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Golden Parachutes for Public College Presidents Burden Already Thin Budgets

Wednesday, September 13, 2017 By Jon Marcus, The Hechinger Report | News Analysis
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Golden Parachutes for Public College Presidents Burden Already Thin Budgets(Image: Jared Rodriguez / Truthout)

Victim of a years-long state budget impasse, Northern Illinois University has a $35 million funding shortfall. It has laid off 30 employees, left 120 other jobs unfilled and postponed building and renovation projects.

There are potholes in the roads and parking lots. Students say the dorms leak. Then again, there are fewer students to complain. Freshman enrollment plummeted by 20 percent last year. Those who are left have seen their fees and other charges rise by $15 million. The university's credit was downgraded in June to junk status by the Moody's bond-rating agency.

It was against this backdrop that the president, Douglas Baker, was declared by state investigators to have mismanaged the public institution by sidestepping competitive bidding rules to hire consultants who were paid more than $1 million. One charged $250 an hour.

Within two weeks of that report's release, Baker resigned -- and, in a closed-door meeting of the university's board of trustees, was given $587,500 in severance pay, plus up to $30,000 to cover his legal fees. He's also due a previously unreported $83,287 for unused vacation time, the university acknowledged. That's a total of $700,787.

"Absolutely ridiculous," said Illinois State Senator Tom Cullerton, vice chair of the committee that oversees higher education.

Often hammered out in secret, and seldom brought to public attention except when they explode into controversy, these kinds of golden parachutes for university and college presidents are not unique to Northern Illinois. And while anger often flares up when presidents' salaries are publicized, salary totals alone don't come close to exposing the universities' true financial obligations to their chief executives.

It's these hidden severance deals that increasingly obligate higher education institutions to continue paying long-departed presidents large amounts for years, further thinning already stretched finances.

"The university has incurred a liability that is potentially millions of dollars," said James Finkelstein, professor emeritus of public policy at George Mason University's Schar School of Policy and Government, who studies public universities' presidential contracts.

Unless they're fired -- something that almost never happens because of concerns about institutions' reputations and potential litigation -- the presidents of almost every public university are entitled to some kind of substantial payout when they leave, from the equivalent of one year's salary to the value of the time remaining on their contracts. Chief executives of public doctoral institutions make $430,283 on average, the human resources organization CUPA-HR reports; of privates, $626,487.

If they do complete their terms, 13 percent of presidents are entitled to "contract completion bonuses" of from $50,000 to $1 million, Finkelstein found in research he conducted with Schar School colleague Judith Wilde. Forty percent get deferred compensation, or an additional payment on top of their base pay put aside separately. This not only provides them tax benefits; it's often not included in publicly reported salaries.

Nearly half of university and college presidents are eligible, after stepping down, for year-long sabbaticals -- a kind of paid leave for academics to do research -- at their full presidential pay. About two-thirds are guaranteed positions on the faculty, often with the help of graduate assistants, and get free admission to campus sports and cultural events, VIP parking and continued paid-for memberships to country clubs and social organizations.

For one university president's divorce case, in which Finkelstein was enlisted as an expert witness, he calculated that the university's liability to the 65-year-old executive, whom he won't name, came to an additional $5 million to $7 million after his contract was up, given his life expectancy. That included his salary for a faculty position that required him to teach two courses per year at what Finkelstein determined came to $250,000 per course.

The president also got to choose the subjects of the courses and when he wanted to teach them, and could opt to offer them online, Finkelstein said. "He could be sitting on the beach somewhere and teach them both in one semester. So that was a pretty good deal."

After the University of Massachusetts Boston ran up a deficit of $30 million -- with enrollment and donations down, part-time faculty laid off, courses canceled and building projects repeatedly delayed -- the chancellor, J. Keith Motley, resigned in April.

Though Motley's contract expired in January, it had been "verbally renewed," the public university system said, which means that Motley has now begun the stipulated year's sabbatical at his full $422,000 presidential pay, and can then return to the faculty at a guaranteed $240,000 annually.

He also will collect an additional 7 percent of his base salary in deferred compensation for each of the 10 years he served as president, the university system said, a benefit that records from the state comptroller's office indicate will come to more than $200,000.

"They've cut courses. They're cutting faculty. And they have this package for the outgoing chancellor," Marlene Kim, a professor of economics at the university and president of the union representing faculty and staff, said with evident exasperation. The campus day care center will also now be closed. "A lot of faculty feel sick from the cuts being made and obvious cuts not being made."

Directly connecting high salaries and benefits for top administrators to budget cuts or rising tuition is difficult to do, a study by the Federal Reserve Bank of Cleveland found. But the report concluded it was logical to assume that containing administration outlays would help curb college costs.

The payouts also have symbolic significance, said Howard Bunsis, a professor of accounting at Eastern Michigan University who focuses on postretirement benefits.

"We get this superstar treatment of presidents and we lose sight of what we're here for," Bunsis said. "The presidents are treated like they're CEOs in the business world. To me, who loses is the students."

So does higher education in general, according to a survey released in May by the think tank New America. It found that 58 percent of Americans think colleges and universities put their own interests ahead of students'. A separate study found that institutions whose presidents' names appear on the Chronicle of Higher Education annual list of the 10 highest paid see a drop in financial contributions the following year.

"Donors are punishing the organization that makes them unhappy in the only way they know how," said Brian Galle, a professor of law at Georgetown University and the study's coauthor, along with David Walker of the Boston University School of Law.

Galle and Walker also found that the pace of raises for presidents slows down after they show up on that list. "This suggests that increased public awareness does have an effect," Galle said.

But as pressure has mounted to restrain pay, more and more benefits have been added, often hidden in contracts agreed to in executive session and not available for review except through public-records requests that some universities and university systems resist or delay. Almost 60 percent of presidential searches require members of the search committee to sign confidentiality agreements, Finkelstein has found, some of them threatening criminal prosecution for violations of secrecy.

Legislation that Cullerton said he plans to file in Illinois next year would strip away this cover, requiring that severance agreements in particular be disclosed at the time when public university and college presidential contracts are signed, that public notice be given and that the Illinois General Assembly get 30 days to review the deals.

As it stands, he said, "We hear about it after the fact. And not only do you hear about it after the fact, you hear about it after the payout has already been made."

Cullerton dismisses the idea that oversight like this would discourage top candidates from applying for presidential posts in Illinois, an argument that was brought against a similar bill he proposed unsuccessfully in 2015. "These are highly sought-after jobs," he said. "I don't think it's going to handcuff anybody from getting the best-qualified candidate because they're not going to get an exit package when they screw up."

"The complexity of these institutions has grown more profound," said Legon. "These are complex corporations that require real bold leadership. And attracting those kinds of leaders to take this job is increasingly competitive."

Besides, he said, most presidents finish their time in office successfully, without the kind of controversy that invites harsh public criticism of their severance deals.

"When there's a presidential failure or a parting of the ways for whatever reason before a contract ends, and you see the requisite expectation to pay for whatever, yeah, it jumps off the page," Legon said. "But when that person was brought in, to persuade him or her to take the job, there had to be some coverage for the risk of failure."

Competition for top talent and the idea that large universities are as complex as big corporations overseen by CEOs are two reasons boards of trustees give for lavishing these benefits on presidents. People with the skills needed to lead such multifaceted organizations could get at least the same salaries and perks in the private sector, they say.

new survey of 1,546 university presidents and chancellors calls this into question. Fewer than 2 percent worked in the private sector before becoming presidents, the survey, by the American Council on Education and the TIAA Institute, found; fewer than 8 percent said they planned to move into the corporate world afterward.

"There's no evidence that the private sector is coming and raiding our universities to steal our presidents to run for-profit corporations," said Finkelstein, who has reviewed the histories of Fortune 1,000 CEOs and found no former university presidents among them.

Presidents also stick around for much less time than CEOs. While CEOs of S&P 500 companies stay in their jobs for an average of about 11 years, according to The Conference Board, the average length of university presidents' terms has fallen to 6 1/2 years at public and 7 years at private universities, ACE and the TIAA Institute report -- down from 8 1/2 years a decade ago. That means still more churn, and more post-presidential financial liabilities for institutions.

"When the public begins to see and understand what goes into these compensation packages," said Finkelstein, "then they can decide -- families can decide, legislators can decide, donors can decide -- whether this makes sense to them."

This story was produced by The Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education.

This piece was reprinted by Truthout with permission or license. It may not be reproduced in any form without permission or license from the source.

Jon Marcus

Jon Marcus, higher-education editor at The Hechinger Report, has written about higher education for The Washington Post, USA Today, Time, the Boston Globe, Washington Monthly, and is a higher-education correspondent for the Times (UK), Higher Education magazine and contributed to the book Reinventing Higher Education. His Hechinger coverage has won national awards from the Education Writers Association, and he was a finalist for an award for beat reporting from the New York chapter of the Society of Professional Journalists. The former editor of Boston Magazine, Marcus holds a Master's degree from Columbia University's Graduate School of Journalism and a Bachelor's degree from Bates College. A journalism instructor at Boston College, he says he ends up learning from his students far more than he teaches them.

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Golden Parachutes for Public College Presidents Burden Already Thin Budgets

Wednesday, September 13, 2017 By Jon Marcus, The Hechinger Report | News Analysis
  • font size decrease font size decrease font size increase font size increase font size
  • Print

Golden Parachutes for Public College Presidents Burden Already Thin Budgets(Image: Jared Rodriguez / Truthout)

Victim of a years-long state budget impasse, Northern Illinois University has a $35 million funding shortfall. It has laid off 30 employees, left 120 other jobs unfilled and postponed building and renovation projects.

There are potholes in the roads and parking lots. Students say the dorms leak. Then again, there are fewer students to complain. Freshman enrollment plummeted by 20 percent last year. Those who are left have seen their fees and other charges rise by $15 million. The university's credit was downgraded in June to junk status by the Moody's bond-rating agency.

It was against this backdrop that the president, Douglas Baker, was declared by state investigators to have mismanaged the public institution by sidestepping competitive bidding rules to hire consultants who were paid more than $1 million. One charged $250 an hour.

Within two weeks of that report's release, Baker resigned -- and, in a closed-door meeting of the university's board of trustees, was given $587,500 in severance pay, plus up to $30,000 to cover his legal fees. He's also due a previously unreported $83,287 for unused vacation time, the university acknowledged. That's a total of $700,787.

"Absolutely ridiculous," said Illinois State Senator Tom Cullerton, vice chair of the committee that oversees higher education.

Often hammered out in secret, and seldom brought to public attention except when they explode into controversy, these kinds of golden parachutes for university and college presidents are not unique to Northern Illinois. And while anger often flares up when presidents' salaries are publicized, salary totals alone don't come close to exposing the universities' true financial obligations to their chief executives.

It's these hidden severance deals that increasingly obligate higher education institutions to continue paying long-departed presidents large amounts for years, further thinning already stretched finances.

"The university has incurred a liability that is potentially millions of dollars," said James Finkelstein, professor emeritus of public policy at George Mason University's Schar School of Policy and Government, who studies public universities' presidential contracts.

Unless they're fired -- something that almost never happens because of concerns about institutions' reputations and potential litigation -- the presidents of almost every public university are entitled to some kind of substantial payout when they leave, from the equivalent of one year's salary to the value of the time remaining on their contracts. Chief executives of public doctoral institutions make $430,283 on average, the human resources organization CUPA-HR reports; of privates, $626,487.

If they do complete their terms, 13 percent of presidents are entitled to "contract completion bonuses" of from $50,000 to $1 million, Finkelstein found in research he conducted with Schar School colleague Judith Wilde. Forty percent get deferred compensation, or an additional payment on top of their base pay put aside separately. This not only provides them tax benefits; it's often not included in publicly reported salaries.

Nearly half of university and college presidents are eligible, after stepping down, for year-long sabbaticals -- a kind of paid leave for academics to do research -- at their full presidential pay. About two-thirds are guaranteed positions on the faculty, often with the help of graduate assistants, and get free admission to campus sports and cultural events, VIP parking and continued paid-for memberships to country clubs and social organizations.

For one university president's divorce case, in which Finkelstein was enlisted as an expert witness, he calculated that the university's liability to the 65-year-old executive, whom he won't name, came to an additional $5 million to $7 million after his contract was up, given his life expectancy. That included his salary for a faculty position that required him to teach two courses per year at what Finkelstein determined came to $250,000 per course.

The president also got to choose the subjects of the courses and when he wanted to teach them, and could opt to offer them online, Finkelstein said. "He could be sitting on the beach somewhere and teach them both in one semester. So that was a pretty good deal."

After the University of Massachusetts Boston ran up a deficit of $30 million -- with enrollment and donations down, part-time faculty laid off, courses canceled and building projects repeatedly delayed -- the chancellor, J. Keith Motley, resigned in April.

Though Motley's contract expired in January, it had been "verbally renewed," the public university system said, which means that Motley has now begun the stipulated year's sabbatical at his full $422,000 presidential pay, and can then return to the faculty at a guaranteed $240,000 annually.

He also will collect an additional 7 percent of his base salary in deferred compensation for each of the 10 years he served as president, the university system said, a benefit that records from the state comptroller's office indicate will come to more than $200,000.

"They've cut courses. They're cutting faculty. And they have this package for the outgoing chancellor," Marlene Kim, a professor of economics at the university and president of the union representing faculty and staff, said with evident exasperation. The campus day care center will also now be closed. "A lot of faculty feel sick from the cuts being made and obvious cuts not being made."

Directly connecting high salaries and benefits for top administrators to budget cuts or rising tuition is difficult to do, a study by the Federal Reserve Bank of Cleveland found. But the report concluded it was logical to assume that containing administration outlays would help curb college costs.

The payouts also have symbolic significance, said Howard Bunsis, a professor of accounting at Eastern Michigan University who focuses on postretirement benefits.

"We get this superstar treatment of presidents and we lose sight of what we're here for," Bunsis said. "The presidents are treated like they're CEOs in the business world. To me, who loses is the students."

So does higher education in general, according to a survey released in May by the think tank New America. It found that 58 percent of Americans think colleges and universities put their own interests ahead of students'. A separate study found that institutions whose presidents' names appear on the Chronicle of Higher Education annual list of the 10 highest paid see a drop in financial contributions the following year.

"Donors are punishing the organization that makes them unhappy in the only way they know how," said Brian Galle, a professor of law at Georgetown University and the study's coauthor, along with David Walker of the Boston University School of Law.

Galle and Walker also found that the pace of raises for presidents slows down after they show up on that list. "This suggests that increased public awareness does have an effect," Galle said.

But as pressure has mounted to restrain pay, more and more benefits have been added, often hidden in contracts agreed to in executive session and not available for review except through public-records requests that some universities and university systems resist or delay. Almost 60 percent of presidential searches require members of the search committee to sign confidentiality agreements, Finkelstein has found, some of them threatening criminal prosecution for violations of secrecy.

Legislation that Cullerton said he plans to file in Illinois next year would strip away this cover, requiring that severance agreements in particular be disclosed at the time when public university and college presidential contracts are signed, that public notice be given and that the Illinois General Assembly get 30 days to review the deals.

As it stands, he said, "We hear about it after the fact. And not only do you hear about it after the fact, you hear about it after the payout has already been made."

Cullerton dismisses the idea that oversight like this would discourage top candidates from applying for presidential posts in Illinois, an argument that was brought against a similar bill he proposed unsuccessfully in 2015. "These are highly sought-after jobs," he said. "I don't think it's going to handcuff anybody from getting the best-qualified candidate because they're not going to get an exit package when they screw up."

"The complexity of these institutions has grown more profound," said Legon. "These are complex corporations that require real bold leadership. And attracting those kinds of leaders to take this job is increasingly competitive."

Besides, he said, most presidents finish their time in office successfully, without the kind of controversy that invites harsh public criticism of their severance deals.

"When there's a presidential failure or a parting of the ways for whatever reason before a contract ends, and you see the requisite expectation to pay for whatever, yeah, it jumps off the page," Legon said. "But when that person was brought in, to persuade him or her to take the job, there had to be some coverage for the risk of failure."

Competition for top talent and the idea that large universities are as complex as big corporations overseen by CEOs are two reasons boards of trustees give for lavishing these benefits on presidents. People with the skills needed to lead such multifaceted organizations could get at least the same salaries and perks in the private sector, they say.

new survey of 1,546 university presidents and chancellors calls this into question. Fewer than 2 percent worked in the private sector before becoming presidents, the survey, by the American Council on Education and the TIAA Institute, found; fewer than 8 percent said they planned to move into the corporate world afterward.

"There's no evidence that the private sector is coming and raiding our universities to steal our presidents to run for-profit corporations," said Finkelstein, who has reviewed the histories of Fortune 1,000 CEOs and found no former university presidents among them.

Presidents also stick around for much less time than CEOs. While CEOs of S&P 500 companies stay in their jobs for an average of about 11 years, according to The Conference Board, the average length of university presidents' terms has fallen to 6 1/2 years at public and 7 years at private universities, ACE and the TIAA Institute report -- down from 8 1/2 years a decade ago. That means still more churn, and more post-presidential financial liabilities for institutions.

"When the public begins to see and understand what goes into these compensation packages," said Finkelstein, "then they can decide -- families can decide, legislators can decide, donors can decide -- whether this makes sense to them."

This story was produced by The Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education.

This piece was reprinted by Truthout with permission or license. It may not be reproduced in any form without permission or license from the source.

Jon Marcus

Jon Marcus, higher-education editor at The Hechinger Report, has written about higher education for The Washington Post, USA Today, Time, the Boston Globe, Washington Monthly, and is a higher-education correspondent for the Times (UK), Higher Education magazine and contributed to the book Reinventing Higher Education. His Hechinger coverage has won national awards from the Education Writers Association, and he was a finalist for an award for beat reporting from the New York chapter of the Society of Professional Journalists. The former editor of Boston Magazine, Marcus holds a Master's degree from Columbia University's Graduate School of Journalism and a Bachelor's degree from Bates College. A journalism instructor at Boston College, he says he ends up learning from his students far more than he teaches them.