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Golden parachutes for presidents of public colleges with thin budgets

Scene from Northern Illinois University (courtesy NIU)

Northern Illinois University has a $35 million funding shortfall. It has laid off 30 employees, left 120 other jobs unfilled and postponed building and renovation projects.

There are potholes in the parking lots on campus in DeKalb. Students say the dorms leak. Then again, there are fewer students to complain. Freshman enrollment fell 20 percent last year. Those who are left have been hit with rising fees and other charges. The university’s credit was downgraded in June to junk status.

Against this backdrop, state ethics investigators alleged that the school’s president, Douglas Baker, had “mismanaged” the public university by allowing “improper hiring” practices that sidestepped competitive bidding rules. Baker wrote in response that he had acted in good faith and that he had “strong disagreement” with the findings.

Within two weeks of that report’s public release, Baker resigned in June. In a closed-door meeting of the university’s board of trustees, he was given $587,500 in severance pay, plus up to $30,000 to cover his legal fees. He’s also due a previously unreported $83,287 for unused vacation time, the university acknowledged.

“Absolutely ridiculous,” Illinois state Sen. Tom Cullerton (D), vice chair of a committee that oversees higher education, said of Baker’s severance package.

Often hammered out in secret, and seldom brought to public notice except when they explode into controversy, golden parachutes for university and college presidents are not unique to Northern Illinois. And while anger often flares when presidential salaries are publicized, salary totals alone don’t come close to revealing the true financial obligations of universities to their chief executives.

These hidden severance deals obligate higher education institutions to continue paying long-departed presidents large amounts for years, further thinning already-stretched finances.

“The university has incurred a liability that is potentially millions of dollars,” said James Finkelstein, professor emeritus of public policy at George Mason University’s Schar School of Policy and Government, who studies public universities’ presidential contracts.

Some point out that the packages help institutions with recruiting. In a time of myriad challenges for higher education, severance deals protect presidents against the risks of making hard decisions, said Richard Legon, president of the Association of Governing Boards of Universities and Colleges, which represents boards of trustees.

“These are complex corporations that require real bold leadership,” Legon said. “And attracting those kinds of leaders to take this job is increasingly competitive.”

Unless they’re fired — which almost never happens because of concerns about institutional reputation and potential litigation — the presidents of almost every public university are entitled to some kind of compensation when they leave, from the equivalent of one year’s salary to the value of the time remaining on their contracts. Chief executives of public doctoral institutions make $430,283 on average, the human resources organization CUPA-HR reports. For private institutions, the average is $626,487.

If they complete their terms, 13 percent of presidents are entitled to “contract completion bonuses” of $50,000 to $1 million, Finkelstein found in research he conducted with Schar School colleague Judith Wilde. Forty percent get “deferred compensation,” an additional payment on top of their base pay. Not only do these set-aside payments provide them tax benefits, but also they are often not included in publicly reported earnings.

Nearly half of university and college presidents are eligible, after stepping down, for year-long sabbaticals —paid leaves for academics to do research — at their full presidential salaries. About two-thirds are guaranteed positions on the faculty, often with the help of graduate assistants, and get free admission to campus sports and cultural events, VIP parking and continued paid memberships to country clubs and social organizations.

For one president’s divorce case, in which Finkelstein was enlisted as an expert witness, he calculated that the university’s liability to the 65-year-old executive — whom he won’t name — came to an additional $5 million to $7 million after his contract was up, given his life expectancy. That included his salary for a faculty position that required him to teach two courses per year at a rate Finkelstein determined to be about $250,000 per course.

The president also got to choose the subjects of the courses and when he wanted to teach them, and was allowed to offer them online, Finkelstein said. “He could be sitting on the beach somewhere and teach them both in one semester. So that was a pretty good deal.”

After the University of Massachusetts Boston ran up a budget deficit of $30 million — with enrollment and donations down, part-time faculty laid off, courses canceled and building projects repeatedly delayed — the chancellor, J. Keith Motley, resigned in April.

Though Motley’s contract expired in January, it had been “verbally renewed,” the public university system said, which means that Motley has now begun the stipulated year’s sabbatical at his full $422,000 presidential pay, and can then return to the faculty at a guaranteed $240,000 annually.

He also will collect an additional 7 percent of his base salary in deferred compensation for each of the 10 years he served as president, the university system said, a benefit that records from the state comptroller’s office indicate will come to more than $200,000.

“They’ve cut courses. They’re cutting faculty. And they have this package for the outgoing chancellor,” Marlene Kim, a professor of economics at the university and president of the union representing faculty and staff, said. The campus day care center is also now closed. “A lot of faculty feel sick from the cuts being made and obvious cuts not being made.”

Under pressure to contain tuition, colleges scramble for other revenue

Motley did not respond to a request for comment made through his office. On his departure, he told the university system’s board of trustees that he had “no regrets because if the Creator blesses me to walk on this campus three years from now and you walk it with me, I know you’ll see an incredible institution.”

Baker could not be located, and the spokeswoman for the law firm that represented him, Mintz Levin, did not respond to repeated emails and voicemails.

U-Mass. system spokesman Jeff Cournoyer said severance benefits are considered a personnel matter and no one would discuss them. In general, he said, the system was following the terms of Motley’s contract, which a consultant had determined was comparable to the contracts of other presidents.

Wheeler Coleman, chairman of the NIU Board of Trustees, said he recognized that not everyone might approve of its decision to pay Baker his severance. But he said Baker also had waived his right to a $225,000-a-year faculty position to which he was contractually entitled, and released the university from any legal claims he may have pressed, which could have cost even more over time.

Such agreements appear to be taking a public-relations and fundraising toll.

In May the think tank New America reported on a survey it commissioned that found 58 percent of Americans think colleges and universities put their own interests ahead of those of students. A separate study found that institutions whose presidents’ names appear on the Chronicle of Higher Education annual list of the 10 highest paid receive less money in contributions the following year.

“Donors are punishing the organization that makes them unhappy in the only way they know how,” said Brian Galle, a professor of law at Georgetown University and the study’s coauthor, along with David Walker of the Boston University School of Law.

Galle and Walker also found that the pace of raises for presidents slows after they show up on that list. “This suggests that increased public awareness does have an effect,” Galle said.

But as pressure has mounted to restrain pay, more and more benefits have been added, often hidden in contracts agreed to in executive session and not available for review except through public-records requests that some universities and university systems resist or delay.

Cullerton said he wants to strip away this cover in Illinois, by requiring that severance agreements in particular be disclosed at the time when public university and college presidential contracts are signed, that public notice be given and that the Illinois General Assembly get 30 days to review the deals.

Cullerton dismisses the idea that such disclosure requirements would discourage top candidates from applying for presidential posts — an argument that opponents have raised. “I don’t think it’s going to handcuff anybody from getting the best-qualified candidate because they’re not going to get an exit package when they screw up,” he said.

Among the reasons that boards of trustees give for lavishing benefits on presidents is that people with the skills needed to lead such multifaceted organizations could get at least the same perks in the private sector.

A new survey of 1,546 university presidents and chancellors calls that rationale into question. Fewer than 2 percent of presidents worked in the private sector before assuming their posts, the survey by the American Council on Education and the TIAA Institute found. Fewer than 8 percent said they planned to move into the corporate world afterward.

“There’s no evidence that the private sector is coming and raiding our universities to steal our presidents,” said Finkelstein, who has reviewed the histories of Fortune 1,000 CEOs and found no former university presidents among them.

“When the public begins to see and understand what goes into these compensation packages,” said Finkelstein, “then they can decide — families can decide, legislators can decide, donors can decide — whether this makes sense to them.”

This story was produced by The Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education.