Should university professors participate in "performance-based" incentive schemes and bonus programmes? The question is widely asked wherever universities are being called on by their governments to be more accountable. I, for one, am sceptical. My position may come as a surprise, because it is my business to increase institutional effectiveness and efficiency.

Make no mistake: I do support the introduction of professional management methods in higher education. But I believe performance-based salary schemes are taking us in the wrong direction and that, in most cases, other instruments are preferable to increase institutional performance.

Wherever the question is raised there are normally two positions in the debate, the managerialists and the traditionalists. The common argument of the managerialists is that a coupling of salaries and performance will create more incentives for exceptional performance in the seminar room or laboratory, and that the general quality of output will be increased.

Traditionalists counter that academia is a very special profession. The pursuit of knowledge yields its best results, they argue, in an atmosphere where the scholar is paid a comfortable salary to pursue his or her scholarly interests. Those cannot be evaluated by an outsider.

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The college is seen as a community of equals. Its special (and necessary) atmosphere would be disturbed by differentiation based on performance. Both managerialist and traditionalist arguments are lacking in some regard, so I will propose a third approach focusing on institutional culture.

To discuss the subject more deeply, it is helpful to define the components of performance pay. The installation of a performance-based salary system in an institution means all of the following: * a common definition of what constitutes performance * a system to couple rewards and performance * a fair evaluation and review process that measures performance and fixes rewards.

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First, a common (and shared) definition of performance is needed, because otherwise any mechanism would lead to demotivation and institutional unrest, rather than an increase in productivity. Furthermore, consensus is needed for the specific system that couples performance and rewards.

Finally, a fair and impartial review process must be guaranteed. The system cannot work if any of the three constituent parts is missing.

The traditionalists are partly right. Academia is a special place. A person who chooses an academic career is normally not driven by financial considerations, at least not primarily. One product, research, is hard to measure. Its results are generally forthcoming long after the respective funding decisions have been made and may not be easily quantifiable. The other product, quality of teaching, is equally difficult to quantify.

The result: a common definition of performance and the creation of a system of indicators are two extremely difficult objectives. The managerialists also have important points. The community of scholars, although a desirable vision, does not prevent significant differences in performance between professors. Some of these differences can be clearly evaluated from outside.

But the introduction of an elaborate system of performance pay administered from outside cannot be the solution. In past decades, the ranks of academic administration have risen disproportionately. In a long-term study of one "lean" university, this author found a quadrupling of the relative share of administrators since 1955. Performance pay would further strengthen the position of the administrators (and doubtlessly increase their ranks). Still, it is likely to fail because of the inherent complexities of the process and dangers of manipulation.

How, then, can we accommodate the managerialist argument that performance should be rewarded? I believe that a systematic application of the existing tools of rewarding performance is more than appropriate. Academics are special, and normally very sensitive, animals. They usually react strongly to non-monetary incentives such as fame, publication, prizes, awards and rankings. We do have enough to do and enough rewards to reap if we manage to grant these incentives on a systematic and fair basis.

This means, first of all, defining performance. Such a step requires open and sometimes painful discussions among colleagues, preferably assisted by outside help (administrators, trustees, consultants).

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It is important that professors themselves reflect on performance and it is important that some outsiders participate to keep them honest. (The outsiders should not direct the process, however.) If an institution can develop a shared definition of performance and make it transparent among colleagues, 90 per cent of the work has already been done.

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Another question of incentives is that of teaching versus research. One element of performance pay, research grants, can be found in virtually every university system. Research money is awarded on a more or less competitive basis and comes in many forms. It pays for sabbaticals, research assistants, laboratories or it simply supplements regular salaries. Research money is not performance pay in the strict sense, because it is mostly awarded ex-ante. Yet it creates powerful incentives to concentrate on research to the potential detriment of teaching.

Institutions may therefore consider a dual compensation system to enhance the quality of teaching. This would not require elaborate systems of performance pay, but it might make teaching more attractive.

But even with the creation of incentives for teaching, a shared institutional vision may carry a long way. Some research-based institutions subject their most renowned professors to rigorous teaching standards. Princeton University pursues this policy. Its motto, "excellence in teaching and research", with excellence being defined as world-class - is a clear and powerful message to every member of the faculty not to neglect his or her teaching duties.

We should treat professors as fully accountable individuals. The carrot-and-stick approach of performance pay does not do that. It presupposes that performance can be "steered" by some objective mechanism. It would be as much subject to manipulation and politics as any other reward mechanism we already have. It would also lead to another layer of bureaucracy.

The creation of the "lean organisation" has been a fashionable topic in management for a while. It requires that employees are as close to the customer as possible, and that they carry with them a clear idea of how they deliver value. The university is the ideal lean organisation: it normally has only four or five layers . . . president, deans, tenured and non-tenured faculty as well as teaching assistants. That is, and should be, enough. Academic administration should be limited to staff and service functions. Its purpose is to serve students and academics, not to "manage" them.

The task, then, is clear: let every institution openly discuss and set its standards and goals in teaching and research. Let it develop shared values. Let it test its aspirations against reality with the help of outsiders, hard data and inter-institutional comparison. Let recognition and rewards be distributed according to such reality-tested standards. The procedure sounds simple. But execution is often painful and needs constant re-focusing, thus absorbing considerable energies.

If we succeed we will have all the necessary incentives to make academia a productive and rewarding place for the next generation.

Max Otte is an international higher education consultant on finance, governance, management and quality assurance, based in Cologne and Princeton, United States.

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