Friday, November 28, 2008

Executive Compensation

Writer's Note: During my Master's program, I had planned on posting the papers I wrote and some of my smaller writing assignments. I posted a few, but then stopped. The reason I stopped is because the phrase 'guided reflection' became the number one key word for hits on my sight. The written assignments for my counseling courses were called guided reflections. Worried about plagiarism and academic dishonesty, I decided to stop posting my work. I have decided to post one of my older papers today because I don't feel I am at the same risk of plagiarism accusations as I was at the time. This is my work and it is not to be copied or used by anyone else without proper referencing.

Every year the Chronicle surveys universities about their salaries. This year's survey was released last weekend. It is always an interesting set of information to look at. Last year they had a full pull out from the paper discussing executive compensation and some of the scandal that was exposed over the past couple years. I decided to do more research and discuss this topic further in a paper for my budgeting class. When I looked for the paper on my blog so I could link it to you, I realized that haven't posted it here, so I am including it in this post for those of you that are interested. Near the end of my paper I discuss what I saw as a major difference between CEOs and university presidents: altruism. I was happy to see that in these financial difficulties, when students are more worried than normal about how they'll pay for next semester, president's are giving back. I like seeing these presidents doing the right thing. Especially when we can't trust the CEOs will do as well.

Executive Compensation
(written November 2007)

During a 2006 presentation at Idaho State University, Barbara Ehrenreich stated that the ratio between the wages of worker and CEOs in America is 400:1. This means that the annual salaries for 400 employees could be paid with the money spent on one CEO salary. If we carry that line of thinking through, the ratio of student tuition to president salary at the universities is not quite as striking, but it is still upsetting. At the University of Delaware, David P. Roselle makes enough as the highest paid leader of a public university to fund 60 students to take classes and live on campus at his own university. At Wilmington College, Audrey K. Doberstein, Mr. Roselle’s private institution counterpart, could pay tuition for 106 students with her salary. Universities are drawing a lot of attention for the amounts they are willing to give their leaders. The parallels between presidents and CEOs are becoming more direct and both educators and the public are put off by it.

The cost for colleges and universities to provide education is increasing every year. The Collage Board attributes the increases above inflation to health benefits and rising utility costs. (Kelly) In addition to these growing costs, higher education has seen huge cuts in state funding in the past decade. “Higher education continues to receive fewer dollars than it has been getting as of the 2001-2 fiscal year.” (Schmidt) These strains have resulted in tuition continuing to increase at rates higher than inflation. These raises are even happening where the states is trying to keep costs of public schools down. For example, in Virginia funding for higher education was increased 5.3 percent, “in hopes of holding tuition down,” but their schools still had an average 6.8 percent tuition increase. (Smith) They were not able to off set the increase because Virginia schools are still struggling from the 22 percent decrease they saw during the 2002-4 appropriations. Staff with tightening budgets, students who are taking out loans, parents who can no longer afford their students’ tuition, state lawmakers who have to justify appropriations are all taking a closer look at how higher education is spending its money. No one has attributed the rising cost of education to the rising costs of presidents, but many people are muttering suspicions under their breath. They all want explanations for the money going to pay the administration.

There are three major problems that immerge in the discussion of Executive compensation. The first is abuse of power. Benjamin Ladner resigned from his position as president of American University in Washington in 2005. His resignation was preceded by an anonymous letter to the board of trustees and an audit of his travel and personal expenses. “The investigation found that Ladner’s alleged expenses included an engagement party for his son, trips for the couple’s chef, drivers’ costs and alcohol purchases.” (Green) In the end, the university asked Mr. Ladner to repay $125,000 in expenses and $398,000 in taxes on income he earned between 2002 and 2005. This money was taken out of his severance package which was a one time payment of $950,000, $2.75 million in deferred compensation, and up to $20,000 in relocation reimbursement. This arrangement didn’t appease either side of the argument. “Although some observers were surprised that Mr. Ladner accepted what appears to be a relatively small severance package, his critics were not placated.” (Fain)

A more recent example took place in Tulsa, Oklahoma this year. Richard L. Roberts, the president of Oral Roberts University, has been accused of backing a mayoral candidate and spending university funds on a stable of horses, a senior break trip to Florida for his daughter and her friends, and scholarships for the friends of their children that were neither need nor merit based. The university is now facing a lawsuit from several faculty members who claim they were fired or forced to resign in the process of covering these wrongdoings up. (Gravois) Since these accusations arouse, the president has resigned despite the university founder’s insistence that he would return. The university has also decided to separate from the evangelical organization that Mr. Roberts is still overseeing. Both of these examples have dealt with private schools. Public institutions are being affected by the increasing costs of presidents in a different way.

Between 1987 and 2002, the University of Iowa lost three presidents. The fourth left in 2006 after being with the university for only three years. Since 1990, both Iowa State and the University of Northern Iowa have lost two presidents. This exodus of the Hawkeye State comes back to the bottom line. These presidents were all offered better paying jobs at different universities. According to Raymond D. Cotton, a lawyer who deals in university contracts and compensation, “Presidential-search consultants look at Iowa as fertile recruiting ground because it grows good leaders who are paid relatively low salaries.” (Shuppy) The Iowa system is complex, and university boards are willing to pay for someone who has been successful there. Not all public systems are facing the problem of private schools tempting away their administrators, but in Iowa, it has gotten to the point that even the faculty are demanding better pay for their university presidents. Unfortunately, increasing state appropriations to fund better pay is not a decision the board or the faculty senate can make. For now, Iowa will continue to take the recruiting of their presidents as a compliment, and try to find a way to fund competitive salary without state support.

The final problem that large pay for university presidents is more theoretical and less clear cut than the first two. This is the problem of the corporatization of education. The management, leadership, communication, organizational, and other skills required to be a successful president of a university are directly comparable to the CEO of any business. The problem with this correlation is that there is a certain amount of altruism to higher education, especially at public institutions. Leaders with these skills have always been capable of working in the private sector, but they have chosen education because of nonmonetary goals and values. Roger Bowen, a former university president in New York, spoke directly to this when he said, “Universities do not exist to make money but to educate our students and citizens, a role that is central to our democratic society. We send the wrong message when we transmogrify our campus president into C.E.O.’s.” (Dillon) In education, our primary focus is the success of the student not the bottom line. We certainly have to care about our finances to be successful, but if we switch around those priorities we will fail at our mission. As university presidents are stepping into the spotlight and proving that they are worth every penny, they are leaving behind the rest of education. Faculty members could be writers and public speakers, superintendents and high school principles could be working in upper level management in the private sector. Instead, they are working in education, despite society’s inability to compensate them as much as we would like.

Can we force the altruism of education to stay? Iowa cannot. They are keeping their executive compensation low out of financial restriction as opposed to policy, but they are not getting legislative support either. The California school system was involved in a large scandal about illegal pay practices, and in response, the Board Regents is going through the system and increasing oversight. The system’s president, Robert C. Dynes, is putting in place new policies for pay, recruiting, and disclosure practices. Their new policies include several new staff members in the president’s office that will oversee spending, increased involvement with the board during hiring, more transparency on all aspects of compensation, and even a rule that the administrative position must be offered to at least 3 candidates to give the university more power in salary negotiation. Mr. Dynes has publicly said that they are paying under competitions, and they will continue to do so and focus on their other strengths as a place of employment. By having these policies in place, future candidates will know what the limitations of compensation are in the California system and will be applying with those expectations. Those expectations are not going to work as well for everyone as Dynes is expecting them to work for California. For example, presidents being hired in Iowa at low salaries will likely be expecting to gain a tremendous insight and experience before being recruited by a large research university. There is the possibility that if more universities adopt similar policies it could drive executive compensation back down or hold it where it is at for a while. It is doubtful that the private institutions will implement these types of policies, but a level playing field for the public schools with help keep some of that strain off the taxpayers.

My opinions on this topic are difficult to nail down because I don’t find myself at either end of the spectrum. I believe that the abuse of power issues that are being uncovered at individual universities are strongly rooted in this executive compensation issue for two reasons. The first is a lack of trust. When looking at the compensation packages of presidents across the nation, something that struck me was the variety of ways that compensation was awarded. In my husband’s current position we consider his room and board part of his compensation, and in the positions we are looking at as we job hunt, we consider benefits packages as part of what we will be receiving, but the presidents’ packages seem much more elaborate. Few of them place value on the residence that they are expected to live in, or the vehicles that come with the position. They do however have regular bonuses, payments to trusts, insurance plans that pay out when they leave. When all of these things come out to the public and add up to much more than what is being claimed as salary, it seems sneaky. As more of these stories are uncovered, people become much more comfortable as skeptics. So, even if the administrator is only receiving what was part of the contract and taxes are being paid on all income, watching all these different sources of money pool together for a final number is disconcerting. It reminds people of the scandals that have recently been uncovered in the private sector, and it fuels an environment of distrust and accusations.

On the other side of the coin, I think that in many of these cases, we are over-compensating the presidents. I don’t mean this in a hindsight observation that since they are so unethical, they clearly did not deserve the amount they were being paid. Rather, I feel that working so hard to give them a great package can give them an inflated sense of importance. They feel more irreplaceable so they do not mind abusing their situation and do not expect much in consequences. I do not mean it quite as malicious as it sounds. I am not trying to accuse them of villainously plotting to extort money, but I think that there is a sense of security there that allows rules to be bent. Unfortunately, that sense of security is not necessarily unjustified. In appearances, boards are clamoring to get the talent of some of these leaders and the position they are filling may not have any or enough oversight of how funds are spent. It is easy to see how these abuses can happen.

I find the issue facing Iowa the most frustrating. It is my understanding that the funding discrepancy between public and private schools has been around longer than this current fight for presidents. The new issue is a combination of the number of schools willing and able to bid higher than before, and just the elevated amount that is required as a starting bid. The reason this is frustrating is because there is no go-out-and-fix-it answer. As long as there are enough institutions willing to compete monetarily for quality leaders, the individual college does not have the luxury to say it is exorbitant. They are too caught up in day to day issues of not being able to keep or recruit quality leadership. I think that the California system is on the right track, but they are in a uniquely supported situation. The most obvious example of this is the current ad campaign to come live and work in California. It is much easier for them to say they are going to rely more heavily on the inherent benefits of the area when someone else is already selling those benefits to perspective employees. A sudden confidence in the state is not going to be enough for the Iowa system.

Here is where my opinions on the last two problems start to blur together. What Iowa could really use is a field wide rededication to the altruism that used to be here. Unfortunately, you cannot force altruism on people. Altruism is the term that was used in the anti-corporatization articles, and I’m still not convinced that it is the right term. It conveys the meaning that we should want to be in education to teach not to make money, but I am not sure that is the feeling people had prior to just wanting the money. Growing up, the adults in my life gave me the sense that state jobs did not pay well, but the benefits were worth it. I cannot cite it or prove to you that it was the case, but it was how the people around me felt. They did not want to deliver mail because of the good it would do or the joy they would bring people. They wanted dental and health care. Granted, these positions are not comparable to a university president, but they may be an indicator that the problem is not a lack of altruism but rather an ability to buy better benefits.

Pursuing better government health care is a completely different topic, and I do recommend that universities fight that battle with the purpose of fixing executive compensation. I think that higher education should stop looking toward corporations to make changes and start looking toward non-profit organizations. Organizations like the Red Cross, Heifer International, The Salvation Army, and Sesame Workshop have the same leadership needs that we do. Their leaders deserve compensation for their skills just as much as ours do. The difference is their obligation to donors to make sure a minimum amount of each dollar given goes to supporting the organization. They probably have a lot they could teach us about creating a reasonable benefits package as well as recruiting talent that could be making a lot of money at for-profit corporations.


Dillon, S. (2004, November 15). Ivory Tower Executive Suite Gets C.E.O.-Level Salaries. Interesting-People. Retrieved November 2006, from

Fain, P. (2005, October). President of American University Resigns, Winning a $950,000 Settlement. The Chronicle of Philanthropy. Retrieved October 15, 2007, from

Fain, P. (2006, November 24). Q&A: The University of California’s Leader Responds to Media Scrutiny on Pay. The Chronicle of Higher Education. Special Section: Executive Compensation Volume 53, Issue 14, PgB10.

Gravois, J. (2007, October 3). 3 Former Professors Sue Oral Roberts U., Alleging Political and Ethical Misconduct at High Levels. The Chronicle of Higher Education. Retrieved October 15, 2007, from

Green, L. (2005, October 26). American University President Resigns Following Investigation. A United Methodist News Service Report. Retrieved November 2006.

Huckabee, C. (2007, November 27). Businessman Promises $70-million to Oral Roberts U. The Chronicle of Higher Education. Retrieved November 27, 2007 from

Kelly, R. (2005, October 18). College Costs Going Nowhere But Up. CNN Retrieved October 15, 2007, from


Montoya, V. (2006, June 5). Getting Compensation Under Control. Inside Higher Ed. Retrieved October 15, 2007, from

Schmidt, K. (2006, December 15). State Funds for Colleges Continue to Rebound. The Chronicle of Higher Education. Retrieved October 15, 2007, from

Shuppy, A. (2006, November 24). Brain Drain in Iowa: State board studies how to keep its college presidents for longer stints. The Chronicle of Higher Education. Retrieved November 2006 from

Smith, L. (2007, October 5). Many Public Colleges Have Raised Tuition Despite Increases in State Support. The Chronicle of Higher Education. Retrieved October 15, 2007, from

(2006, November 24). The Million-Dollar President, Soon to Be Commonplace? The Chronicle of Higher Education. Special Section: Executive Compensation Volume 53, Issue 14, PgB3.

Staff Reports (2007, October 23). ORU Founder Returns to Defend School. Tulsa World. Retrieved October 25, 2007 from

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