Decentralized Budgets Raise Faculty Pay and Reshape Hiring at Public Universities

When public research universities hand their deans control over their own budgets, the consequences ripple far beyond the accounting office. A new study published in the journal Higher Education finds that adopting Responsibility Center Management, a decentralized budgeting model increasingly popular among American public research universities, is associated with higher average faculty salaries across all academic ranks and with a noticeable shift in the composition of the professoriate. The research, conducted by Junghee Choi of the University of Oklahoma, offers some of the clearest quantitative evidence yet that how a university divides its money shapes who it hires, what it pays, and ultimately what kind of academic institution it becomes.

Responsibility Center Management, often abbreviated as RCM, fundamentally reorganizes the financial architecture of a university. Under traditional centralized budgeting, a central administration collects tuition and state appropriations and allocates funds to colleges and departments through top-down decisions. Under RCM, each academic unit, whether a college of engineering, a school of business, or a college of arts and sciences, becomes a responsibility center that retains the revenue it generates, primarily through tuition, while paying assessed shares of institutional costs. Units that attract more students or grant funding keep more of their income, while units that run deficits face pressure to cut costs or find new revenue. The model, which traces its origins to Harvard University’s budgeting experiments in the 1970s and 1980s, has spread steadily through public higher education as institutions facing flat or declining state support have searched for ways to instill financial discipline and entrepreneurial behavior.

The theoretical appeal of RCM is straightforward: if academic units control their own money, they will respond to market signals, reward productive programs, and prune unproductive ones. Critics, however, have long warned that such systems encourage units to behave like businesses, favoring revenue-generating disciplines over the humanities and treating faculty as cost centers rather than scholars. Until now, most evidence about these effects has been anecdotal or drawn from single-institution case studies. Choi’s study addresses this gap by examining what actually happens to faculty salaries and employment when universities adopt decentralized budgets, using rigorous quasi-experimental methods applied across many institutions.

The methodological design is central to the study’s credibility. Choi employed an event study analysis, a technique borrowed from economics that tracks outcomes before and after a treatment, in this case RCM adoption, across multiple institutions that adopted the model at different times. Because universities adopted RCM in staggered waves, the analysis drew on recent advances in difference-in-differences econometrics, including methods developed by econometricians to handle heterogeneous treatment effects across units and time periods. The study also used inverse probability of treatment weighting based on propensity scores to ensure that adopting universities were compared against statistically similar non-adopting institutions, guarding against the possibility that universities that choose RCM were already on different trajectories than those that did not.

The findings on salaries are striking. After adoption, RCM was positively associated with average faculty salaries across all academic ranks: assistant professors, associate professors, and full professors all saw average pay rise relative to comparison institutions. This pattern is consistent with two possible mechanisms. Under a prestige-seeking interpretation, deans with fiscal autonomy may bid up salaries to recruit star faculty and climb national rankings, since faculty quality is one of the most visible markers of institutional standing. Under a fiscally conservative interpretation, units with control over their own revenues may simply have more resources and more incentive to invest in the faculty who generate that revenue. The study suggests both dynamics may be at work simultaneously, with decentralized budgets enabling units to act on incentives that centralized systems suppressed.

The employment effects reveal an even more interesting story. RCM adoption was associated with an increase in the number of assistant professors, the junior tier of the tenure-track faculty. At the same time, the compositional analysis showed a shift in the faculty mix toward assistant professors and away from full professors. In other words, decentralized budgeting appears to push departments toward hiring more early-career faculty while the share of senior, expensive faculty declines. This pattern is consistent with fiscally conservative behavior: assistant professors cost substantially less than full professors, so a budget-conscious dean seeking to cover more instructional demand per dollar has an incentive to hire at the junior rank. It is also consistent with prestige-seeking, since departments can use junior hiring lines to bring in rising stars in emerging fields.

These two behavioral logics, prestige-seeking and fiscal caution, are usually framed as opposites, but the study’s results suggest they can coexist within the same institutional response. A dean can simultaneously raise salaries to compete for talent and restructure the faculty toward cheaper junior hires to keep the overall payroll manageable. The net effect is a professoriate that is better paid on average but tilted toward its junior ranks, a change with potentially profound implications for academic careers, mentorship, and governance. If senior faculty positions become scarcer relative to junior ones, the pipeline to full professorship may narrow, and the balance of experience within departments may shift.

The study also navigated real-world complications that make such research difficult. Some institutions in the sample wavered in their commitment to the model. The University of Illinois-Chicago paused RCM in 2021 and 2022 before resuming it in 2023, and the University of Oregon abandoned the model entirely in 2018 in favor of a more centralized approach. Observations from periods in which RCM had been abandoned were excluded from the analysis, and the author conducted supplementary analyses excluding these institutions altogether. The results from these robustness checks, reported in supplementary figures, were not qualitatively different from the main findings, strengthening confidence that the salary and compositional effects are genuinely tied to the budget model rather than to idiosyncratic institutional events.

The broader context makes these findings timely. Public research universities have faced decades of declining state appropriations, rising tuition dependence, and intensifying competition for rankings, research funding, and high-paying STEM enrollments. Previous research has linked RCM adoption to growth in tuition revenue, suggesting that decentralized units respond to revenue incentives by expanding enrollment and adjusting program portfolios. Other scholarship has documented how market-based reforms in higher education can reshape institutional priorities, sometimes at odds with public missions such as access and affordability. Choi’s contribution is to connect the budget model directly to the labor market outcomes of faculty, the people at the heart of the academic enterprise. Related work by the same author has examined RCM’s effects on degree outcomes, indicating a growing research program on how internal financial governance shapes university behavior.

For policymakers, trustees, and university leaders weighing whether to adopt RCM, the study offers a nuanced message. Decentralized budgeting does appear to change institutional behavior in measurable ways: faculty are paid more, and hiring tilts toward junior ranks. Whether these changes represent healthy responsiveness to market realities or a corrosive drift toward academic capitalism depends largely on one’s view of what universities are for. What is no longer in doubt is that the budget model is not a neutral administrative convenience. The architecture of institutional money flows shapes the composition and compensation of the faculty, and through them, the teaching, research, and public service that universities deliver. As more public research universities consider following the path charted by early adopters, the evidence suggests they should understand that handing deans the purse strings will change not only how money moves, but who stands at the front of the classroom and how much they earn.

Subject of Research: The effects of decentralized Responsibility Center Management budgeting on faculty salaries and employment at U.S. public research universities

Article Title: How decentralized budgeting shapes faculty salaries and employment: Evidence from responsibility center management (RCM)

Article References: Choi, J. (2026). How decentralized budgeting shapes faculty salaries and employment: Evidence from responsibility center management (RCM). Higher Education. https://doi.org/10.1007/s10734-026-01757-4

Image Credits: AI Generated

DOI: 10.1007/s10734-026-01757-4

Keywords: Responsibility Center Management, higher education finance, faculty salaries, budget decentralization, public research universities, academic labor market, event study analysis, faculty employment, prestige-seeking, university budgeting, professoriate composition, difference-in-differences