An Art College President’s Compensation Reached Nearly $2-Million in 2008

Paula S. Wallace co-founded the Savannah College of Art and Design in 1978 with her parents and her then-husband, taking out a $200,000 loan to buy the college’s first building. Since then it has grown into one of the nation’s largest art schools, and Ms. Wallace’s pay has swelled: In 2008 her total compensation as president was $1,946,730, according to newly released tax documents.

That amount tops the compensation of all but a handful of college chiefs. But SCAD, a relatively pricey and prosperous art school, is smaller than universities that pay in that range.

Ms. Wallace, who is in her early 60s, became SCAD’s president in 2000. Her total compensation package grew by about $1.5-million between 2008 and the previous reporting period, which was the 2007-8 fiscal year. College officials said $900,000 of that growth was related to an adjustment to the deferred compensation that SCAD set aside for the president’s retirement pay.

SCAD remains to some extent a family affair. The college paid Ms. Wallace’s current husband, Glenn E. Wallace, $289,235 in 2008 for his role as senior vice president for college resources. Also on the payroll was her son John Paul Rowan ($233,843 for consulting; he is now a vice president who oversees the college’s Hong Kong campus), daughter Marisa Rowan ($101,493; director of the equestrian programs), daughter-in-law Elizabeth Rowan ($85,494; director of external relations at the Hong Kong campus), and mother, May L. Poetter, a member of the Board of Trustees, who earned $61,767 in consulting fees.

A large portion of the pay earned by Ms. Wallace and her husband comes from a for-profit entity called the SCAD Group Inc. The college, which is a nonprofit, created the subsidiary in 2003, according to corporate filings.

The for-profit arm is wholly owned and controlled by the college. It provides nonacademic services to SCAD—which has three branch campuses and a distance-education operation—including human resources, financial management, communication, and student support. In 2008, its share of total income amounted to $111-million, or an amount equal to about 43 percent of the college’s total expenses of $261-million.

The SCAD Group contributed $825,703 to Ms. Wallace’s compensation in 2008. The for-profit entity matched her pay from the college in salary ($335,000) and bonuses ($162,500). The college paid more in deferred compensation—$554,991 compared to $279,840—and varying amounts of nontaxable benefits and other compensation.

The for-profit subsidiary also owns an airplane that administrators and trustees use for business purposes, and the college pays for a personal assistant for Ms. Wallace. Tax filings also describe a lucrative retirement plan that Ms. Wallace is eligible to receive if she stays on the job until June of 2014. That benefit would be an annual payment equal to 65 percent of her final salary for the rest of her life.

Several lawyers said the college’s hybrid tax structure appeared legally sound and typical of a growing trend of colleges creating for-profit entities to run distance-education programs, like eCornell.

However, some experts criticized Ms. Wallace’s pay and perks.

Raymond D. Cotton, a Washington-based lawyer specializing in presidential pay, said Ms. Wallace’s $1.9-million compensation package was “apparently in excess for a nonprofit college of this size” and that perks such as a private airplane and personal assistant are “outliers” in higher education.

A SCAD spokeswoman, Sunny Nelson, defended Ms. Wallace’s pay, saying most of the increase was due to future retirement payments earned during her 30 years working for the college. Because of a decrease in interest rates, the college made a “large adjustment” to the $900,000 recorded as a nontaxable liability for her retirement benefits.

“The amount relates to all of the years of service that the president has given the institution,” Ms. Nelson said in a written statement. “The amount does not represent current income.”

The college retains an independent consultant specializing in executive pay and benefits, who conducted a study of Ms. Wallace’s compensation, both from the college and its for-profit subsidiary, comparing those numbers with pay at other institutions. The report was presented to the trustees, who review Ms. Wallace’s performance and pay on an annual basis.

The board also includes Ms. Wallace’s relatives in its annual compensation-review process, Ms. Nelson said, adding that “the board has a policy whereby it approves the hiring and compensation for any individual who is related to a member of senior management.”

Rian M. Yaffe, a consultant who advises colleges on compensation and governance, said the family hires at SCAD raise a red flag when looked at with Ms. Wallace’s relatively high pay and perks.

“When you pile it all on, it seems somewhat beyond the pale,” said Mr. Yaffe.

Mr. Cotton agreed. “I cannot imagine another board of a college or university in the United States agreeing to this.”

Family Business

SCAD faced plenty of controversy in previous decades over its closely knit family management and business-oriented approach. The college has also long been criticized for not offering tenure to professors, using one-year contracts instead.

But those gripes have remained largely dormant in recent years, with the exception of a 2005 flare-up when the college merged with the Atlanta College of Art.

In the early 1990s, unrest at SCAD exploded, literally. (Small incendiary devices were set off on the campus, injuring no one.) As The New York Times reported at the time, “a growing number of past and present students, employees, teachers, administrators, and trustees say the college’s mission has more to do with money and power than with education,” adding that “critics depict a tax-exempt institution that operates like a family business.”

SCAD’s critics successfully encouraged the School of Visual Arts, a New York City-based proprietary institution, to open a campus in Savannah. A spate of lawsuits followed, with SCAD eventually beating back the challenge from its competitor. Many of the settlements reportedly included gag orders.

Prosperity and a stronger reputation have healed many of the old rifts. SCAD, with a total cost of attendance of $47,500 ($40,821 for tuition, room, and board), is a lucrative operation, with more than 9,000 students and branch campuses in Atlanta, Hong Kong, and France, where the college owns a swath of a small medieval village.

Ms. Wallace has been praised for her leadership of SCAD, which has earned the support of fashionistas and celebrities. She founded several stylish signature events at the college, including film and fashion shows.

Real estate is a big part of the college’s success. Local leaders credit the institution, which has bought and refurbished many abandoned buildings around the city, with rescuing Savannah’s formerly blighted downtown. SCAD now owns 70 structures there, or two million square feet—a footprint with an estimated value of $119-million.

Prior to creating its for-profit subsidiary, the college did not pay taxes. Like other urban colleges, it heard grumbling from local politicians about its large, tax-free holdings. Now a substantial portion of its operation is taxable.

Michael B. Goldstein, a Washington-based lawyer, is an expert on the intersection of nonprofit colleges and corporations. He says a for-profit subsidiary can help the bottom line by forcing a college to improve business practices and, sometimes, generating revenue that can be invested in an endowment.

“It creates a certain degree of discipline,” he said.

One benefit enjoyed by private corporations is that they don’t have to reveal much about their finances. However, SCAD officials said the college owned 100 percent of its subsidiary and that all profits belonged to SCAD.

Fair Compensation

Ms. Wallace has received pay from the college’s business operation in previous years, according to tax forms. For example, her total compensation was evenly split between the two sides of SCAD in 2004 and 2005, at a combined total of $655,108 and $589,477, respectively.

In 2006 she received $430,472 in benefit-plan contributions from the SCAD Group, according to tax forms, in addition to the $401,083 in compensation she earned from the college. But in 2007, SCAD’s tax filing listed no subsidiary pay for Ms. Wallace. She earned $429,851 from the college that year.

In addition to the increase in deferred pay, changes to the IRS’s 990 tax form, which now asks for more detailed compensation data, may have contributed to Ms. Wallace’s larger compensation total in 2008.

Experts said the new form should encourage further disclosure on pay from related entities.

The key in scrutinizing pay packages like Ms. Wallace’s is determining whether they are fair to the college, said Mr. Goldstein. The IRS and lawmakers like Sen. Charles E. Grassley, an Iowa Republican who often criticizes nonprofit salaries, are putting more pressure on colleges to justify pay packages.

When a subsidiary such as a foundation or a for-profit entity pays a college leader, said Mr. Goldstein, it should be because of the administrator’s work responsibilities. “There has to be something there.”