The debacle at the University of Virginia, whose Board of Visitors hastily fired President Teresa Sullivan, has been a lesson in how business-oriented trustees can urge bad business practices. My earlier post listed some of the imprudent ideas that Sullivan was resisting: a big bet on online learning with no business plan or revenue stream; a desire to chase expensive star faculty from outside UVa instead of building in-house; and a drive to reallocate funds from profitable but unglamorous fields to sexier, less profitable enterprises that the Board of visitors preferred. What took me totally by surprise is that Sullivan's antagonists wanted big raises for faculty during a budget crisis, and were dissatisfied that Sullivan only found money for 2% raises. That's flabbergasting.

What that illustrates is that Sullivan's opponents aren't driven by business sense but by business culture.

They're not demanding fiscal prudence (which university trustees have always done, and which many trustees from finance and business have done very well). Instead they're expressing a set of habits and values common in parts of the business world. The key Board members have bought into an especially shallow and naive version of that business culture, but they're extreme illustrations of a wider problem. It's all too easy to apply popular management ideas to a complex enterprise whose economic model you don't understand. And that can lead to trustees like Helen Dragas and Mark Kington demanding moves that, viewed simply as business, are risky and unsound.

There have been hints about the faculty-salary argument before now: in the fairly incoherent op-ed by putsch-supporter Paul Jones (in which Jones cites the $140,000 average salary for full professors at Virginia as "alarming") and in Sullivan's defense of herself to the Board, in which she makes a point of having found money for a small raise this year. Now, Board Rector Helen Dragas's latest statement confirms that faculty salaries were a contentious issue, and a small raise did not suffice.

This disagreement reflects a misunderstanding about how to manage university faculty, who are much less motivated by money than employees in finance are. Every employee is motivated my money to some degree, and certainly professors will never turn down a raise, but it's only part of the mix.

University faculty "consume their wages in happiness," as economists like to say, sacrificing some of their earning potential for other kinds of job satisfaction. I've blogged about this as the LeBron James effect: a willingness to leave some money on the table in exchange for something else the employee values. (In James's case, he was willing to make $3 million less a year in order to have a shot at a championship and, you know, get past the Celtics in the playoffs. It's worked out for him.) In LeBron's case, the man would rather be paid a ridiculous amount of money to be the best at what he does than an even more ridiculous amount of money to come up a little short. That makes sense.

College professors are also motivated by a lot of other things, both selfish and altruistic: the quality of their students, opportunities to do their research, their sense of how much prestige the school they're at confers, the number and quality of colleagues they can talk about their work with: the list goes on and on. They'll all take more money if it's offered. But money alone won't keep them happy if other things are missing. If they have no research collaborators, or feel that they'll never finish their book, or feel that they can't actually teach the way they want to teach because of the way their school is run, they will want another job. (One friend who was frustrated about teaching conditions once told me, "I love our mission, but I can never get enough of my unit back to the chopper.") Giving them a 5% raise might soothe them temporarily, but it won't stop the problem. Fundamentally, those people would rather be somewhere else. They don't want to be at the same place for 5 or 10% more money, so paying them more doesn't buy you any real loyalty.

On the other hand, a professor who makes a comfortable salary, but might get a better one elsewhere, might not go looking around for a raise if other things are going well. If she has the pleasure of being able to watch her students succeed, stimulating intellectual relationships with colleagues in or near her field, and the satisfaction of getting her own research done, the fact that she feels underpaid might be just one of those things. A rival college might be able to lure her away by flashing some cash, but they'll have to come looking for her, and they'll probably have to convince her that they can match those other sources of happiness. People are unlikely to move to a school where students aren't as well prepared, or where the rest of the department is always fighting, even for a raise. They almost never move to a place where they think it will be harder to get their research done, no matter the price. Most professors would rather be paid an okay salary to write their books and teach students who really seem to get something from classes than be paid a better salary to not write their books or to teach students who aren't interested.

A lot of UVa's faculty could make better money at some rival school. But then, virtually all of those faculty could have made more money, at some point, by not becoming professors in the first place. They could have leveraged their earlier educations, their ability to manipulate information, and their relative class privilege to earn more in some other, less interesting field. But, at least initially, they traded a measure of their earning power for other satisfactions. The trick to keeping them at the University of Virginia isn't to throw money at them, but to emphasize the other things that make them happy about Virginia. A few will still be lured away by schools with deeper pockets, but Virginia can't win heavy bidding wars on salary anyway, and over time the quality-of-academic life approach will retain more people than other strategies would. Of course, the last two weeks have infuriated most of the faculty and convinced them that the university is in chaos and upheaval, which is much worse for faculty retention than salary stagnation could ever be.

Dragas and company did not, at least, make one of the mistakes that people from the business world occasionally make when dealing with academics, which is to decide that since professor's salaries are so shockingly low, by business-world standards, that professors will be grateful for any extra amount of money. The thinking here is that faculty have simply failed to make a better living, and since their salaries are comparatively low, the price of their loyalty is low. Needless to say, the assumption that faculty members will go along with anything if you give them a $500 raise often leads to trouble.

Dragas makes the opposite, and more generous error; since UVa's faculty salaries are so far out of line with what she and her colleagues in business earn, she assumes that they must be in desperate need of pretty large pay raises. This is a more subtle mistake, and leads to a more subtle problem. While faculty are relatively unmotivated by salary, they can be very aware of relative salary. They might be less attuned to how much they make than to how much they make compared to the usual salaries for their department and university. The salary isn't just money, but a psychological marker of respect and success. Changing the pay scale too much, too quickly, especially if done piece-meal, can upset faculty who were previously content.

Let's say a leading full professor at UVa, where the average full professor's salary is around $140,000, is actually making $175,000. (Let's imagine, for the sake of this example that our professor works in a department which is dead-average in salary, so that the extra $35,000 is not simply about her being in a better-paid field.) Although she might be aware that she could theoretically attract a higher salary if she moved elsewhere, she likely feels pretty good about the money she does make, because she's being paid well by institutional standards. If, however, her department suddenly lured in two new star faculty from outside (which Dragas seems to think would be the way to go), and those new hires start at $215,000, she's going to suddenly wonder why she isn't valued as much as the outsiders are. That's not rational, but it is human. Similarly, if you a university suddenly has a pool of money for unusally large raises, and chooses to distribute more of those raises to some faculty than others, that new money will foster discontent. People who might have been okay with Colleague X making more than they do are not going to be okay with Colleague X suddenly making that much more than they do. And suddenly, all that the administration's money has bought it is trouble.

But the biggest mistake, born out of the assumption that salary alone governs employee loyalty, is that Dragas wanted to find money for raises at the expense of the other things that make faculty happy. Cutting academic programs in order to fund raises for the faculty who don't get cut would mean a net loss in faculty happiness and loyalty. Raiding financial aid funds to increase salaries would mean a net loss of faculty loyalty: that would inevitably mean a weaker student body, and undercut the faculty's sense of purpose. (You can only ask people to sacrifice so much for a teaching mission they believe in, but you can't ask them to sacrifice anything for a cause they don't believe in.) And a top-down, business-style form of university governance, where one executive makes all the decisions with little or no faculty input, will simply enrage faculty. You might find room to pay them an extra ten or twenty percent that way, but not nearly enough to make them happy under the new system. If they wanted to work in a top-down, business-style organization, they would, for a lot more money. There are some things you almost literally cannot pay then enough to do.