A university president was in our office a few weeks ago, and at one point the conversation turned to The Chronicle’s annual executive-compensation project (published on December 15 this year). I really like what you guys do, he told us, but I wish you didn’t double-count my deferred compensation.
It’s a criticism we’ve heard from presidents and university officials before, and it deserves some explanation.
First, we need to define exactly what we mean by “deferred compensation.” My colleague, Jack Stripling, did a good job of this in his executive-compensation analysis this week:
Deferred-compensation plans are common for college presidents. For the highest-paid leaders, a board may allocate hundreds of thousands of dollars a year in deferred compensation, which can be invested tax free until the time of the payout. The money serves as a retention tool for presidents, who typically forfeit those earnings if they resign before a specified date.
I’ll add one note, which is that deferred-compensation plans—often available only to presidents and other top administrators—are usually in addition to university contributions to a retirement plan, like a 401(k), that is also available to other employees and doesn’t carry the same conditions.
The former Brown University president Ruth J. Simmons provides a good example. According to Brown’s tax filings, the university contributed monthly installments to a deferred-compensation plan for Ms. Simmons from June 2007 through June 2011, which she could not collect until she met certain conditions as set out by her contract. It’s likely that one of those conditions was that Ms. Simmons serve as president for a minimum number of years, at which point the deferred compensation vested, or paid out. (Ms. Simmons announced her retirement in September 2011, and left office at the end of the 2011-12 academic year, after 11 years.)
Now that we know what deferred-compensation plans are, are we double-counting that money? The short answer is: Yes. Here’s why:
We could count deferred compensation in two ways. The first is in the year when the college sets aside the funds. That’s problematic because the president hasn’t actually received the money yet—and might never receive it. But it’s also hard to exclude the money in that year because most colleges don’t differentiate between money set aside for special, president-only deferred-compensation plans and money put into the garden-variety retirement plans available to all employees.
The second way we could count deferred compensation is in the year it is paid out. That approach, too, is a problem, because it would fail to capture the fact that a president may have earned a large portion of his or her annual salary in deferred compensation.
So we end up reporting it twice, both in the year it is set aside and in the year it is paid out, to capture both the annual contributions to the plan and the bump in actual take-home pay that presidents receive in the year the plan vests. That is how the IRS captures compensation data, and how The Chronicle reports it.
To make those nuances clearer, we provide readers with the opportunity to “un-double-count” deferred compensation in our interactive online presentation. By clicking “exclude vested deferred compensation,” readers can see how much of a president’s total compensation (and the total compensation of anyone in the comparison list) is “new” money that has never been counted before. We think this provides readers with better context, better explanation, and better data. Here’s a screenshot of how it looks for Ruth Simmons:
The Sticky Details
Above is the simple explanation. Now let’s get into the gritty details. Because the IRS counts deferred compensation both in the year it is set aside and in the year it is paid out, to avoid double-counting that money The Chronicle would have to exclude it from an individual’s total compensation in one of those years. Unfortunately, that’s not so easy. To understand why, we have to look to the IRS Form 990, which all nonprofit organizations must file and which The Chronicle uses to track compensation at private colleges.
Using Ms. Simmons as an example again, here’s how her compensation was reported on the Form 990 from 2008 to 2011:
|Bonus and incentive compensation
|Other reportable compensation
|Deferred and retirement compensation
|Compensation reported in prior Form 990
Look first to Column E, where deferred and retirement compensation is reported in the year when it is set aside. Most universities don’t break down this column between the special deferred-compensation plans available only to top administrators and payments to a retirement plan. To exclude deferred compensation in the year it is set aside would also require us to also exclude retirement contributions, which we don’t want to do because they may never get reported again.
(Giving credit where credit is due, Brown actually does break down the deferred and retirement compensation through additional notes, but the university is a rare exception, and the IRS doesn’t require it to do so. If more colleges reported deferred compensation as Brown does, this would all be a little bit easier.)
Now look to Column D. This is where the university should report deferred compensation in the year it is paid out, along with other miscellaneous compensation and benefits such as debt forgiveness, employer-provided vehicles, travel, housing payments, meals, moving expenses, spending accounts, dues for country clubs, and more. Like Column E, this column doesn’t distinguish between these different types of compensation, which makes it difficult to exclude the deferred compensation in the year it is paid out.
Perceptive readers may note Column H, “Compensation reported in prior Form 990,” which would seem to solve our problems. You’d be right if you guessed that this is where the university should report any money that was set aside and reported (in Column E) in a previous year but is being paid out in the current year. For Ms. Simmons, we see $455,005 reported in this column in 2011, the year her deferred-compensation plan vested. We would expect all of that to also be reported in Column D, under “Other reportable compensation,” that year.
So why not exclude deferred compensation in the year it is paid out? Looking at Ms. Simmons’s compensation, it seems easy enough to do. Just subtract the $455,005 that we’ve already reported from the $571,011 in other compensation, right?
Unfortunately, it’s not that simple. In our survey of 500 colleges, about 100 employees at 30 institutions have reported more money in Column H than they reported in Column D. In a few cases, the amount reported in Column H exceeds even the individual’s total compensation for 2011. It’s possible that these college misreported the compensation figures or that Column H doesn’t refer exclusively to vested deferred compensation, as we understand it to from the IRS’s instructions. Either way, this makes it difficult to rely on the figures in Column H to adequately and consistently tell us how much deferred compensation was already reported in previous years.
Which brings us back to our original question: Why do we double-count deferred compensation? Because we can’t exclude it from the compensation in the year it was set aside and we can’t exclude it from total compensation in the year it is paid out, we chose a third route: double-counting the money and trying to provide our readers with as much information as possible.
We hope that by explaining our methodology and allowing readers to exclude vested deferred compensation from some of the interactive charts this year, we are making it easier to wade through the dense world of presidential pay. If you have other ideas for how to display or analyze these data, please share them in the comments section below or send them to email@example.com.