University boards justify high pay for presidents

Robert J Zimmer is a man of few peers. The University of Chicago president, who heads one of America’s wealthiest institutions and gets free housing in a major metropolis, earned almost US$3.4-million in 2011, making him the highest paid private university leader in the United States that year, a Chronicle analysis has found.

[This is an article from The Chronicle of Higher Education, America’s leading higher education publication. It is presented here under an agreement with University World News.]

Zimmer's total compensation was eight times that of a typical private college president, according to the most recent tax filings of 500 colleges with the largest endowments in the United States. The median pay for this group in 2011 was US$410,523, an increase of 3% from 2010.

The Chronicle's analysis is based on reviews of Form 990 tax forms and filings with the US Department of Education. There were 42 presidents among the cohort to earn more than US$1 million in 2011, up from 36 in 2010.

Zimmer occupies a rarefied stratum of higher education, leading one of just 10 private colleges with budgets greater than US$3 billion. Some compensation experts say that the university's budget, and by extension its complexity, helps explain why a board would pay Zimmer on a scale that is sure to get attention, and that could prompt criticism for a tax-exempt, non-profit organisation like the University of Chicago.

Ron B Seifert, who advises college trustees on presidential compensation, said there were few people qualified to run a major research institution with a multibillion-dollar budget.

"It would be really difficult for you to prove to me that the challenges associated with running a US$200 million institution are the same as somebody running an institution at US$2 billion," said Seifert, vice president of Hay Group. "They are inherently different in terms of the managerial skills required."

Since the University of Chicago is such a huge operation, Zimmer's total pay actually constitutes just a sliver of the university's budget. In 2011, Zimmer earned US$1,113 for every US$1 million of expenses by the university. The median pay for private college presidents relative to budget was US$5,466 per US$1 million of expenses.

Drew Gilpin Faust, president of Harvard University, is one of the least well-compensated presidents relative to budget. With US$899,734 in total compensation for 2011, Faust earned US$230 for every US$1 million of expenditures at Harvard, where the budget was US$3.9 billion.

While she leads one of the nation's most-prestigious institutions, Faust is not even among the 50 highest paid presidents in the country.

Hot-button issue

Presidential pay may not amount to much in the context of a university budget, but it remains a hot-button issue for those concerned about excess and waste at non-profit organisations.

US Senator Charles Ed Grassley, Republican of Iowa, has been particularly critical of compensation for private college leaders, questioning whether tax exemptions are serving to lower college costs for students or simply enabling charmed lives for administrators.

Zimmer and Chicago's board chair declined interview requests, but a statement from the university stressed the vast scale of the enterprise the president oversees. The university has an academic medical centre, an affiliation with Argonne National Laboratory, and employs nearly 25,000 faculty and staff members.

"Bob Zimmer's compensation reflects the high degree of confidence the board has in his leadership at a crucial moment in the university's history," Andrew M Alper, the board's chair, said in an emailed statement.

"The university has built extraordinary momentum by supporting the work of our scholars and students at the highest level, building on a tradition of eminence in research, learning, and engagement."

Zimmer was in his fifth year as president in 2011, and about 40% of his total earnings that year came from a payout of deferred compensation that had been set aside in previous years.

The Internal Revenue Service includes previously deferred dollars in its calculation of total compensation, and as a result the total figures in The Chronicle's annual analysis may include money that was also counted in prior surveys. Such was the case with Zimmer and several of the other top earners.

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.

College presidents tend to cringe when their compensation makes headlines, but in some cases trustees are disappointed that their leaders do not rank higher on the national pay scale.

Amy Gutmann and Penn

Such was the case at the University of Pennsylvania, where board members, in 2010, were surprised to see Amy Gutmann trailing 14 other presidents in The Chronicle's compensation analysis.

"We were hard-pressed to figure out who was a better president than Amy Gutmann," said David L Cohen, chair of the board at Penn.

What followed was a restructuring of Gutmann's compensation package, which grew by 43% over the course of the next year. With earnings of more than US$2 million, Gutmann rose to No 6 in this year's analysis of presidential pay.

Penn's budget of US$5.6 billion is larger than that of any other institution included in The Chronicle's analysis, and Cohen equates the president's job with running a moderately sized company or even a small city.

Penn has peers of similar reputation and prestige in the Ivy League, but Cohen said there were few institutions that rivalled the university's complexity. The university has a health system and 12 schools that include arts and sciences, dentistry, law, medicine, and business, among others.

The biggest driver of Gutmann's overall pay increase came in the form of deferred compensation, of which Gutmann earned US$790,000. A good deal of that money, Cohen said, was awarded to the president as a bonus for meeting predetermined objectives, including progress on the university's capital campaign.

Gutmann sets between 13 and 20 objectives each year, Cohen said, and her bonus payment depends on fulfilment of those goals. Her objectives include enhancing the institution's diversity, and this is an area where Gutmann has taken some criticism.

Six senior faculty members in Africana studies this year signed an op-ed in The Daily Pennsylvanian, the university's student newspaper, declaring a boycott of an annual diversity dinner held by Gutmann, whom they accused of not doing enough to diversify Penn's administrative ranks.

Cohen called the controversy a "mini flap" and said Gutmann responded appropriately. She said that diversity was a constant priority for her and that she was also not satisfied with the university's progress.

"For the vast, vast majority of the faculty, for all of the trustees, that was exactly the right answer," Cohen said.

The case of Columbia

Lee C Bollinger, president of Columbia University and the nation's fourth highest paid private college leader, has also taken criticism on the diversity front. In 2011, when Bollinger earned US$2.3 million, two high-ranking black administrators resigned.

Bollinger, a longtime defender of affirmative action, told The New York Times that he did not see the departures of the provost and undergraduate dean as indicators of a diversity problem.

His board chairman agreed. "There is nobody that is more focused on diversity than Lee is," William V Campbell said in a recent interview.

Campbell, who chairs the board of Intuit and serves on the board of Apple, said Columbia's trustees subject the president to a rigorous annual evaluation. As part of that process, trustees, senior staff members and deans submit written assessments of Bollinger.

"You could tell from the write-ups over the years that no one has pulled any punches," Campbell said.

Bollinger earned nearly US$750,000 in deferred compensation in 2011, and an "ample" portion of that money was at risk based on his evaluation, Campbell said. The Columbia chair declined to say whether Bollinger received the maximum potential bonus in 2011, but he praised the president's work.

"As much as you hate to admit it, these rankings of a school make a big difference," Campbell said. "So we judge those things, like US News & World Report. But there are a lot of things other than that: look at fund-raising performance, the performance of the endowment, those are very quantitative measures."

Bollinger is also graded on how well he schmoozes. As head of an elite institution in a major metropolitan area, he is expected to hobnob with policy-makers and business executives.

"Does that mean he has to be out a lot and put on a tux a lot? Yes," Campbell said. "This is not Keokuk, Iowa. We're in the middle of New York City."

Big bucks at small institutions

For all the heavy hitters topping the pay list in 2011, there are a handful of presidents from relatively small institutions who took home big bucks.

The presidents of Chatham University, in Pittsburgh, and the Florida Institute of Technology, in Melbourne, both earned more than US$1.8 million. The president of Marist College, in Poughkeepsie, earned nearly US$2.7 million, making him the third highest paid private college leader in the country.

At each of these small colleges, the presidents received significant retirement or deferred-compensation payouts that were set aside over a number of years.

At Chatham, the president's total compensation includes a US$1.2 million retirement package that the college, beginning in 2006, paid out over five years. S Murray Rust III, the board's chair, said Chatham faced serious financial problems when, in 1992, Esther L Barazzone was hired.

It was not practical at that time to compensate the president appropriately for retirement, Rust said, and the package that paid out in 2011 was designed to make up for previous inadequacies in compensation.

"It was a good deal," he said. "We're happy with it. We'd do it again."

Compared with some of the nation's wealthiest colleges, Chatham's budget of US$48.3 million is relatively modest. In 2011, Barazzone earned US$37,545 for every US$1 million of expenses at the university, which was the highest pay relative to budget of any private-college president in the country.

Chatham's board chair bristles at the budgetary comparison, though, arguing that the analysis unfairly juxtaposes a single year's budget with earnings the president actually accrued over five years.

At Florida Tech, Anthony J Catanese's total compensation included 10 years of deferred pay, totalling US$1.3 million. He will not receive any further deferred pay under his current contract, college officials said.

At Marist, the board allocated US$2 million toward the retirement of Dennis J Murray, the college's president. The money, which was set aside over the course of 10 years, came with the condition that Murray stayed on the job until at least 2011, when he turned 65. Murray, who remains president, first took the helm in 1979.

The board at Northeastern University, a major research institution in Boston, also created a US$2 million retirement package for Joseph E Aoun, the college's president. With a total compensation of US$3.1 million, Aoun was the nation's second highest paid private college leader in 2011.

Northeastern officials said Aoun would not receive the retirement money until he stepped down from his position, but they would not comment on whether the president might forfeit the earnings if he left before a specified date.

"Through President Aoun's leadership, Northeastern has achieved levels of excellence that were unimaginable when he was appointed in 2006," Henry J Nasella, the board's chair, said in an emailed statement.

"The value of this success is felt every day by countless students, faculty, alumni, and others who are touched by Northeastern's enhanced education and research activities."

Since Aoun's appointment, in 2006, the university has risen from No 98 in US News & World Report's rankings to No 49, college officials pointed out. "With a range of major initiatives still under way, members of the board agreed unanimously that continuing President Aoun's leadership was among our highest priorities as trustees," Nasella said.

Not oblivious

Seifert, the compensation consultant from Hay Group, said college trustees will do whatever they think have to in order to retain a good president. But they are not oblivious to the amount of money involved, he said.

"The public thinks that boards are numb to the magnitude of the dollars," Seifert said. "They know this is a lot of money."

And presidents know that, too. Morton O Schapiro, president of Northwestern University and a professor of economics, said he is fully aware that the nearly US$1.4 million he earned in 2011 constitutes an "enormous" amount of money.

"You get a lot more money than you ever thought you would getting a PhD and being a labour economist," he said. "You're very well compensated. To deny that is crazy."

* Jonah Newman contributed to this article.