Leadership & Governance

Presidents Defend Their Pay as Public Colleges Slash Budgets

Bob Owen, The San Antonio Express-News, Newscom

The total cost of employing Francisco G. Cigarroa, chancellor of the U. of Texas system, was $813,892 in the 2009-10 fiscal year.
April 03, 2011

If there's a sure lesson from the economic recession, it's that perception matters.

When Wall Street bankers took taxpayer bailouts and then made off with big bonuses, they were vilified. Moral outrage ensued when chief executives of the Big Three automakers flew into Washington on private jets to ask for a government rescue.

Indeed, America's anemic economy ensures that people at the top of the heap, including some public-university presidents, will often have targets on their backs, particularly if they are asking for more state or federal support.

The highest-paid public-college executives, who receive compensation packages in the high six figures and more, walk a difficult political tightrope. They must at once argue that their state budgets have been cut to the bone and need to be restored, while at the same time acknowledging their rarefied personal financial circumstances in states where layoffs, program closures, and pay reductions have been all too common. In making that case, presidents and the trustees who set their salaries have for years argued that, irrespective of economic conditions, those presidential pay levels are fair, necessary, and performance-driven. While that case appears to have been effectively made in many states, some higher-education officials and compensation experts say a prolonged budget crisis could hamstring the wealthiest presidents as they argue that their institutions are deserving of increasingly scarce public resources.

Bob Graham, a former U.S. senator who helped shape Florida's higher-education system when he was governor, said he viewed high presidential salaries as a "potential vulnerability" for universities trying to stave off major budget cuts. According to Mr. Graham, the high pay allows lawmakers to say, "Look at how much the head of this operation is getting paid. If that's a reflection of how effectively their resources are being used, they could probably take a reduction in their resources."

So how well paid are college presidents? Given the complexity of presidential contracts, which often include bonuses and deferred compensation paid out over multiple years, The Chronicle's compensation survey this year provides two different measures to answer that question. The "total compensation" figure shows the amount of base pay, bonuses, and deferred compensation a president actually collected in the 2009-10 fiscal year. The "total cost of employment" number includes base pay, bonuses, and all of the money the university and the state set aside for the president during the fiscal year. This figure includes deferred compensation that may or may not be paid out in future years, depending on whether the president remains in the position to reap the full rewards of a contract. This marks the first year that The Chronicle has reported pay this way, meaning these figures are not comparable with those from previous years.

The median total compensation for college presidents in 2009-10 was $375,442, and the median total cost of employment was $440,487. On both measures, E. Gordon Gee, president of Ohio State University, topped the list, earning more than $1.3-million in total compensation. His total cost of employment was more than $1.8-million.

Among the highest-paid presidents for years, Mr. Gee has helped set the bar, creating an environment where compensation nearing the million-dollar mark for public-university leaders has lost some of its taboo and is becoming more common, said Stephen Joel Trachtenberg, who was among the highest-earning private-college presidents before stepping down as George Washington University's president in 2007. Moreover, college presidents' jobs are increasingly complex, and "frankly, I think they are earning" what they're paid, said Mr. Trachtenberg, now a consultant with Korn/Ferry International, an executive-search firm.

Some lawmakers, however, are ambivalent about what seems the new normal for presidential compensation. They want the best leaders, but they cringe at the cost.

There is a "throw-your-hands-up-in-the-air sort of sentiment toward it," said State Sen. Peggy B. Lehner, a Republican who chairs the Education Committee in the Ohio Senate. "We recognize that to get the very best it's a competitive process, so it's the whole system across the country that is probably out of kilter."

As states struggle with shrinking budgets, compensation at public universities isn't something lawmakers should "take off the table" as a policy issue, added Ms. Lehner, an ex-officio member of the Ohio Board of Regents. Even though Mr. Gee's compensation may seem like "small peanuts" in the grand scheme of Ohio State's $4.8-billion total 2010-11 budget, it sets a high bar at the top, against which other administrative salaries are naturally measured, she said.

Defending Pay

Universities have been forced to make numerous defenses of presidential pay apart from budget crises, including the argument that a leader's salary makes up a small percentage of university budgets. When presidents or trustees are asked about top-tier pay, they also often mention that private corporations of equal size and complexity reward chief executives with far greater compensation.

"We're a $20-billion operation with a complicated structure and mission, and it takes talented people to manage the organization," said Daniel M. Dooley, senior vice president for external relations at the University of California, who spoke about the compensation of the system's president, Mark G. Yudof. "We pay Mark $600,000 a year, and the overall budget for the university system is about $20-billion. There are very few organizations with a $20-billion budget where the CEO makes only $600,000."

Mr. Yudof ranks seventh for total cost of employment, with $783,103 in 2009-10.

As more college employees are forced to take pay cuts, some presidents have taken steps to demonstrate that they're sharing in the sacrifice.

When Mr. Yudof introduced furloughs, in 2009, he used a tiered system that forced the system's highest earners, including himself, to take the most furlough days, equivalent to 10-percent salary reductions.

Other presidents voluntarily gave up or donated some of their pay in the 2009-10 fiscal year. Mr. Gee used his bonus to finance scholarships and other university efforts. Gary D. Forsee, president of the University of Missouri, declined to take $100,000 in performance-based incentive pay for which he was eligible under his contract. And Elson S. Floyd, president of Washington State University, volunteered to take a $100,000 reduction in his salary in light of budget difficulties facing his university.

But efforts by college presidents to manage public perception have not quelled all criticism. State Sen. Leland Y. Yee, a California Democrat, has introduced legislation aimed at curbing presidential compensation at public universities.

"When you hear about what these regents are paying the presidents and chancellors of a university or an individual campus, it's kind of a surreal feeling," he said. "It's almost like you're kind of in a dream."

Presidential pay is sometimes justified by drawing comparisons to peer institutions. The University System of Maryland adopted a policy several years ago that sets pay for senior executives at the 75th percentile of peer universities. William E. Kirwan, the system's chancellor, said the policy has helped assure lawmakers that there is a sincere effort to keep salaries competitive without being the highest in the university's peer group.

"That made a huge difference," Mr. Kirwan said. The salaries were not set "at a whim or random."

Nevertheless, he added, there are still legislators who "grumble" about his total compensation­—$716,744 in 2009-10­—and that of others.

Potential Political Target

Several of the highest-paid public-university leaders hail from states facing the biggest budget gaps, as estimated by the Center on Budget and Policy Priorities, which studies federal and state budgets with the aim of protecting the nation's poor. Among the 10 states with the largest projected deficits for the 2011-12 fiscal year, measured as a percentage of their current budgets, two are home to university-system leaders who fall within the top 10 in terms of the total cost of employment. They are Francisco G. Cigarroa, chancellor of the University of Texas, and Mr. Yudof, of California.

As public universities work to demonstrate greater efficiency, high presidential pay could become a symbol of misplaced resources, said Dean A. Zerbe, who helped U.S. Sen. Charles E. Grassley, an Iowa Republican, investigate college spending practices. Not unlike the "$800 hammer" cited decades ago by critics of military spending, compensation that appears excessive is an easy political target, Mr. Zerbe said. Such criticism is only likely to grow amid the antispending fervor sweeping the country, he said.

Raymond D. Cotton, a lawyer who specializes in presidential contracts, agreed.

"We now have the Tea Party, which we didn't have before, and they're going to raise their voices," Mr. Cotton said. "We haven't heard much from them in higher education, but it's only a matter of time."

Despite those concerns, many lawmakers and politicians say that executive compensation is a low priority in their state capitals. Alan G. Merten said he has never heard a peep from lawmakers about his compensation during 15 years as president of George Mason University. Mr. Merten ranks 10th in total compensation, with $633,631 in 2009-10.

"There's probably an understanding on behalf of members of the legislature of market forces," said Mr. Merten, who recently said he would step down in 2012. "This is never talked about."

State Sen. Dick Brewbaker, a Republican who is chairman of Alabama's Senate Education Committee, said presidential pay wasn't on his radar because there were so many more-pressing budgetary issues. Diminished resources for public elementary and secondary schools, for instance, have demanded far more attention in his state.

"You've got to kill the snakes closest to you," he said. "Re-examining compensation for university presidents is pretty far down the list."

But some lawmakers have followed the lead of State Senator Yee in California. In Texas, the Senate Committee on Finance questioned Scott B. Ransom, president of the University of North Texas Health Sciences Center at Fort Worth, when his base salary of $904,562 was made public. During a recent legislative hearing, Sen. Dan Patrick, a Republican, suggested that Dr. Ransom's pay as a public president was difficult to square with the state's budget shortfalls. (The institution is not included in The Chronicle's survey, which features only universities classified as research universities by the Carnegie Foundation for the Advancement of Teaching.)

"I don't believe in class warfare, and people work hard," Mr. Patrick said at the hearing. "But you have to understand, that's a lot of money. A lot of money. And when we're sitting here having to make tough decisions, and people are losing their entire jobs, it's pretty hard to deal with."

The most vulnerable presidents may not be the highest-paid, but those who fail to meet the expectations of trustees and lawmakers, Mr. Merten said.

"If you're doing a good job, you're all right," he said. "If you're not, you should be in trouble and will be in trouble."

To ensure presidents are doing a good job, some public-university boards say they're taking more steps to hold college leaders accountable. At the University of Central Florida, where John C. Hitt's $800,703 total cost of employment ranked him fourth among public-college presidents, trustees have developed an incentive-based compensation model that ties Mr. Hitt's bonuses to meeting benchmarks.

"He literally could lose 30 percent of his total compensation in any year because he didn't hit metrics," said Richard J. Walsh, chairman of the university's Board of Trustees.

Mr. Hitt's performance goals fall under the broad categories of fund-raising, improving admissions standards, and increased degree production. And the benchmarks have teeth, Mr. Walsh said. Indeed, in 2010-11, a period not represented in The Chronicle's survey, Mr. Hitt was denied nearly $70,000 in potential earnings for falling short of some goals. Mr. Hitt's office said he was unavailable to be interviewed for this article.

Mr. Hitt's pay increases have placed him ahead of the president of Florida's flagship university, another fact that opens his compensation to scrutiny. J. Bernard Machen, president of the University of Florida, is the third-highest-paid president in the state, with a total cost of employment of $523,668. Mark B. Rosenberg, president of Florida International University, also earns more than Mr. Machen.

Carlos Alfonso, vice chairman of the University of Florida's Board of Trustees, said it's natural to measure a president's salary against others in the state. At the same time, however, there has been no push to revisit Mr. Machen's compensation, particularly in this economic environment, he said.

"Part of me says that yeah, I want to compare," said Mr. Alfonso, who is chief executive of an architectural firm in Tampa. "But part of us says we've got this austere situation in Florida, and our president has been very fair with us and provided us great value."

University boards would be well advised to demonstrate the value their presidents bring to the institution and the state, said Eric Dezenhall, a crisis-management consultant, who has worked with colleges. But while a strong record of success can dampen criticism, well-paid presidents can never fully insulate themselves from public rebuke, Mr. Dezenhall said.

"There is no way to make people feel good about somebody making what they regard as too much money in a bad economy. There is no secret, clever PR trick," he said. "Of course, the figures who are getting the money want it both ways. They want the money, and they want everybody to love them."

Chronicle of Higher Education