« Solving the Enrollment Compensation Problem (Part III) »

This multi-part Executive Briefing was prepared exclusively for senior decision-makers. The focus assumes progressive organizational experience leading to a senior position in a college or university setting.

Part I of this Executive Briefing assessed the current situation with respect to the compensation of enrollment representatives. Among other issues, Part I suggested that: (a) the moral high ground belongs to performance-based compensation, not to "equal" compensation for dissimilar results; (b) many complaints about the compensation practices of the for-profits arise from disgruntled ex-employees; few of us would find it accurate or fair to have our managerial practices defined by such individuals; (c) to be rational, we must examine the "compared to what" dimension of analysis where we find different but more consistent violations of good practice with respect to treatment of prospective students. The take-away for Part I is that compensation issues are neither black nor white and are more complex than the press they are receiving.

Part II suggested that large for-profits face additional challenges in enforcing policy and practice and managing variance among enrollment counselors but that there is more than a little disingenuous at hand when some for-profits rest on their policies knowing full well that the back room practices differ. Part II also pointed to uninspiring behavior on the part of regulators, noting that once they have publicized an alleged wrongdoing on the part of a large for-profit, their culture does not permit them to acknowledge that they might have been wrong. Part II concluded noting that the primary cause of problems with the 12 Safe Harbors is the intentional vagueness designed into the clause that prohibits compensation being determined solely on the basis of enrollment performance.

Part III reviews the current situation, provides wireframe language that would solve the behavioral problems that have been associated with the 2002 Revision, and wonders why the Department refuses to move in this direction.

Situation Analysis - Update Since Part II

Since we wrote Part II of this Executive Briefing, the Department of Education continued to push for regulatory changes that would further limit the ways for-profit colleges participating in the Title IV programs can compensate enrollment personnel. Not surprisingly, share values of for-profit school stocks have dropped.

Somewhat separately, President Barack Obama highlighted students' difficulty in repaying tuition loans in his January 2010 State of the Union Address. "No one should go broke because they chose to go to college," Obama said, proposing that college graduates be required to spend no more than ten percent of their disposable income repaying student loans. The Department’s draft language on this initiative is slightly different. It proposes that annual loan payback be capped at no more than eight percent of the student’s gross income, as determined by average salaries in the industry. The Department’s version is likely to produce a higher value than the 10% proposed by the President.

Setting details aside (these details will eventually become important but cannot be determined today), we agree with the President’s and the Department’s approach to making much if not most of higher education relevant to one’s professional goals and income upon graduation.

Unfortunately, the Department has no intention of implementing the equitable principle suggested by President Obama when he said no one should go broke because they chose to go to college. They intend to apply this principle exclusively to for-profit colleges.

It’s a good thing that the Department of Education has no intention of being fair.

Students who pay a career school $25,000 to become a Respiratory Therapist, Occupational Therapist Assistant or any of a dozen other professions will have no difficulty meeting the proposed payback rule – whether 8% of gross or 10% of net. The first job these student land will be in the mid-$30K range and they will move up the pay ladder with experience. But what about graduates of not-for-profit institutions? Would this policy work for a student who slogs through six years leading to a master’s in English literature or an elementary school teacher who pays a semi-elite private college $75,000 for a bachelor's in Education?

To be very clear, I am not criticizing degrees for which there are few job or no degree-relevant job prospects. Neither am I criticizing the institutions that offer them. (I have one or two such degrees myself.) Were institutions to provide the transparency required for fully informed choice, I believe all universities, for-profit or not, should be able to offer any degree for which there is a market. Of course it is wrong to represent that a particular degree will lead to a job that may not exist. It is equally wrong to focus exclusively on job placement as a definition of program quality. The Department of Education, however, has decided that only not-for-profit colleges can offer degrees for which there are no jobs. The Department’s ethics are deplorable and should be recognized as such, irrespective of how this proposed policy might play out in one’s personal life.

The Department of Education has made a decision that if the corporate charter of a college is such that it does not have to pay the many forms of taxes that most corporations pay (AKA "enjoys taxpayer support") that college can offer worthless or worthwhile degrees, job-intensive or job-irrelevant degrees, or any kind of degrees they want at whatever price they want. The Department has no interest in the degrees offered by colleges that receive substantial taxpayer support. If, on the other hand, the corporate charter of a college is the kind that pays its full tax burden, the Department mandates that such colleges offer only those degrees for which high ROI jobs await graduates. If the Department gets its way, the margin between the current double standard will increase. For-profit colleges will not be able to offer a degree for which the outcome is a low paying job and personal satisfaction.

Will Safe Harbors Be Rescinded?

As the Department continues to negotiate its no incentive compensation agenda with leaders of various education sectors, the question looms, “Are the Safe Harbors likely to be repealed?” One learns never to say never inside the Beltway but recension seems unlikely for many reasons. We’ll take a look at these reasons in a subsequent Briefing. What is likely to happen is that the deliberations will drag on at least past the November elections. This extended debate will create a costly state of limbo for those institutions having the good sense to provide positive incentives for good employee performance, hopefully across their institution and not just in the enrollment roles.

A Simple Solution to the Safe Harbor Problem

One of Kurt Vonnegut's characters invented a way to clone human beings by shaving off skin cells and mixing them with chicken soup. The government's solution to this moral crisis was to outlaw chicken soup. We observe the same buffoonery and disingenuous behavior as we watch the U.S. Department of Education maneuver to eliminate the 12 Safe Harbors because of the very problems the Department created and intentionally allowed to persist in spite of repeated requests from the industry for clarification.

The U.S Department of Education has created the problem of excess in compensation by ignoring countless requests to clarify the regulatory language. The solution is theirs and theirs alone to bring to effect.

We offer a simple solution to the problems associated with the vagueness in the 12 Safe Harbors. It is a solution we have implemented for a few large for-profits and a few independent colleges. It is a solution that was reviewed by the Department of Justice as implemented in one large for-profit and found to be in good form. The solution is to clarify and objectively control – not eliminate – the provision in which compensation cannot be based solely on enrollment performance.

Action Items

Should You Change Your Compensation System Now?

If your current enrollment system is not performance-based, I would recommend that you stand down until this controversy is resolved. Some observers believe the resolution will take place immediately after the November elections.

If your current enrollment compensation system is performance based, you may want to review it carefully with respect to the Safe Harbors. Err in favor of conservatism for the present.

Additionally, it is possible to design effective enrollment compensation systems that do not adjust compensation for enrollment performance yet are still motivating to achieve excellence. The solution lies in having good metrics and performance standards.

For Most Institutions

If you are leading one of the 3,000 or more universities lacking comprehensive, real-time metrics on its enrollment practices, you may want to consider a three-year plan to get them. Having these measures in place will not, in itself, create organic change. It will open the doors to such change and make rational change possible.

Among the change elements you may wish to consider are:

• Redefined roles for enrollment counselors, team leaders, and managers
• Revised business rules for each role and for the enrollment function
• The creation and adoption of real-time metrics with associated proficiency standards for each role
• The development of training and continuous quality improvement functions

If you remain on the sidelines at present with respect to performance-based compensation, we can suggest compensation plans that achieve similar results but sidestep this issue until the Department or Congress resolves the current controversy.

Caveat

Before you take any of the steps discussed here, I suggest that you conduct shopping research on a sample of the for-profits and a few of the leading adult-centered independent college programs. For starters, you may want to shop Argosy, Capella, DeVry, National American University, and the University of Phoenix. You may contact me to discuss which independent colleges are most appropriate for you to shop. If your experiences are typical, you will see large and important differences in how these successful universities treat prospective students. You will formulate a position of your own that reflects your institution's unique mission, culture, and resources.

Please tell me what you find or share your findings in the comments below.

Robert W. Tucker is President and CEO of InterEd, Inc.

He can be reached through this forum.

The expression of other views by leaders in higher education is welcomed.