table 4 indicate a
wide range of mark-to-market premiums, by exit rank and entry rank.
The data confirm that the market for
new hires is still primarily targeted to
the assistant professor level. By far the
greatest number of hires occurred when
another assistant replaced a departed
assistant. Summing across all three
ranks for departed faculty members, 50
of the 68 total replacements (73.53%)
were made when assistant professors
were hired. The average mark-to-market
premiums ranged from negative $1,850
for a full professor replaced by an assistant professor to positive $43,700 for an
associate professor replaced by a full
professor. Full salary inversion has not
yet occurred across all ranks; however,
the bad news for deans and department
heads is that the salary differential
between full professors near retirement
and assistant professors is approaching
zero. The implication for salary structures over the long term is that they will
rise even faster as faculty members
progress through rank.
The premiums for replacing departed
senior faculty members at the rank of
associate and full professor were substantial. Four schools replaced an associate with another associate at an average salary markup of $18,333. Two
schools replaced a full with another full
at an average premium of $27,500. By
comparison, 15 schools replaced an
associate with an assistant at an average
markup of $9,748. These results indicate that although salaries for assistant
finance professors continued to escalate, it was still cheaper for schools to
replace a departing associate or full professor with an assistant professor.
Discussion and Conclusions
The structure of the academic job
market for business school faculty members represents a tremendous challenge
for collegiate schools of business administration. On the supply side, the decline
in newly minted PhDs and the salary
compression that typically occurs in
existing faculty lines combine to make
job market mobility an attractive career
option for finance professors. The result
is a significant mark-to-market salary
premium that business schools incur to
attract new hires to replace vacated
finance faculty positions.
The search process required to fill a
vacated finance faculty position is both
time and labor intensive. The average
responding school appointed a search
committee comprising 4.43 faculty
members. On average, 3.93 faculty
members attended at least one conference to meet with position candidates,
and filling of each vacancy required an
average of 2.16 conferences. A total of
66.94 hours on average were devoted to
precampus visit tasks such as developing the position criteria, working with
the campus human resources department, responding to applicant correspondence, narrowing the applicant
pool, and scheduling campus visits.
Significant costs that are not measurable are associated with finance faculty
turnover. One of the largest is the opportunity cost realized from a loss in productivity during the turnover period.
This period of reduced productivity can
begin when the exiting faculty member
decides to enter the job market, and it
continues until the new hire becomes
accustomed to the new institution and
culture. Also not measured are the costs
to the institution of underused fixed
assets during the turnover period. For
example, the support staff and the physical plant remain in place despite the
vacancy in the faculty line. Finally, faculty members build institution-specific
human capital, and turnover can lead to
a significant decline in productivity for
the institution in service, scholarship,
and teaching.
The mark-to-market premium incurred when filling a vacant faculty line
is, in effect, a perpetuity incurred by the
college. The mark-to-market premium is
TABLE 4. Average Mark-to-Market Premium
Replacement
Assistant replaced with assistant
Assistant replaced with associate
Assistant replaced with full
Associate replaced with assistant
Associate replaced with associate
Associate replaced with full
Full replaced with assistant
Full replaced with associate
Full replaced with full
Total
Frequency
Average salary premium
34
1
0
15
4
1
9
2
2
$10,000
$13,000
N/A
$ 9,748
$18,333
$43,700
$ –1,850
$11,500
$27,500
68
$ 9,653
May/June 2005
255
structurally incorporated into the existing
faculty line, and if in the future the line
were once again vacated, the position
would again be marked-to-market, compounding the initial salary premium. The
choice of discount rate and the question
of the total life of the annuity cost stream
incurred with new salary levels are open
to debate. To calculate a value for the perpetuity, one would have to assess policies
on replacing full professors with associates or assistants, rates of turnover, rates
of retirement, future salary movements,
and other factors. However, the results
from this survey indicate that even a conservative treatment of the mark-to-market
premium as a one-time expense results in
a substantial cost to the business school’s
operating budget.
new hire market for finance: Productivity,
salaries, and other market factors. Financial
Practice and Education, 25–34.
Cowling, J. F. (2002). Supply and salary trends for
new finance doctorates. The Journal of Accounting and Finance Research. Working Paper.
Eaton, T. V., & Nofsinger, J. R. (2000,
Spring/Summer). The new and relocating
finance faculty market: Factors affecting job
selection. Financial Practice and Education,
99–110.
Finch, J. H., Hobbs, B. K., & Weeks H.S. (2000,
Summer II). The costs of hiring for finance faculty positions. Journal of Accounting and
Finance Research, 43–51.
LeClair, D. (2004, March/April). The professor’s
paycheck. BizEd, 58–60.
REFERENCES
Association to Advance Collegiate Schools of
Business (AACSB) International Knowledge
Services. (2001, December). AACSB International 2001–2002 salary survey report. St.
Louis, MO: Author.
Bertin, W. J., & Zivney, T. L. (1991, Spring). The
Downloaded by [Universitas Maritim Raja Ali Haji] at 22:42 12 January 2016
APPENDIX
Survey for Finance Faculty Hiring Paper
Section I. Descriptive Statistics
Please complete the following background questions.
1. Please indicate the type of your institution.
___ Public
___ Private
2. Please indicate the approximate total enrollment of your institution.
___ < 5,000
___ 5,000–9,999
___ 10,000–14,999
___ 15,000–20,000
___ > 20,000
3. Please indicate the approximate total enrollment of your college of business.
___ < 500
___ 500–999
___ 1,000–1,999
___ 2,000–5,000
___ > 5,000
4. Please indicate the number of finance faculty members in your department.
_________
5. Please indicate the highest degree your college of business grants.
___ Undergraduate
___ Master’s
___ Doctorate
6. Please indicate the mission emphasis of your college of business.
___ Percentage effort for teaching
___ Percentage effort for research
___ Percentage effort for service
7. How many finance vacancies has your department experienced in the last 5 years
(fall 1996–spring 2001)? _________
8. How many finance vacancies do you expect to experience in the next 3 years (fall
2002–spring 2005)? _________
9. Please indicate the academic year of your most recent finance hire. _________
Section II. Reasons for Finance Faculty Vacancy
From the list below, choose the letters that answer questions 10 and 11 for your most
recent (full-time) finance faculty vacancy (list all that apply).
(appendix continues)
256
Journal of Education for Business
APPENDIX (Continued)
a.
b.
c.
d.
e.
f.
More lucrative financial package
Personality conflict
Geographical preference
Denied tenure/promotion
Recruited away
Family reasons
g.
h.
i.
j.
k.
l.
Retirement
Death
Teaching load
Quality of students
Move to industry
Maximized retirement in current system
10. What was the faculty member’s stated reason(s) for leaving your institution?
____________________________________________________________
11. What was your (dept. head’s) impression of the reason(s) that the faculty member
left? ____________________________________________________________
Downloaded by [Universitas Maritim Raja Ali Haji] at 22:42 12 January 2016
12. For the departing faculty member who moved to a new academic position, the
new position he or she moved on to was which of the following?
___ Lateral move
___ Promotion in rank
___ Demotion in rank
Section III. Costs of Finance Faculty Vacancy
Please answer the following questions associated with your most recent (full-time)
finance faculty vacancy.
13. Rank of exiting finance faculty member. ________________________
14. Annual salary of exiting finance faculty member. _________________
15. Rank of new hire to replace exited faculty member. _______________
16. Annual salary of new hire finance faculty member. _______________
17. Did the department fill the faculty line temporarily?
___ No (if No, please skip question and forward to question 18.)
___ Yes, with an adjunct
___ Yes, with a visiting
18. Please approximate the number of hours devoted to searching for the temporary
hire. ______________
Please estimate the following implicit costs associated with filling your most recent
(full-time) finance faculty vacancy.
19. Number of total faculty serving on finance faculty search committee.
__________
20. Number of committee members by rank:
______ Full
______ Associate
______ Assistant
21. Number of hours spent on developing position criteria. __________
22. Number of hours spent on EEOC compliance issues. ____________
23. Number of hours spent on responding to applicants not interviewed, selecting
applicants to interview, and contacting applicants to arrange interviews. __________
24. Number of meetings/conferences attended to conduct interviews. __________
25. Number of faculty conducting interviews at meetings/conferences. _________
26. Number of hours devoted to developing short list of interviewees. _________
27. Number of hours devoted to scheduling campus visits of short list. _________
28. Number of applicants to whom campus visits were extended. _____________
29. Number of applicants who accepted and completed campus visits. __________
30. Please indicate, by type and amount, any other implicit costs incurred in the
process of filling the finance faculty position. ____________________________
__________________________________________________________________
(appendix continues)
May/June 2005
257
APPENDIX (Continued)
Please estimate the following explicit costs associated with filling your most recent
(full-time) finance faculty vacancy.
31. Total advertising costs incurred to publicize the finance faculty vacancy.
__________
32. Total registration cost for faculty attending meetings to conduct interviews.
__________
33. Total cost of lodging for faculty attending meetings to conduct interviews.
__________
34. Total transportation cost for faculty attending meetings to conduct interviews.
__________
35. Meals/entertainment expenses for faculty attending meetings to conduct
interviews. __________
Downloaded by [Universitas Maritim Raja Ali Haji] at 22:42 12 January 2016
36. Total cost of rental car expenses for faculty attending meetings to conduct
interviews. __________
37. Total cost of air travel used by candidates on campus visits. __________
38. Reimbursement for mileage incurred by candidates on campus visits.
__________
39. Total cost of rental car expenses incurred by candidates on campus visits.
__________
40. Total cost of lodging candidates on campus visits. __________
41. Total cost of meals/entertainment during visits. __________
42. Please indicate, by name and amount, any other significant explicit costs
associated with bringing to campus candidates for the finance faculty position.
____________________________________________________________
Thank you for your candid responses to these questions. The data will be reported in
summary format only, to build a profile of the total costs associated with a finance
faculty vacancy.
258
Journal of Education for Business
ISSN: 0883-2323 (Print) 1940-3356 (Online) Journal homepage: http://www.tandfonline.com/loi/vjeb20
Estimating the Mark-to-Market Premium Required
to Fill Vacant Business School Faculty Lines: The
Case of Finance
Bradley K. Hobbs , Shelton H. Weeks & Howard J. Finch
To cite this article: Bradley K. Hobbs , Shelton H. Weeks & Howard J. Finch (2005) Estimating
the Mark-to-Market Premium Required to Fill Vacant Business School Faculty Lines: The Case
of Finance, Journal of Education for Business, 80:5, 253-258, DOI: 10.3200/JOEB.80.5.253-258
To link to this article: http://dx.doi.org/10.3200/JOEB.80.5.253-258
Published online: 07 Aug 2010.
Submit your article to this journal
Article views: 17
View related articles
Citing articles: 5 View citing articles
Full Terms & Conditions of access and use can be found at
http://www.tandfonline.com/action/journalInformation?journalCode=vjeb20
Download by: [Universitas Maritim Raja Ali Haji]
Date: 12 January 2016, At: 22:42
Downloaded by [Universitas Maritim Raja Ali Haji] at 22:42 12 January 2016
Estimating the Mark-to-Market
Premium Required to Fill Vacant
Business School Faculty Lines:
The Case of Finance
BRADLEY K. HOBBS
H. SHELTON WEEKS
J. HOWARD FINCH
Florida Gulf Coast University
College of Business
O
ne of the most critical, yet challenging, aspects of managing a
modern collegiate school of business is
filling vacant faculty positions. According to annual faculty salary data compiled by the Association to Advance
Collegiate Schools of Business
(AACSB) International (2001), as the
supply of new PhDs has decreased over
the last decade and the average age of
faculty members continues to climb, the
cost of replacing an existing faculty
member has increased dramatically. The
escalating search and replacement costs,
however, have not affected the decision
process involving the filling of vacant
faculty lines. Particularly in public colleges and universities, the hiring process
is inextricably tied to the state budgetary process. As the fiscal year progresses and imbalances between state
revenue collections and budgeted
expenditures become apparent, active
search processes are often postponed or
terminated owing to hiring freezes
(Finch, Hobbs, & Weeks, 2000). This
situation may result in the need for a
college of business to conduct multiple
searches to fill a single vacant faculty
position, often without the recognition
of the costs associated with multiple
search processes.
A significant factor contributing to
the difficulty of filling vacant faculty
ABSTRACT. As the supply of new
PhDs in business has declined in the
past decade in the face of increasing
demand, the cost of filling vacant faculty lines with qualified professors of
business has increased substantially.
Because salaries of current faculty
members normally fail to keep up
with market salaries, when a faculty
line is vacated the college must pay a
premium by offering a higher, competitive salary. In this study, the
authors estimated the salary premium
associated with filling a vacated
finance faculty line. Results from a
national survey show that the premiums required for replacing finance
faculty members at all ranks are substantial.
lines is salary inversion. Because existing faculty salaries rarely keep pace
with market-determined entry-level
salaries, when one faculty member
leaves an existing line, the market salary
offer required to replace that person
nearly always exceeds the previous
salary (Cowling, 2002). This phenomenon has been labeled the “mark-to-market” premium required to offer marketcompetitive salaries for incoming
faculty hires (Finch et al., 2000). It is
likely that this mark-to-market spread
has created a mobility premium, which
affects both the rate of turnover and the
magnitude of the costs of turnover for
seasoned faculty members.
Our purpose in this study was to estimate the mark-to-market premium associated with filling a vacant finance faculty position. To date, little formal
research has been published that provides an estimation of the premium
needed to bring an existing faculty line
up to market salary levels. LeClair
(2004) showed that market salaries for
new finance faculty members are among
the most costly across all business disciplines. Our results from the current survey indicate that finance faculty
turnover is a very costly process for colleges of business administration.
The Market for
Finance Faculty Members
Escalating replacement costs associated with vacant faculty lines have been
particularly acute in the area of finance.
Bertin and Zivney (1991) detailed the
market factors, including salaries that
helped determine the placement of new
faculty hires in finance. In the subsequent decade, a number of factors
affected both the supply of and demand
for finance faculty members. On the
supply side, the extremely favorable
economy and job market of the 1990s
increased the opportunity costs of pursuing doctoral studies. When combined
with the fact that many doctoral proMay/June 2005
253
Downloaded by [Universitas Maritim Raja Ali Haji] at 22:42 12 January 2016
grams cut back on the total number of
students accepted and enrolled because
of the poor academic job market that
occurred early in the decade, the result
was a dramatic decrease in the available
supply of new PhDs in finance. According to Cowling (2002), by 1998 the
number of PhDs granted in finance
nationwide stood at 151—about 20%
below peak production of 191 in 1994.
To gather data for this analysis, we
prepared a survey questionnaire (see
Appendix) and mailed it to the chair or
head of the finance department of 356
AACSB-accredited colleges and schools
of business administration in the United
States. We received a total of 80 responses, yielding a response rate of 22.47%.
After deleting responses that did not
report complete salary information, we
analyzed a total of 68 usable responses
for differences in salary levels for
departing and new replacement faculty
members. In Table 1, we provide
descriptive data of the responding colleges by the institution’s total enrollment, the business school’s enrollment,
and the highest degrees offered.
Estimating the Mark-to-Market
Salary Premium
In analyzing finance faculty vacancies, an initial consideration is why
vacancies typically occur. In our survey,
we asked department heads to indicate
whether the departing faculty member
experienced a change in faculty rank as
a result of the move. We show the
aggregate responses in Table 1.
Interestingly, the majority of the
departing faculty members did not move
to experience an increase in faculty rank.
According to Eaton and Nofsinger
(2000), the top three reasons, in order of
magnitude, for faculty relocation are (a)
teaching load, (b) compatibility with
other faculty members, and (c) base
salary. Faculty weighting of base salary
as a factor in the decision to relocate was
within 5% of the top reason, which was
teaching load. This finding provides a
clear indication that the financial incentive to move to capture the mark-to-market salary premium is a primary motivation for leaving an existing position.
In Table 2, we provide summary statistics from responding institutions by
254
Journal of Education for Business
total enrollment, business school enrollment, highest degree awarded, and type
of institution. We report the salary premium required to fill a vacant finance
faculty line for each category.
The data in Table 2 lead to several
interesting observations worth noting.
Schools of all sizes, both public and private, incurred an average salary increase
when filling a vacant finance faculty
line. The smallest schools, in terms of
enrollment, incurred the largest average
salary increase, whereas private institutions had an average increase nearly
double that incurred by public schools.
In Table 3, we show the year of the
most recent finance faculty hire. Of
interest is whether or not the passage of
time has had an effect on the mark-tomarket premium required to fill a vacant
finance faculty line. The results show
that in recent years, when the majority of
new hires took place, salary lines were
generally increased by more than $8,000
in order to fill the vacancy (the small
number reporting for 2002 diminishes
any conclusion from the data that year).
In addition to the influence of changing labor market conditions (time), the
most likely influence driving differences between old and new finance faculty salaries is position rank. In Table 4,
TABLE 1. Department Head Move Classifications
Classification
No. of schools
Lateral move
Promotion in rank
Demotion in rank
No response given
43
7
2
16
Total
68
TABLE 2. Average Old Salary, Average New Salary, and Average Premium, by School Size and Level
Item
N
Average
old salary
Average
new salary
Average
premium
Institution’s total enrollment
< 5,000
5,000–9,999
10,000–14,999
15,000–20,000
> 20,000
7
18
16
12
15
$68,471
$69,333
$79,055
$78,083
$86,333
$89,000
$78,889
$87,594
$86,042
$93,973
$20,529
$ 9,556
$ 8,539
$ 7,958
$ 7,640
$65,433
$62,400
$73,603
$83,519
$81,200
$84,333
$78,200
$81,500
$94,763
$85,000
$18,900
$15,800
$ 7,897
$11,244
$ 3,800
$86,178
$72,102
$65,000
$99,821
$80,062
$71,000
$13,643
$ 7,960
$ 6,000
$76,288
$78,322
$83,872
$94,056
$ 7,584
$15,734
Total
Business school enrollment
< 500
500–999
1,000–1,999
2,000–5,000
> 5,000
Total
Highest degree awarded
Doctorate
Master’s
Undergraduate
Total
Type of institution
Public
Private
Total
68
3
5
28
27
5
68
19
47
2
68
50
18
68
TABLE 3. Average Old Salary, Average New Salary,
and Average Premium, by Most Recent Hires
Year
N
Average
old salary
Average
new salary
Average
premium
1991
1996
1997
1998
1999
2000
2001
2002
1
1
2
4
7
26
25
2
$62,000
$100,000
$87,500
$70,875
$74,143
$72,385
$78,095
$89,500
$62,000
$70,000
$90,000
$71,750
$86,313
$81,115
$91,944
$80,000
$0
$–30,000
$2500
$875
$12,170
$8,731
$13,849
$–9500
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Total
68
we show the average mark-to-market
premium by rank that colleges incurred
when existing finance faculty lines were
filled. The “hit” to the college’s fixed
cost salary budget depended primarily
on the rank of the departed faculty
member. The data in Table 4 indicate a
wide range of mark-to-market premiums, by exit rank and entry rank.
The data confirm that the market for
new hires is still primarily targeted to
the assistant professor level. By far the
greatest number of hires occurred when
another assistant replaced a departed
assistant. Summing across all three
ranks for departed faculty members, 50
of the 68 total replacements (73.53%)
were made when assistant professors
were hired. The average mark-to-market
premiums ranged from negative $1,850
for a full professor replaced by an assistant professor to positive $43,700 for an
associate professor replaced by a full
professor. Full salary inversion has not
yet occurred across all ranks; however,
the bad news for deans and department
heads is that the salary differential
between full professors near retirement
and assistant professors is approaching
zero. The implication for salary structures over the long term is that they will
rise even faster as faculty members
progress through rank.
The premiums for replacing departed
senior faculty members at the rank of
associate and full professor were substantial. Four schools replaced an associate with another associate at an average salary markup of $18,333. Two
schools replaced a full with another full
at an average premium of $27,500. By
comparison, 15 schools replaced an
associate with an assistant at an average
markup of $9,748. These results indicate that although salaries for assistant
finance professors continued to escalate, it was still cheaper for schools to
replace a departing associate or full professor with an assistant professor.
Discussion and Conclusions
The structure of the academic job
market for business school faculty members represents a tremendous challenge
for collegiate schools of business administration. On the supply side, the decline
in newly minted PhDs and the salary
compression that typically occurs in
existing faculty lines combine to make
job market mobility an attractive career
option for finance professors. The result
is a significant mark-to-market salary
premium that business schools incur to
attract new hires to replace vacated
finance faculty positions.
The search process required to fill a
vacated finance faculty position is both
time and labor intensive. The average
responding school appointed a search
committee comprising 4.43 faculty
members. On average, 3.93 faculty
members attended at least one conference to meet with position candidates,
and filling of each vacancy required an
average of 2.16 conferences. A total of
66.94 hours on average were devoted to
precampus visit tasks such as developing the position criteria, working with
the campus human resources department, responding to applicant correspondence, narrowing the applicant
pool, and scheduling campus visits.
Significant costs that are not measurable are associated with finance faculty
turnover. One of the largest is the opportunity cost realized from a loss in productivity during the turnover period.
This period of reduced productivity can
begin when the exiting faculty member
decides to enter the job market, and it
continues until the new hire becomes
accustomed to the new institution and
culture. Also not measured are the costs
to the institution of underused fixed
assets during the turnover period. For
example, the support staff and the physical plant remain in place despite the
vacancy in the faculty line. Finally, faculty members build institution-specific
human capital, and turnover can lead to
a significant decline in productivity for
the institution in service, scholarship,
and teaching.
The mark-to-market premium incurred when filling a vacant faculty line
is, in effect, a perpetuity incurred by the
college. The mark-to-market premium is
TABLE 4. Average Mark-to-Market Premium
Replacement
Assistant replaced with assistant
Assistant replaced with associate
Assistant replaced with full
Associate replaced with assistant
Associate replaced with associate
Associate replaced with full
Full replaced with assistant
Full replaced with associate
Full replaced with full
Total
Frequency
Average salary premium
34
1
0
15
4
1
9
2
2
$10,000
$13,000
N/A
$ 9,748
$18,333
$43,700
$ –1,850
$11,500
$27,500
68
$ 9,653
May/June 2005
255
structurally incorporated into the existing
faculty line, and if in the future the line
were once again vacated, the position
would again be marked-to-market, compounding the initial salary premium. The
choice of discount rate and the question
of the total life of the annuity cost stream
incurred with new salary levels are open
to debate. To calculate a value for the perpetuity, one would have to assess policies
on replacing full professors with associates or assistants, rates of turnover, rates
of retirement, future salary movements,
and other factors. However, the results
from this survey indicate that even a conservative treatment of the mark-to-market
premium as a one-time expense results in
a substantial cost to the business school’s
operating budget.
new hire market for finance: Productivity,
salaries, and other market factors. Financial
Practice and Education, 25–34.
Cowling, J. F. (2002). Supply and salary trends for
new finance doctorates. The Journal of Accounting and Finance Research. Working Paper.
Eaton, T. V., & Nofsinger, J. R. (2000,
Spring/Summer). The new and relocating
finance faculty market: Factors affecting job
selection. Financial Practice and Education,
99–110.
Finch, J. H., Hobbs, B. K., & Weeks H.S. (2000,
Summer II). The costs of hiring for finance faculty positions. Journal of Accounting and
Finance Research, 43–51.
LeClair, D. (2004, March/April). The professor’s
paycheck. BizEd, 58–60.
REFERENCES
Association to Advance Collegiate Schools of
Business (AACSB) International Knowledge
Services. (2001, December). AACSB International 2001–2002 salary survey report. St.
Louis, MO: Author.
Bertin, W. J., & Zivney, T. L. (1991, Spring). The
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APPENDIX
Survey for Finance Faculty Hiring Paper
Section I. Descriptive Statistics
Please complete the following background questions.
1. Please indicate the type of your institution.
___ Public
___ Private
2. Please indicate the approximate total enrollment of your institution.
___ < 5,000
___ 5,000–9,999
___ 10,000–14,999
___ 15,000–20,000
___ > 20,000
3. Please indicate the approximate total enrollment of your college of business.
___ < 500
___ 500–999
___ 1,000–1,999
___ 2,000–5,000
___ > 5,000
4. Please indicate the number of finance faculty members in your department.
_________
5. Please indicate the highest degree your college of business grants.
___ Undergraduate
___ Master’s
___ Doctorate
6. Please indicate the mission emphasis of your college of business.
___ Percentage effort for teaching
___ Percentage effort for research
___ Percentage effort for service
7. How many finance vacancies has your department experienced in the last 5 years
(fall 1996–spring 2001)? _________
8. How many finance vacancies do you expect to experience in the next 3 years (fall
2002–spring 2005)? _________
9. Please indicate the academic year of your most recent finance hire. _________
Section II. Reasons for Finance Faculty Vacancy
From the list below, choose the letters that answer questions 10 and 11 for your most
recent (full-time) finance faculty vacancy (list all that apply).
(appendix continues)
256
Journal of Education for Business
APPENDIX (Continued)
a.
b.
c.
d.
e.
f.
More lucrative financial package
Personality conflict
Geographical preference
Denied tenure/promotion
Recruited away
Family reasons
g.
h.
i.
j.
k.
l.
Retirement
Death
Teaching load
Quality of students
Move to industry
Maximized retirement in current system
10. What was the faculty member’s stated reason(s) for leaving your institution?
____________________________________________________________
11. What was your (dept. head’s) impression of the reason(s) that the faculty member
left? ____________________________________________________________
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12. For the departing faculty member who moved to a new academic position, the
new position he or she moved on to was which of the following?
___ Lateral move
___ Promotion in rank
___ Demotion in rank
Section III. Costs of Finance Faculty Vacancy
Please answer the following questions associated with your most recent (full-time)
finance faculty vacancy.
13. Rank of exiting finance faculty member. ________________________
14. Annual salary of exiting finance faculty member. _________________
15. Rank of new hire to replace exited faculty member. _______________
16. Annual salary of new hire finance faculty member. _______________
17. Did the department fill the faculty line temporarily?
___ No (if No, please skip question and forward to question 18.)
___ Yes, with an adjunct
___ Yes, with a visiting
18. Please approximate the number of hours devoted to searching for the temporary
hire. ______________
Please estimate the following implicit costs associated with filling your most recent
(full-time) finance faculty vacancy.
19. Number of total faculty serving on finance faculty search committee.
__________
20. Number of committee members by rank:
______ Full
______ Associate
______ Assistant
21. Number of hours spent on developing position criteria. __________
22. Number of hours spent on EEOC compliance issues. ____________
23. Number of hours spent on responding to applicants not interviewed, selecting
applicants to interview, and contacting applicants to arrange interviews. __________
24. Number of meetings/conferences attended to conduct interviews. __________
25. Number of faculty conducting interviews at meetings/conferences. _________
26. Number of hours devoted to developing short list of interviewees. _________
27. Number of hours devoted to scheduling campus visits of short list. _________
28. Number of applicants to whom campus visits were extended. _____________
29. Number of applicants who accepted and completed campus visits. __________
30. Please indicate, by type and amount, any other implicit costs incurred in the
process of filling the finance faculty position. ____________________________
__________________________________________________________________
(appendix continues)
May/June 2005
257
APPENDIX (Continued)
Please estimate the following explicit costs associated with filling your most recent
(full-time) finance faculty vacancy.
31. Total advertising costs incurred to publicize the finance faculty vacancy.
__________
32. Total registration cost for faculty attending meetings to conduct interviews.
__________
33. Total cost of lodging for faculty attending meetings to conduct interviews.
__________
34. Total transportation cost for faculty attending meetings to conduct interviews.
__________
35. Meals/entertainment expenses for faculty attending meetings to conduct
interviews. __________
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36. Total cost of rental car expenses for faculty attending meetings to conduct
interviews. __________
37. Total cost of air travel used by candidates on campus visits. __________
38. Reimbursement for mileage incurred by candidates on campus visits.
__________
39. Total cost of rental car expenses incurred by candidates on campus visits.
__________
40. Total cost of lodging candidates on campus visits. __________
41. Total cost of meals/entertainment during visits. __________
42. Please indicate, by name and amount, any other significant explicit costs
associated with bringing to campus candidates for the finance faculty position.
____________________________________________________________
Thank you for your candid responses to these questions. The data will be reported in
summary format only, to build a profile of the total costs associated with a finance
faculty vacancy.
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Journal of Education for Business