Leadership & Governance

High Pay for Presidents Is Not Shown to Yield Any Fund-Raising Payoff

November 07, 2015

Public colleges should not assume that a generous salary will buy them a president who is adept at raising money, a new study concludes.

After accounting for factors like institution size, the researchers, all at Florida State University, found no link between how much public colleges pay their presidents and how much money the institutions take in from private donors and state appropriations.

"As presidential salaries have continued to increase, there is little to no discernible relationship between these increased salaries and revenue generation," says a paper summarizing the study’s findings. It adds that, although many institutional leaders and boards suggest "you get what you pay for" when it comes to presidential compensation, "the argument that high presidential salaries drive private giving and state funding appears dubious."

'The argument that high presidential salaries drive private giving and state funding appears dubious.'
The researchers, who were scheduled to present their findings in Denver on Saturday at the annual conference of the Association for the Study of Higher Education, caution that their analysis had some significant limitations. They were unable, for example, to fully account for inconsistencies in how colleges report the presidential-compensation figures that the study derived from an annual presidential-salary survey conducted by The Chronicle.

Nevertheless, James H. Finkelstein, who studies the compensation of college presidents as a professor of public policy at George Mason University, said the study’s findings were consistent with research on executive pay at public corporations, which paints a decidedly mixed picture of whether higher compensation for chief executive officers leads to higher stock prices.

A 2013 study of private-college presidents actually found some evidence of a donor backlash against high executive compensation. That study found that such a president’s appearance on The Chronicle’s annual list of the 10 highest-paid private-college leaders was associated with a substantial one-year drop in contributions to their institution. The study’s authors said the declines in giving appeared associated with increased donor awareness of a president’s high compensation stemming from his or her appearance on The Chronicle’s top-10 list.

The Right Measures?

The new study on executive pay and fund raising at public colleges was conducted by three Florida State scholars: James M. Hunt, a doctoral candidate in educational leadership and policy studies; Toby J. Park, an assistant professor of the economics of education and education policy; and David A. Tandberg, an associate professor of higher education.

The researchers analyzed data from 119 public colleges over a seven-year period, from 2007 through 2013, examining fluctuations in donor contributions and state appropriations over one, two, and three years. They used salary data from The Chronicle’s annual executive-compensation survey, federal data on public colleges and their finances, and data from websites that track state politics.

To focus narrowly on how presidents’ pay was related to private and state financial support, the researchers sought to statistically separate out the influence of various institutional characteristics — such as enrollment, prestige, and tuition revenue — as well as political, economic, and demographic forces in states where the colleges were located.

The researchers sought to exclude any severance pay from their calculations of presidential compensation to avoid misleading one-year spikes in earnings figures. Their paper notes that they did not consider how turnover in public colleges’ presidencies affected their private and state support.

Fund raising 'is not just the president's job, it is the whole community's job, and to put the credit or blame on a single individual is not a good idea.'
Among people who have examined the paper, Frank A. Casagrande, who advises colleges on executive compensation as president of Casagrande Consulting, questioned whether the researchers had used a long-enough time frame in seeking to study how presidents influence financial support for their institutions. Sometimes, he said, presidents’ efforts to solicit donations can take five to 10 years to bear fruit, creating situations in which the study might be crediting them for the work of a predecessor or failing to account for the long-term payoffs of their fund raising.

Mr. Casagrande said the Florida State researchers were "asking the right question" because, as a result of affordability concerns stemming from tuition growth, the ability of presidents to find revenue from other sources "is more critical at this point of time than it ever has been." He added, however, that while college presidents "need to be the faces and voices for the institutions," fund raising "is not just the president’s job, it is the whole community’s job, and to put the credit or blame on a single individual is not a good idea."

Mr. Finkelstein of George Mason University said that, while colleges seek to hire presidents who will be successful fund raisers, he does not see perceived skill in this area as a major factor in determining pay offers to applicants for such positions. Instead, he said, such compensation typically is tied more to the earnings of a president’s predecessor and peers at similar institutions.

Peter Schmidt writes about affirmative action, academic labor, and issues related to academic freedom. Contact him at peter.schmidt@chronicle.com.