Over the last decade or so, many schools have seen a gradual drift away from lump sum payments to payment by instalment. It is a part of 21st century life that you ‘pay as you go’ rather than saving up and paying upfront: we pay a monthly fee for streaming our music and video rather than buying a CD or a DVD; we pay a service fee for Office 365 rather than buying the licence upfront.
So while lump sum payment of school fees is less common than it once was, where it is offered, we have to ask ‘Is the discount offered worth it?’ The answer to this question lies in our understanding of finance principles.
We need to recognise that there are two parties to this transaction. Firstly, the school which receives cash inflows earlier and can therefore use these funds for other purposes. After all, the discount is being offered so that the school receives the funds at the beginning of the year rather than being drip fed over the course of the year. There is also a risk element here: receiving the payment upfront means there is no chance of default or delay during the year. Secondly, the parent that receives a discount benefit for the full year payment – after all, a discount is pretty much the same as an investment return of interest earned. To work out if this is beneficial to either party, we need to understand the ‘cost of funds’ for each.
Let’s look at an example.
A school offers a 5% discount if a parent pays the school fees upfront for the whole year. Mrs and Mrs A have annual school fees of $10,000 prior to early payment discount, and they would normally pay this off over 12 four-weekly instalments of $833.33 each. Normally, they are earning 1.5% bank interest on their savings. Is this a good deal for Mrs and Mrs A? Let’s say the school has bank loans with a 6% rate of interest, and any funds received can be put towards reducing the bank loan. For the school, forgoing 5% to get 6% sounds good, but is it?
The parents might earn 1.5% on their savings, but they get 5% back from the school – this sounds great – and it is! The table below shows that Mr and Mrs A’s school fee balance reduces from $10,000 down to $0 when paying by instalment, and assuming they have $10,000 in their bank account to be able to consider this option in the first place, they would earn $11.50 interest in the first period, then $10.54 in the second and so on. In order to gain the early payment discount of $500.00, they would forgo $75.38 in bank interest. Let’s not forget that Mr and Mrs A pay income tax on their interest earnings, so the benefit is actually greater – around $450 after tax. In fact, for bank interest to match the early payment discount in this example, Mr and Mrs A would need to earn at a bank interest rate of just over 14% before tax to equal the discount offered by the school. To put it another way, any early payment discount rate above 0.5% is better than Mr and Mrs A’s bank interest alternative.
For the school, assuming Mr and Mrs A paid by instalment, the school would receive $833.33 every four weeks, earning them $3.83 interest in the first period; $7.68 in the second; accumulating and compounding to a total of $304.07 over the 12 periods. However, if they received the net amount after early payment discount of $9,500.00, they would earn $43.70 for the first period, accumulating and compounding to $537.82 – a gain of over $230. One could also argue that the school has their money up-front, and therefore there is no risk of delayed payment or default, which would add additional interest and administration costs. For the school, the comparison is $537.82 interest earned versus [$304.07 less delay or default costs].
It looks like everyone is a winner! However, Mr and Mrs A are greater winners than the school, so in this example, there is scope to reduce the early payment discount rate to make the benefit for the school greater while still providing a decent incentive for the parents.
The above conclusions are based on the single example I have provided. So I was interested to see whether this changes (from a school perspective) according to ranges of early payment discount rates and 'cost of capital' rates - whether that be interest rate earned on savings or interest rate paid on school borrowings. I was pleasantly surprised - there isn't much difference for the ranges of rates used in the comparison table. To be clear, each of the financial amounts in the table is the difference (gain) in interest earned/saved by the school when comparing early payment discounted cash flows with normal instalment cash flows, based on $10,000 school fees; annual early payment discount and 12 x 4 week instalments. This comparison also assumes that the 'cost of capital' for the school is even over the periods involved. Of course, cost of capital can vary seasonally for a school - say moving from interest earned > interest on loans > interest on overdraft.
Over my years working in the public service and schools, I have supervised and given many performance appraisals/employee development discussions/whatever you want to call them. I have worked with some wonderful people who were wonderful to start with or became even more wonderful over a period of time. I have also worked with a very small number of employees who (to use a phrase from someone I greatly admire) were encouraged to seek excellence elsewhere. We also lost some people (that we would dearly have loved to keep) to other employers.
When I initially developed our school's performance development system for support and administration staff (I don't like calling them non-teaching as that term defines people by what they don't do), I developed a rating scale (a little bit about this later whether this is a good idea) which was comprised of the following ratings:
I have to admit that when confronted with survey ratings from 1 to 10 (where 10 is good), I am *that* person that has a great deal of difficulty giving a '10'. So in this context, I don't know why I bothered with category 1 in the list above. If we ever had such a person, would we be able to keep them? Would we have deserved them? Surely they would have been only one step away from performing a role well beyond the bounds of a Christian school! But what I also found over the years was that few people made it to category 2 because most people have an area of improvement (category 4). If they didn't, they found themselves being labelled 'satisfactory' (category 3). Who wants to be labelled 'satisfactory'? That's like being called 'ordinary'. You can see that my rating scale had its inadequacies - like its creator. I found quite soon that I didn't find it was useful or respectful.
I found that there were many people that tried really hard and had a desire to do their best. But most people - and I plonk myself squarely into this summary as well - had some areas of improvement or had some baggage that came with the package deal. The 'baggage' might be issues such as:
It took a while, but I realised after a period of time (actually a few years - I can be slow on the uptake sometimes) that most if not all people experience one or more of the above to different degrees - not the least me. They can be very solid workers; give their all; are committed; but when faced with a scale like the one above that I had developed, would come up short. The scale was wrong. There is no such thing as 'outstanding or exceptional performance on a standard rarely achieved by others'. It doesn't exist! Furthermore, the rating (or my implementation of it) 'Performance which is consistently at a high level of competence' is quite rare as well.
But I am not alone. I did a bit of googling for 'attributes of the ideal employee', and I found this article that listed 20 top qualities: (https://www.cleverism.com/20-top-qualities-determine-great-employee/) (Actually, I found lots more web lists and they all confirmed this list in one way or another, so for the sake of it, I'm running with it.)
I've grown tired just reading the list! How on earth (or where on earth) would you find such a person that meets these requirements all the time?
In recent years, I came to the realisation that I had to adjust my views. The scale I was using was too harsh and set expectations that would be difficult for anyone to meet. I felt that I was doing a disservice to those people that I was working with. The scale implied there was a good supply of people across a range of performances, like in Chart A below:
In fact, the supply of performing employees is really more like the area in Chart B. When I realised this, it changed how I could give more effective performance feedback to my work colleagues, and enabled me to find new ways of motivating and encouraging them, and finding out what I needed to do to help them succeed. Now, for me, normal is the new brilliant. I am not saying that I needed to reward mediocrity - but I am saying that I needed to adjust what was reasonable in my own mind so that I could see where employees were really striving to improve and then having success. I needed the system to better respect what employees were offering and their level of performance. Don't get me wrong - I would hope that most if not all people that I have worked with have found me to be encouraging, respectful, open and approachable, calm, positive and having a keen interest in seeing them succeed - but that wasn't reflected in the scale I was using in the performance systems I was using.
We have to develop people, and this needs to be done incrementally and progressively. One of my regrets (I've had a few) is that I couldn't devote as much time to working with employees to help them succeed because of my own - sometimes self-imposed - workload. The urgent was always getting in the way of the important. When I did have performance feedback discussions, I had to work against the feeling that I was 'pumping them out like sausages out of a sausage maker'.
A few people have heard me tell this story before (apologies for this) but it has really resonated with me about the value of work colleagues. It was a story I heard presented at a CSA Leaders conference years ago, and was given by a partner of a Christian consulting firm (I now have forgotten who it was and which firm), and the presenter's story went like this...
"When we were looking for new consultants, we would meet to pray, and our prayer would go something like this: 'Lord - help us to find the right person for this job.' After some time, our prayer evolved: 'Lord - help us to find the right person for the job that has been developing themselves over many years for such a job as this.' While this was a great step forwards in our thinking, we further evolved the prayer to become very powerful for us as a Christian employer: 'Lord - help us to be the employer that is deserving of someone that has developed themselves over many years for such a job as this.'"
Lord - help us as leaders and managers of people to be encouraging, respectful, open and approachable, calm, positive and having a keen interest in seeing our colleagues succeed. Help us to see that you have placed them with our schools, and each of them are fearfully and wonderfully made. Help me to be the business manager that is deserving of their talents, efforts, passion and support. Where I have to provide feedback, let it be encouraging and insightful. Help me to allocate the time regularly for meaningful conversations which are uplifting and respectful, yet which do not shy from sometimes difficult conversations. And when I speak to others, may I be open and vulnerable enough to accept and learn what I need to change in my own performance. Let me be a business manager who is deserving of the people that you bring across my path. In Jesus name... Amen!
Integrity and ethics permeate almost every waking hour of a school leader’s life, and here are just a few examples…
One of the closest disciplines that represents the issues faced by business managers and bursars is the role of professional accountant. For accountants, ethics is central to the public trust obligations expected of them, and the Accounting Professional & Ethical Standards Board (APESB) is a national body that sets out the code of ethics and professional standards with which accounting professionals who are members of professional bodies must comply (APES110 Code of ethics for professional accountants). I am not implying that the accounting profession is the only profession that faces matters of integrity or public trust, but that deliberate and specific practices and standards are required to ensure that integrity and ethical conduct is maintained in many professions.
In schools, there are things to be done (or not done) because the law prescribes them. These are further extended by the ‘laws’ within our schools – the policies that are set to specify the school’s position and treatment of a matter or subject. Let’s call all of this ‘compliance’. But integrity should go much deeper than just complying with laws or policy – it should be more than following rules, but what is it?
The foundation of ethical behavior (integrity) is moral awareness. To maintain a standard, that standard must be known, accepted and acted upon. But how do we develop and maintain integrity and the required standards? There are at least three theories (and probably more) that describe how ethical behavior and standards are attained.
Duty-based ethics asserts that it is the intention behind the act itself that is more important than the results of the act. German philosopher Immanuel Kant (1724 – 1804) posited that persons of goodwill are motivated by a sense of duty to do the right thing. This theory would say that it is always wrong to tell a lie and there is a duty to tell the truth.
Consequence-based ethics proposes that it is not duty that is fundamental to ethics, but the consequences or impact of our decision-making. Those decisions and actions that cause no or minimal impact are inconsequential and therefore should not be a concern to an ethical person. This theory would say that a lie is not bad if the outcomes that flow from it are not bad. This is like choosing between the ‘lesser of two evils’ – and sometimes we have to do this.
Virtue ethics states that it is not out of duty or the consequences of decisions, but out of the moral values inherent in a person, such as integrity, good character and an innate desire to do good based on virtues such as courage, courtesy, compassion, generosity, fairness, fidelity, friendliness, honesty, integrity, prudence and self-control. This theory assumes that virtues are not natural or inborn but are developed through practice and experience. Through repetition and learning, these virtues become a habit or a natural reaction. Virtue ethics would say “I don’t tell lies.”
While virtue ethics appears to have the higher ground of these theories, all three theories hold something of value to help us navigate these sometimes-tricky waters.
Virtue ethics reminds me of verse in Philippians 4:8:
"Finally, brothers and sisters, whatever is true, whatever is noble, whatever is right, whatever is pure, whatever is lovely, whatever is admirable—if anything is excellent or praiseworthy—think about such things."
In fact, the scriptures give us much guidance about ethics and integrity:
“And David shepherded them with integrity of heart; with skillful hands he led them.” Psalm 78:72 [Note here how the verse links integrity and skill.]
“The integrity of the upright guides them, but the unfaithful are destroyed by their duplicity.” Proverbs 11:3
“May integrity and uprightness protect me, because my hope, Lord, is in you.” Psalm 25:21
“Because of my integrity, you uphold me and set me in your presence forever.” Psalm 41:12
“Whoever walks in integrity walks securely, but whoever takes crooked paths will be found out.” Proverbs 10:9
“In everything set them an example by doing what is good. In your teaching show integrity, seriousness and soundness of speech that cannot be condemned, so that those who oppose you may be ashamed because they have nothing bad to say about us. Teach slaves to be subject to their masters in everything, to try to please them, not to talk back to them, and not to steal from them, but to show that they can be fully trusted, so that in every way they will make the teaching about God our Saviour attractive.” Titus 2:7-9
If we distill the main points from these verses, we have some excellent encouragement for living and working with integrity. The continual practice and upholding of integrity can become a guiding force in one’s life. It will become a habit and a natural reaction to circumstances and will be buried in our hearts. It should be something that we hold dearly to.
The practice of integrity also draws upon a desire for excellence using skill, judgement, objectivity and effective decision-making. We are to do everything with a willing heart and a desire for excellence. Integrity is coupled with good speech (careful, considered, positive, honest, encouraging) and being serious and believable with what one says. The practice and intentional outworking with integrity can draw us closer to God, and as Christians, we will draw closer to Him for guidance and strength when dealing with these circumstances.
There is a burden of worry or guilt in not being upright. Honesty and integrity bring about freedom. “The truth shall set you free.”
We are asked to do good in everything – not just part of our lives. Living with integrity in everything we do is more likely to bring about a natural reaction on our part, rather than remembering to turn it on or off according to circumstances. If we show integrity even with those that are closest to us and know us best, how much more will we do this for others that we are less acquainted? Acting without integrity – or with sloppy or selective integrity – can bring us down and destroy us.
In becoming people of integrity and it being part of who we are, we begin to model it for others – it can’t help but be on display and giving those around us the confidence that we are always seeking the best in everything we do. If our integrity is inherent in everything we do, others will notice it, whether it is subtle in our language and actions, or whether we proclaim it explicitly as a guiding value in our decisions.
Acting with integrity avoids or is a defense against accusations – it is a protection. If others know we strive for integrity, we are much less likely to face accusations. Others may support us and speak favourably on our behalf. Acting with integrity is powerful as it deals with both the reality and the perception.
Integrity also ensures that the gospel remains ‘attractive’ to students, parents, governors, regulators, and authorities. This reminds us that leaders in Christian schools should be leaders in excellence and integrity.
If we have chosen a path of integrity for ourselves, we have to be careful that we do not begin to lecture or judge others based on our own high standards. But rather, our words and deeds that are inherent in our responses and actions will be an inspiration for others to find their own path of integrity, and hopefully, drawing closer to the author of our integrity.
Lord – help us to develop integrity in all parts of our lives. Let it be our natural response to all situations because we know it is pleasing to You and is part of us becoming more like Christ. Continually develop and remind us through life’s circumstances to practice and learn integrity so that it is our preferred and natural response. Give us your courage and wisdom to act with integrity whether anyone is watching or not. May you be honoured and glorifed through this. Amen!