For years, university presidents’ pay has risen, even as the cost of a college education for students and families has climbed.
The Chronicle of Higher Education reported last month that the average pay for presidents of private universities was $570,000 in 2015, the most recent data available, up 9 percent from the previous year.
But could that change? It’s too soon to know, but some experts are watching to see whether the trend might slow down a little, after the tax bill signed last month by President Trump singled out some officials who make more than $1 million a year.
In 2015, 58 private-college presidents topped that, the Chronicle reported.
When that $1 million threshold is met, schools will have to pay a 21 percent tax on the compensation for the five most-highly paid people. Those include people such as coaches as well as presidents and chancellors, and compensation might be calculated using different data than the Chronicle uses.
For tax-exempt universities with highly-compensated officials, the bill presents a new cost that has left many wondering about possible implications, said Brian Pinheiro, a lawyer with expertise in executive compensation and employee benefits. At one school, a longtime executive is retiring, he said, with compensation that was deferred until retirement. “They’re scrambling to see if any of this is subject to the excise tax, because if it is, it’s going to cost the organization a couple million more dollars than they were planning on spending.”
So why has executive compensation been rising so steadily?
It doesn’t reflect an increase in pay overall in higher education; on many campuses, lower-level jobs have been outsourced, and adjunct faculty are more common than full-time tenured professors. “The fastest-growing expense in higher education is administrative overhead,” said Judith Wilde, a professor and chief operating officer of the Schar School of Policy and Government at George Mason University.
“There has never been as great a discrepancy in higher education between those who are the highest paid and those who are the lowest paid,” said William Tierney, professor and co-director of the Pullias Center for Higher Education at the University of Southern California. “What higher education is doing is mirroring the behaviors of the corporate world.”
The majority of trustees are now business leaders, and they bring ideas from that culture to academia, said Ray Cotton, a lawyer specializing in higher education. They are typically looking for someone able to energize donors while managing a complex organization, and expect to pay well to lure top candidates. Boards want presidents to raise a lot of money, he said, and they reward success.
One factor, according to Wilde and her colleague James Finkelstein, who also studies university presidents’ compensation, is that executive-search firms often charge a percentage of the base salary of the person hired — so it’s to their advantage to help ensure a higher salary.
But it’s not just salaries that have been increasing, but other less obvious means of compensation, such as bonuses. That’s probably more similar to the kinds of packages that the business leaders who serve on many university boards are used to seeing, and that they themselves have, Finkelstein said.
It’s much more common than it used to be for college presidents to have an attorney negotiate his or her contract, they said, and that can leave schools at a distinct disadvantage: “Universities on average only hire a president every six or seven years. Their attorneys aren’t very used to doing these kinds of negotiations, and they come up against someone who does them every day . . . It’s not really a fair fight.”
There didn’t used to be bonuses in such contracts, but now there are often rewards for signing, for completion, and for performance along the way.
“The business world is comfortable with those kinds of bonuses, and they brought their ideas to the nonprofit world,” Cotton said.
Finkelstein said that in hundreds of such contracts, they only have seen one that had metrics for performance that they considered solid indicators of a true evaluation.
Over the years, Wilde and Finkelstein began seeing more supplemental benefits, such as life-insurance policies, annuities, car allowances and so forth, sometimes even for spouses as well as the leaders themselves. The biggest change in recent years, they said, was in deferred compensation.
“I’ve seen them sometimes 25, 30 pages long as an addendum to a contract,” Finkelstein said, “structured by a very sophisticated financial adviser and an attorney. That’s how you get some of these big payouts.
“If you look at the corporate world, that’s clearly the direction the corporate world has gone in,” he added. “The theory is this will retain the talent.”
That leads to numbers like those at the top of the Chronicle’s list. Nathan Hatch, president of Wake Forest University, made about $4 million in 2015, the magazine reported. That was the result of a deferred-compensation package that grew over a decade, by an average of a little over $250,000 a year, to nearly $3 million, which was paid out in 2015.
Cotton, who has negotiated such contracts for many years, said it’s misleading to look at a snapshot of a single year of compensation; it gives the impression that many university leaders make more than a million dollars a year, he said, when that is not the case.
Katie Neal, a spokeswoman for Wake Forest, noted that Hatch’s “base salary of $839,944 is in line with peers at similar institutions,” and that in recent previous years the Chronicle had ranked his total compensation at levels ranging from 26th to 36th among private college presidents.
Donna Boswell, chairman of Wake Forest’s Board of Trustees, said that the board’s investment had paid dividends for the school, and that his compensation reflects his “exceptional leadership.”
“He has seen Wake Forest through a transformational period that includes achieving the largest fundraising effort in the university’s history,” with nearly $800 million raised that made possible hundreds of millions for student scholarships, and a series of other successes on campus, she said.
At USC, Tierney points out, the president was the third-highest paid in the country in 2015 according to the Chronicle’s analysis, because he was given a $1.5 million bonus that brought his compensation that year to more than $3 million. “He works night and day, seven days a week trying to raise funds on behalf of the university,” Tierney said, making the institution stronger, for example with the addition of a second campus, “an extraordinary accomplishment.”
But he said there is a point for any leader when it becomes difficult to explain cuts when his or her own pay is so generous.
And there has been political pressure for years to rein in executive pay at nonprofit organizations.
Several people said they think it’s too soon to tell whether the tax bill will change the way compensation packages are negotiated, because many details are still unknown. Pinheiro anticipates an impact. “I think you’ll see universities taking a tougher stance in negotiations with top executives,” he said.
Wilde also noted that just as with businesses trying to reward success, if there is an impact, “they may well figure out a way to get around some of this.”