EVEN AFTER Benjamin Ladner's exit as president, American University has two major problems on its hands. One is the understandable revolt by faculty and students over what looks like a supersized severance package Mr. Ladner extracted from the university's trustees -- that is, the remaining trustees, since four have quit over the Ladner mess. The other, perhaps even deeper problem involves the trustees themselves: how, having failed in their oversight responsibilities, they can calm the storm and find a new president.

The $3.7 million severance package is indeed unfortunate. It contains deferred compensation of $1.75 million, $1 million from an insurance policy and a $950,000 "one-time settlement payment." Mr. Ladner is to repay $125,000 in expenses improperly billed to the university and pay taxes on $398,000 in university-paid benefits to Ladner and his wife.

That's an awful lot of money to pay to a man who the trustees had voted was subject to being canned "for cause." They argue that Mr. Ladner had already earned most of that money and that it was in the best interests of AU to have the matter settled without the expense and distraction of litigation. The dissenting, and now departed, board members, among others, argue that because he was operating under an invalid contract and because he could have been fired for cause even if the contract were in force, Mr. Ladner wasn't entitled to any of the $3.7 million.

At the very least, the extra $950,000 seems unwise under these unpleasant circum- stances. Mr. Ladner certainly made contributions to American University: The endowment grew dramatically, as did the qualifications of the student body. But Mr. Ladner has already been compensated generously for his efforts, and his own actions and sense of entitlement were the primary cause of the current mess.

The board ought to reconsider. Then it has to figure out how to heal itself. Its auditing and oversight efforts failed the university; they must be improved. The next president probably shouldn't serve on the board and surely shouldn't be as dominant as Mr. Ladner was in selecting trustees. The mechanism for selecting board members is insular and self-perpetuating. It should be changed.

A letter last week from the board's acting chairman, Thomas A. Gottschalk, and its incoming head, Gary M. Abramson, sent a good signal, acknowledging deficiencies in the board's performance and promising "improved and more inclusive governance." The follow-through will be crucial.