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Commentary: Executive compensation and schools

Executive compensation is a hot-button topic. Numerous reports document that chief executives of major corporations earn salaries that far exceed those of their workers. And, amid the financial crisis and recession, we have seen that compensation and performance are not always linked.

Because those pay-for-performance relations usually involve publicly held firms, many have argued that the link between ownership and control of firms is broken. In an ideal world, managers who perform below stockholders' expectations do not receive bonuses, may see their salaries cut or get the boot.

What about the relation between CEO compensation and performance at institutions financed with your tax dollars? If firm performance determines manager salaries at private-sector firms, what determines CEO salary at publicly funded "businesses"? Are they held to the same performance criteria as their private-sector counterparts?

To address this important policy question, the Show-Me Institute recently published a study of public school superintendent pay in Missouri. Although this data are reported to the Missouri Department of Elementary and Secondary Education (DESE) on a regular basis, they are not made available to the public. Audrey Spalding, author of the study, used a sunshine request to gather information on superintendent salary and perks for all districts in the state (there are 521). She also assembled relevant information about each district that could shed light on the main factors that explain superintendent salary.

The salary range for Missouri's public school superintendents is quite wide. Full-time superintendents earn from $56,200 to $250,000 in 2010. This reflects the diversity of duties performed by and expectations of the superintendent. Basic economic theory suggests that managers of larger firms on average will be compensated more than those who run smaller businesses. Previous research has shown that this positive relation holds true for public sector pay. Governors of larger states, measured by budget, usually receive higher compensation than their small-state counterparts.

Spalding's analysis supports that idea. Indeed, the most statistically important variable explaining superintendent salary is district size: The larger the district is -- measured by student headcount -- the greater the superintendent's salary. There also is a significant difference between salaries for urban and rural superintendents. But do not conclude that the urban boost represents hazard pay: Two of the highest paid superintendents in the state run the Kirkwood and Clayton districts.

Spalding also addresses the issue of whether superintendent compensation is linked to student performance. This is tricky because student performance is usually measured by fairly questionable achievement test outcomes. With this caveat, Spalding uses results from the Missouri Assessment Program math test as a proxy for student achievement.

Is there a positive correlation between changes in the percentage of students being rated as proficient or above and increases in superintendent salary? Spalding finds no relation -- positive or negative -- between superintendent pay and student performance.

Drawing any firm conclusion from this result must be tempered: The time frame is relatively short (two years) and the result based on other MAP results could show a relationship. Still, the result suggests is that raising a superintendent's salary in the hopes of improving student outcomes is not good public policy. The result also suggests that paying "star" salaries in the hopes of improving student performance may not pay off.

Private sector CEOs are regularly excoriated in the press for not delivering when it comes to company performance. Should the same criteria be more routinely applied to CEOs of our schools?

The data set assembled by the Show-Me Institute undoubtedly will provide the basis for other studies to address this and other important policy questions related to how we run our schools. Examining these issues in an objective, scientific way will improve policy decisions. Perhaps the outcome of such analysis and debate will even lead to increased public participation in management of our publicly funded schools.

R.W. Hafer is the distinguished research professor and chair in the Department of Economics and Finance at Southern Illinois University Edwardsville and a research fellow at the Show-Me Institute.

This article originally appeared in the St. Louis Beacon.

Rik Hafer is a distinguished research professor in the Department of Economics and Finance at Southern Illinois University Edwardsville and a scholar at the Show-Me Institute.