In this thread I am going to ask you to evaluate the following performance measure and compensation system and perhaps suggest improvements.

For professors (at least in the US), initial compensation is driven by the market (for a fresh Ph.D). Schools are tiered based on elite, Ivy league, ranking, schools with Doctoral programs etc etc and the market rate for each of these categories is well-known for each of the business school specialties such as accounting, finance, marketing, management etc. Annual merit raises are based on three items...research productivity, teaching effectiveness, and service to university and profession. Research productivity is measured by the number of journal articles and the quality of journals in which it appears and grants received. Teaching effectiveness is a challenge, primarily schools rely on student evaluations - many teachers do not like this especially when it is used for undergraduate teaching (freshman/sophomore particularly). Service is relatively easier - service to department/college/university and profession at large.

Assistant professors have six years (in some places 8) to apply for tenure (permanent job). Tenure is based primarily on research productivity, and may be to a lesser extent on teaching effectiveness and even lesser extent on service. The extent to which research and teaching are emphasized also depends upon the University tier. Top tier universities stress research (top journal publications), their professors teach fewer classes while lower tier universities stress teaching, their professors teach more. There are also many universities in-between that try to balance both. Tenure also typically means promotion to Associate level.

After typically 5-7 yrs at the associate level, one can apply to be considered for promotion to Professor. This promotion is based on national recognition for research and teaching.

Each of the promotions come with at best a modest pay raise. Other pay raises are typically through annual merit increases (modest at best) or through market adjustments (can be a big adjustment if a faculty member can successfully negotiate one).

Evaluate this performance measurement / compensation system. This may be a bit different because there is no "profit" number involved. Some of you who are experienced in not for profit sector may find this interesting. What do you think are the strengths and weaknesses? What are the measurement issues? Suggestions for improvement?