Examining Compensation Models and How to Attract and Retain Employees

Spring 2024

By Elizabeth Dabney, Patrick Schuermann

This article appeared as "Pay Checks" in the Spring 2024 issue of Independent School.

The workplace and the workforce are changing dramatically and rapidly, and independent schools are not immune to these forces, particularly when it comes to finding talented and qualified employees in a competitive job market. The work of attracting and retaining a mission-aligned workforce is more difficult than ever due to a confluence of factors: the national population dynamics are moving the labor supply downward; fewer college students are pursuing education degrees; school salaries when adjusted for inflation don’t hold that much earning power, not to mention expanding wage gaps between educator pay and other professions; and jobs outside of education are becoming more appealing because of increasing flexibility. In every aspect related to the workplace, school leaders are facing more pressure from their institutions and communities to find and hold onto talent. 

Against this backdrop, the levers independent schools pull on to support their budgets—tuition and giving—have limits, making compensation—a school’s largest expense—a delicate and enduring challenge. While salary may not be the primary decision-making driver for all prospective independent school employees, compensation systems and benefits packages are always an important consideration when deciding to take, keep, or leave a position. And given how much expectations have changed in relation to the workplace writ large, it’s imperative for schools to look at compensation and benefits systems with an eye toward creativity and innovation. But to inform such thinking, and before school leaders can begin the work of improving the structures and systems, they need to have a clear picture of existing approaches to compensation, as well as insights about the intentions and outcomes associated with various approaches.

To that end, in the spring of 2022, the National Business Officers Association (NBOA), with support from the E.E. Ford Foundation, launched the Mission-Anchored Compensation Strategies project to provide a comprehensive landscape analysis of independent school compensation systems, exploring both their financial and cultural implications. Over the course of 18 months, the research team, supported by survey design and focus group specialists, surveyed 405 schools across 43 states and eight countries, facilitated focus group conversations with 58 schools, and had follow-up interviews with 24 school leaders to understand the what of compensation system design, as well as the why and how guiding refinements to them. The survey gathered data from heads, CFOs, and HR directors about a wide range of topics, including the different ways base pay and bonuses are determined, how schools approach benchmarking, what contributes to annual salary adjustments, the menu of benefits offered, the degree of flexibility in their model, the extent to which their model has changed in the past several years, and the intended impacts and realized outcomes of their compensation systems. The research methods were informed by the awareness that every independent school is a uniquely complex organization, in a distinct market, and is seeking to attract and retain individuals who are motivated by multiple, sometimes competing, and ever-evolving priorities. 

The Research Findings 

Our landscape analysis identified the current prevalence of three common models of compensation: the traditional step-and-lane model that provides salary increases based solely on years of experience and degrees; the performance- or merit-based model that allocates increases based on a determination of employee performance or merit; and the banded model that offers salary increases to employees as they progress through a series of stages or levels based on a unique set of criteria established by the school. In addition to these three models, schools use a variety of other approaches to make annual salary adjustments, including annual cost-of-living increases, flat-dollar amount or percentage raises, or increases relative to a local or national benchmark. 

Employee roles. One persistent finding across all facets of our research is that substantial variation exists between schools and within schools as it relates to their approaches to compensation and benefits for three categories of school employees: administrators, faculty, and support staff. For example, as seen in the types of salary structures chart below, most schools use some form of a step-and-lane model for faculty (56%), while performance-based models are more prevalent for administrators and support staff (35%). Additionally, while 17% of schools use a banded model of compensation for faculty, only 9 to 10% do so for their staff or leadership team.   

Types of Salary Structures for Administrators, Faculty, and Instructional Staff, 2021-2022

Drilling down further, we see that independent schools consider different elements when making compensation decisions by role for administrators, faculty, and staff. For example, we found significant differences in the extent to which schools use level of education, team-based stipends, and certifications when compensating faculty (86%, 21%, and 39%) as opposed to administrators (55%, 4%, and 28%) and staff (37%, 7%, and 22%). Similarly, schools use performance as a determinant for compensation for administrators (46%) and staff (44%) substantially more so than for faculty (36%). For administrators and faculty, degrees earned was the second most prevalent determinant of pay, with a noticeable drop-off in this element for staff (fifth most prevalent). ​However, for both staff (72%) and faculty (72%), taking on additional roles and responsibilities is frequently used to impact pay, with a noticeable drop-off in this element for administrators (38%). Teaching load is only a prevalent determinant for faculty, and while performance and merit are less common for faculty than for staff and administrators, this trend is reversed when considering certifications and micro-credentials. ​A key takeaway here is that even within a given compensation system, many schools are already differentiating what counts as determinants of pay for different types of employees. 

Benefits. In addition to using different ways of determining salary, we found substantial variation in the way schools approach benefits. Many schools uniformly offered all three categories of employees (administrators, faculty, and staff) medical and life insurance, contributions to a retirement plan, paid sick leave, paid maternity leave, and tuition remission. However, benefits offered to different categories of employees do vary significantly. For example, administrators (93%) were substantially more likely to receive paid professional development than both faculty (56%) and staff (55%) members. And teachers, while significantly less likely to receive paid time off than the other two groups of employees (67% compared to 88% and 86%), were more likely to receive tuition assistance for graduate degrees (62% compared to 52% and 46%). Staff, though only half as likely to receive housing assistance, were about 15 times as likely to receive subsidized transportation than administrators or faculty. 

Outcomes/impacts. Given the distinct history, context, and needs of our schools, it’s no surprise that schools aim to accomplish a variety of outcomes with their compensation systems. When asked to choose the primary intended impact of their compensation system from a list of 11 possible goals, the top three responses were: recruiting high-quality employees (24%), attracting a mission-aligned workforce (17%), and retaining experienced faculty and staff (17%). The next tier of responses included attracting a diverse workforce (11%), creating positive working conditions (9%), and ensuring pay equity among positions (9%). With less than 5% of schools choosing it as their top option were: improving school climate (4%), retaining early career faculty and staff (2.5%), incentives for professional growth (2.5%), improving staff performance (2%), and providing incentives for taking on additional roles or responsibilities (2%). Interestingly, while we saw substantial variation in the ways schools were determining pay for their three categories of employees (administrators, faculty, and staff), the primary intended impacts for their compensation systems did not vary significantly across position type—schools saw the primary impact of their compensation and benefits systems as accomplishing similar goals for administrators, faculty, and staff, even if they use slightly different means to accomplish these similar goals.  ​

​Turning our analysis to explore the relationship between the intended impacts of a compensation systems and the type of system in place, we noticed a few pattens. For example, schools with a performance-based salary structure for administrators and staff were significantly more likely to indicate the desired outcomes of the compensation system as being to improve staff performance, improve school climate, and ensure pay equity. Schools with a performance-based salary structure for faculty were significantly more likely, on average, to report intended outcomes as providing incentives for professional growth, improving staff performance, or taking on additional responsibilities than schools with a step-and-lane system. ​

A subset of survey respondents acknowledged making substantive changes to their compensation systems within the past two to five years. These schools reported slightly different intended outcomes than those whose systems remain unchanged. For example, schools that recently changed their compensation system were more likely, on average, to report intended outcomes as improving school climate and ensuring pay equity compared to schools without a recent change. ​Specifically, schools that recently changed to a performance-based compensation system reported it being a catalyst for improving staff performance, school culture, and pay equity. This finding counteracts a generally held belief that a step-and-lane structure is the most equitable because salary increases are based on observable characteristics like degrees and years of experience, rather than an evaluation score or another measure of performance that is more complex and could be perceived as more subjective.

Consistent across all types of compensation systems, average total compensation increased with educational attainment and experience for faculty, reflecting how common, and perhaps influential, the step-and-lane salary structure still is. And while we found clear variation across schools in the salary provided to faculty at all levels of experience and degrees, we did not find compensation to vary significantly by the type of model used. Average total compensation for teachers in performance-based or banded salary systems were only slightly higher than the average for teachers in a step-and-lane structure. 

Takeaways and Insights

Our focus group conversations provided great insight into the ways schools are experiencing the challenges of attracting and retaining mission-aligned leaders, faculty, and staff from the perspective of their unique geographic realities. This work illuminated how the financial and cultural expectations of candidates are shifting, and the impact it is having on school communities. As school leaders shared their biggest challenges meeting an emerging set of financial expectations of candidates, they mentioned the influence of local labor market forces, misaligned salary aspirations carried from other geographies or industries, rising housing costs, and the premiums required to attain specialists in certain fields. 

While schools have long contended with a set of traditional expectations that candidates bring to the decision-making table—the desire for a competitive salary, professional development, and a supportive environment—an emerging set of expectations is now being added into the mix. When describing what candidates are looking for in a workplace culture, leaders described candidates as increasingly looking for a school’s investment to their growth trajectory, the school’s commitment to access and inclusivity, the desire for health and wellness supports, the desire for flexibility in their work arrangements, and the school’s reputation for being attentive to employees’ changing stage-of-life realities. 

Our conversations also surfaced a variety of insights from schools that had worked to renovate their compensation systems. These innovations included crafting banded compensation systems that encourage faculty to engage in expanding spheres of professional impact, developing faculty evaluation systems anchored in the mission and strategic plan of the school, crafting a creative points-based faculty responsibility system, developing a process to assess and ameliorate inequity in pay, and developing a concierge-style approach to supporting faculty onboarding to a new city. Across the board, school leaders emphasized the importance of using a collaborative process to include a variety of voices and perspectives, tapping a committee or task force to do this work, incorporating multiple and meaningful forms of data to inform decisions, remaining vigilant with proactive and inclusive communications throughout the process, and infusing checkpoints to enable responsiveness and flexibility to characterize the way the change process unfolds. 

At the outset of the project we imagined a scenario where we might discover a new model of compensation—one that hadn’t yet hit the radar of the broader independent school community—but what we found were a wide array of promising practices and innovations within the individual components of a total compensation system, of which a particular compensation model is just one element.​ What works as an innovative solution in one setting would potentially not work in another given the different missions, sizes, operating budgets, strategic priorities, and geographic regions of schools. While there are no silver bullets, the research surfaced a wide variety of promising practices for schools to consider. (The project includes several case studies that spotlight various ways schools are creatively approaching some facet of their compensation or benefits system. See “Learn More” at end of the article.)

Next Steps

Each school’s compensation system is comprised of both structural and cultural dimensions that require communities to consider both the technical and adaptive elements of any changes they might make to their current systems. Because compensation systems intersect with so many facets of a school community, it’s important to attend to the hearts, minds, values, loyalties, and relationships at the center of a school community before making changes. To support this work, school leaders can help their communities through the process of:

Navigating tradition and change. This is difficult, no matter the issue at play. Yet, the school leaders in our study acknowledged how uniquely challenging it is to change systems that communicate how much we​ value others. And so, while compensation and benefits systems are necessarily accountable to the hard realities of finite budgets, the path to altering these systems requires a vision beyond the bottom line. ​The inherent challenge is to anchor everything in mission and core values, while recognizing the need to be responsive to changing workforce dynamics. 

Balancing flexibility with manageability. In response to evolving workforce demands, school leaders are wrestling with the challenge of incorporating enough flexibility into their compensation systems to be appealing to professionals at different life stages while maintaining coherence and predictability in their systems. Just as schools value the distinctiveness of their educational mission, they are also seeking ways to value the individual contributions and preferences of their dedicated faculty, staff, and leadership teams. The farther schools seek to go in aligning compensation and benefits with the individual preferences of employees, the more complex the task of devising a compensation system that’s both flexible and manageable becomes. ​

Promoting equity and transparency. While we might not immediately think of them this way, compensation systems and benefit programs can be vehicles for building trust within a school community. Well-understood systems reduce ambiguity, and with clarity and open dialogue, employees are encouraged to engage in constructive conversations about their hopes and aspirations around compensation, career growth.​ 

Understanding the market. The market in which a school exists has a substantial impact on its capacity to attract and retain employees. It’s becoming increasingly important for school leaders to understand these nuanced and evolving market realities impacting their school community’s ability to attract and retain the highest quality faculty, staff, and leaders. ​

Going beyond the money. Although our study focused on understanding the different approaches to compensating faculty, staff, and leadership team members, participants discussed the centrality of other forms of employee recognition. At some point, ​every school will reach its limit to compete for a desired employee solely based on salary. We heard many examples of schools becoming increasingly intentional about the ways they are attentive to alternative forms of employee engagement, motivation, and acknowledgement. Schools across our study described diverse, mission-aligned, and context-anchored ways they were building bridges between individuals and a broader sense of purpose by providing opportunities for employees to exhibit autonomy and agency while pursuing mastery in work that has deep meaning. ​

Understanding the nuance. It’s important to think about the differences in what draws employees to your school, keeps them, or might motivate them to leave. On the surface, we might think these are one and the same—the motivation to join, stay, or go—but in fact, there are nuances in how faculty and staff think about these decisions. These intersecting dynamics underscore the intentionality, nimbleness, and even creativity that is increasingly required to maintain a thriving, mission-aligned faculty and staff—a goal that is becoming harder and harder to achieve in light of societal shifts, though no less important. ​

Communicating the full value. Effectively communicating the value of total compensation is paramount for successfully recruiting and retaining educators. This is particularly important when base salaries are deflated relative to public schools or other jobs in different industries, sometimes due to the fiscal resources required to provide benefits. And so, the challenge and the opportunity is to find ways of combining compensation with other meaningful forms of recognition, and then communicating this in ways that help employees make informed decisions with a full picture of how your school invests in the lives of your employees. 

The Road Ahead

Independent school leaders are increasingly seeing compensation and benefits systems as tools for cultivating a culture and community that will support recruitment, development, and retention of talent today and in the future. But with challenges to recruiting and retaining high-quality, mission-aligned faculty and staff escalating, schools must continue to be highly attuned to local market conditions and evolving workforce needs. 

This research provides directional guidance and the benefit of a wide aperture of insight from across the independent school landscape, but mission and context should anchor the specific strategies schools design and employ. Every school will need to navigate the balance between a compensation system that is differentiated enough to meet individual needs equitably while remaining coherent institutionally. Regular review and gradual iterations, backed by open communications, will help sustain mission alignment, transparency, flexibility, and sustainable change. 

By combining analysis with empathy, schools can design holistic compensation systems where leadership teams, faculty, and staff feel seen, valued, and inspired by the meaningful educational impact they create each day. Compensation systems attuned to these realities strengthen the heartbeat of excellence each school seeks to attain and encourage those carrying the torch of our school’s mission. They have the capacity to encourage the relationships and community vital for students to learn and thrive in schools where educators feel trusted, supported, and committed to developing our next generation of leaders. 

Go Deeper

The Fall 2021 issue of Independent School magazine explored talent development and includes articles that examine head of school compensation and the legal landscape, Graland Country Day School’s efforts to reimagine and implement a new faculty compensation model, hiring for a human school, and breaking the mold on the traditional path to leadership. 

NAIS’s Legal News You Can Use can help you stay on top of and understand the many legal dimensions related to compensation. Go to nais.org/legal-news and select “compensation” in the drop-down topic menu. 

Spend dedicated time with your school team exploring innovative staffing models and pay structures at the spring 2024 session of NAIS Strategy Lab’s Financial Series: Staffing and Compensation. The three-day workshop, April 1–4, will leverage this compensation research to help schools generate new ideas for connecting their vision of the future to optimizing staff size, quality, and retention. Go to strategylab.nais.org to register. 

Learn More

NBOA’s Mission-Anchored Compensation Strategies project offers a comprehensive look at how independent schools structure compensation systems and provides insights into innovative compensation practices. The affiliated resources include the full research findings, with detailed charts and graphs; an implementation guide to support school teams in the work of compensation system review and renewal; case studies that spotlight various ways schools are creatively approaching some facet of their compensation or benefits system; webinar recordings; and other related publications and programs. To access these tools and resources, go to nboa.org/compensation.

Elizabeth Dabney

Elizabeth Dabney is senior director of research and data analysis at the National Business Officers Association.

Patrick Schuermann

Patrick Schuermann is a founder of Strategic Compensation Partners and director of strategy and impact at Optima Independent.