Executive Pay in the Spotlight — Finally

by Claudia Dreifus

While the news media has been riveted by this summer’s Congressional investigation of the financial practices of for-profit colleges, two important financial stories focused on non-profit colleges and universities have been making headlines as well.

In July, The Chronicle of Higher Education reported that the trustees of Nashville’s Vanderbilt University broke new records in 2008 by paying ten of its top executives million-dollar-plus salaries and deferred compensation. Not long afterwards, Bloomberg News and the New York Times ran extended features on the corporate board memberships and hefty second paychecks of the presidents of Ohio State University, Rensselaer Polytechnic Institute, and Brown University, among others.

Taken together, the stories show that 21st century university leadership, even within the non-profit sector, can be quite lucrative.

Indeed, seven-figure compensation deals, once rare, are increasingly common at the big research universities. The presidents of Yale, the University of Pennsylvania, Columbia, NYU, Johns Hopkins, Rensselaer, and Vanderbilt all get million-dollar-plus packages.

In fact, Vanderbilt’s Nicholas Zeppos ($2,407,588) isn’t even the top earner at his shop. The Chronicle reported that the university’s vice chancellor for health affairs took home about five million dollars during his last year of employment. The university’s general counsel earned almost three million. All told, the provost, the head coach of the men’s basketball team, the head football coach, the chief financial officer, and some medical school functionaries each earned more than one million dollars.

At Vanderbilt, the school’s leaders can thank former chancellor, E. Gordon Gee, for their lavish paydays.

Gee, currently on a second go-round as the president of Ohio State University, has been the Johnny Appleseed of million dollar university compensation. In a long and peripatetic career, Gee has pumped up the price tag on leadership almost everywhere he’s worked. Today, he’s the top earning public university president, taking in somewhere in the neighborhood of $2 million per year.

But Gee has also been an avatar of a supplemental form of presidential income: big dollar corporate board service. While at Vanderbilt, he served on multiple boards, including that of Massey Energy, the operators of the West Virginia Big Branch coal mine, where 25 miners died this past April. To Gee’s inadvertent good fortune, public outcry against his ties to the energy company pushed him to resign before the disaster.

So what’s wrong with high pay and corporate board service, some readers of this blog might ask?

As Andrew Hacker and I began to research our just published book, Higher Education?: How Colleges Are Wasting Our Money And Failing Our Kids—And What We Can Do About It, we came upon instances over and over again where Wall Street-like compensation packages had a distorting effect on a school and its core mission of education.

Higher education is a different part of the economy than soy beans, financial products or electronics; central to it are elements of idealism and service. Why should a university president make more than the President of the United States? And come to think of it, those big executive salaries haven’t proven to be such a grand idea in the corporate world. They’ve frequently attracted executives more focused on their own bonuses than on the long term interests of the company they were supposed to be leading.

But here’s the bottom line: giant compensation packages have become a factor in the ever-rising price of tuition, which has doubled in real dollars since 1980.

Take the example of Gordon Gee’s frequent rival in the best paid sweepstakes, Shirley Ann Jackson. She heads up Rensselaer, a private engineering school that happens to hold an unremarkable 21st place in the U.S. News and World Report engineering rankings.

In 2008, her on-campus remuneration totaled nearly $1.6 million. But that was only the beginning. Jackson took in approximately another $1.4 million for directorships at IBM, FedEx, Medronic, Marathon Oil, Public Service Enterprise, and until recently, the New York Stock Exchange.

With all this moonlighting, it’s hard to see how Jackson can give her day job the attention it requires. Indeed, it’s somewhat surprising that Rensselaer’s trustees permit their chief executive to serve on as many as six outside boards. In the business world, it’s generally agreed that once you hold more than two seats, it’s impossible to fathom what’s really going on. “I have a lot of energy,” Jackson told The Chronicle of Higher Education.

Jackson’s tenure at Rensselaer has been marked by controversy. Tuition, room and board and books come to more than $50,000 each year. Yet, the students who choose engineering tend to come from fairly modest backgrounds — they are often immigrants or first generation Americans. They rely heavily on student loans to finance their education.

Thus, 70% of Rensselaer’s undergraduates are in debt. The average burden for graduating seniors is over $30,000. By the time all the interest is paid, it’s likely to be double that. And engineering is a profession highly dependent on economic cycles and government spending. In the current economic climate, many of Rensselaer’s graduates may face periods of unemployment where they are unable to repay their college loans.

I cite these unpleasant realities because I think something is amiss when a president collects almost $3 million while some of her students may face decades of dunning notices.

It’s hard to know what appropriate compensation for a college president is. Trustees and regents hire them and make the money decisions. What they are looking for, often, is someone they’ll feel comfortable with and who speaks to their own values. As in the corporate world, a big payout is often seen as reflecting the status of the institution.

In the case of Vanderbilt, the school’s leaders have, for decades, longed to be the first outsiders welcomed into the Ivy League. It hasn’t happened. It probably never will. But at least Vanderbilt’s elders can boast of paying their top executive more than Princeton’s.

High pay creates an ambiguous moral climate on campus. Moreover, it sends the wrong values-message to more idealistic younger administrators as they begin their careers. When a friend of mine was chosen to head a small liberal arts school, he attended a meeting he jocularly called, “presidents’ boot camp,” a workshop on the nuts and bolts of higher education leadership. “Perhaps I was naive, but I was shocked by how they kept talking about perks,” he told me. “There was constant one-upping about the size of the presidential residence and whether or not your car came with a driver.”

As it happens, Vartan Gregorian, Gordon Gee’s immediate predecessor at Brown University, did not have a chauffeured car. During his years in Providence, it was a matter of local legend that he called taxis and sometimes took public transportation. And unlike many of his peers, he didn’t make salary a part of his original negotiations for the job, just asking for what the person he was replacing received.

“For a lot of presidents, it’s a badge of honor to announce they are the highest paid,” he once told me. “I’d personally be ashamed.”

Moreover, during his time at Brown, Gregorian brushed aside recruitment overtures from other schools, since he felt that taking the top job called for a commitment to the college, say, for as long a two term president. When he talks of the qualities that most trustees look for in prospective presidents, intellect, Gregorian believes, is low on the list.

“People want fund-raisers,” he explained, while sitting in the Carnegie Corporation’s philanthropy office, which he now heads. And it seems they are willing to pay top-dollar to get them.

Originally posted to Higher Ed Watch, August 11, 2010. Used here with permission.

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