Having worked with scores of presidents and trustees since the early 1980s on matters of presidential compensation, I am often asked to share my thoughts on how a president can best negotiate a fair compensation package and still maintain a good relationship with his or her board. The first, and most important, piece of advice that I give to newly appointed presidents: Do not negotiate your own contract.
Why not? First, it is hard -- and sometimes impossible -- to advocate vigorously for yourself when the person on the other side of the table is the chairman of the board of trustees, or even worse, when what you face is a subcommittee headed by the board's chairman.
Second, modern multiyear, multipage presidential-employment contracts involve complex issues of employment law, contract law, and nonprofit tax law. Unless you are an expert in all of these areas, you do yourself a serious disservice by trying to negotiate technical legal terminology on these matters.
Third, by bringing an outside party in to negotiate for the president, the president injects a "lightning rod" into the process. Once the contract is signed by both the board and the president, the president's negotiator can leave the scene and take any possible negative feelings along with him or her.
As you contemplate whether to rely on a third party to negotiate your compensation package, you ought to think about achievable goals. One of your goals should be to create and enhance a positive working relationship with the entire board, but especially with the chairman. Another one should be to secure desirable financial arrangements for you and your family.
Some presidents are able to achieve these goals without the assistance of a third-party negotiator. But without the advice and counsel of an experienced lawyer, you may end up like John W. Shumaker, the former president of the University of Tennessee. In reviewing his contract for a Kentucky newspaper, it became apparent to me that, while the financial rewards (both guaranteed and potential) were extraordinary, the job-protection elements of the contract were quite weak. So, when his presidency did not work out, the severance payments were considerably less than you would have thought, given the size of the compensation package and the length of the contract.
Some presidents tell me that they are hesitant to bring in an outside negotiator because by doing so, they fear they will damage their future relationship with the board. My experience, however, has been that instead of being offended when the president brings an experienced negotiator into the process, the board has greater respect for the president's professionalism. They would much prefer a president who knows and understands his or her limitations and seeks out expert assistance when necessary.
Can a president ever profitably negotiate any aspect of his or her contract with the university? I believe the answer is yes. I see two key issues that the president and the board chairman can, and should, resolve between themselves: the president's starting annual salary and the length of the contract. But before entering into those discussions, the president should be armed with comparable data and a view of where he or she would like to be in relation to peer presidents. Several sources of compensation information are available, including The Chronicle. However you acquire the data, it's helpful to be able to point to the salary range of presidents at comparable institutions in order to make the case for setting your salary at a certain level.
Regarding the length of contract, data from higher-education associations show that at four-year institutions, three years is the most popular term for a first contract, and five years for a renewal. Of course, I have seen both longer and shorter terms for first-time contracts. A new president, thinking about job security, might propose a five-year contract, and then settle on three years.
Once you get past those two key issues, and on to more-complicated matters like bonuses and deferred compensation, you're likely to need the advice of a good lawyer. Let's talk about bonuses first.
Twenty years ago, when I first began negotiating these contracts, there was no discussion of substantial bonuses. Today, the following bonuses have been brought into higher education primarily by the businesspeople who now serve on most boards: performance bonuses, retention bonuses, and signing bonuses.
A signing bonus is generally offered to a president -- like Mark G. Yudof, the former president of the University of Minnesota -- who has built up a kind of "golden handcuff" account at his current university. When another university comes along to court the president -- in Mr. Yudof's case, that was the University of Texas System -- that second university offers a "signing bonus" to cover the loss the president will take by leaving his current university. For Mr. Yudof, that amount was about $170,000.
Performance bonuses are also increasingly common in academe. Trustees are advised to work with presidents to establish mutually agreed-upon goals, which, when achieved, trigger performance bonuses. Retention bonuses are becoming more acceptable in higher education as boards come up with ways to keep presidents who perform well. An example would be the $100,000 annual retention bonus that Mary Sue Coleman has at the University of Michigan at Ann Arbor. In these cases, trustees encourage the candidate to stay by building up an account year by year. If Ms. Coleman stays the full five years of her contract at Michigan, she will receive a retention-bonus payment of $500,000.
Deferred-compensation accounts come in different sizes and forms, but they all have one thing in common: They allow you to defer or postpone a certain amount of your current income to a future time when your level of earned income will be less, and you will be in a lower tax bracket. So, for example, a president and a board could agree that $50,000 of the president's annual salary would be set aside in an interest-bearing or equity account, and that the president would not have access to it until some future date. If drawn up correctly, these plans protect the president from current taxation on both the amount of the annual "deposit" and the interest or appreciation. Of course, when it comes time to collect, the president will be required to pay income tax.
A host of other matters ought to be considered during negotiation, including housing, transportation, disability insurance, life insurance, tuition waivers for the president's children, and whether the president's spouse will receive any compensation. Just how important those issues are depends on the circumstances of the president and his or her family. But they should at least be put on the table and discussed thoroughly by both sides. Issues that are not dealt with in this way can become irritants in the relationship between the president and the board. Occasionally, such irritants cause a presidency to end prematurely.
How can you avoid appearing greedy? If you are being recruited from one institution to another, it is perfectly appropriate to ask for more compensation than you were receiving at your old university. At the same time, you don't want to start a new presidency with the trustees feeling that you asked for too much. The best way to avoid this pitfall is to study the compensation packages that the presidents of similar institutions are receiving. Several reputable firms conduct compensation studies for presidents and for boards of trustees that will provide comparative data.
To the extent that you decide to negotiate your own package, it is vitally important to take some time to view matters from the board's perspective. With very few exceptions, today's trustees are not professionals in higher education. That means that a successful negotiation between a president and a board will involve a great deal of patience and perseverance. The board chairman, who is almost certainly an important member of the community, does not want to appear as though he simply gave the president a blank check. On the other hand, a responsible chairwoman will want to negotiate a compensation package that is sufficient not only to attract the best candidate but also to retain that person for as long as possible.
From the board's point of view, its top priority ought to be securing stable and effective leadership at the top of the university. In today's marketplace, where the demand is high for top presidential talent, putting in place a long-term agreement with sufficient financial incentives will help universities protect their president from being lured away.
Negotiating a presidential employment contract is a complex undertaking. It involves the professional and financial well-being of the individual and the stability of the institution. A well-crafted contract can protect the president in times of difficulty. And it can also provide a university with the kind of leadership that leads to growth and prosperity.
