Vanderbilt University isn't afraid to pay to get what it wants: Ten of its employees earned more than $1-million in 2008, and four of those employees broke the $2-million mark, according to the university's most recent tax filing.
The numbers, which resulted in part from large retention bonuses paid to top administrators, are unprecedented. In the previous reporting year, relatively few colleges nationwide had more than one employee who earned more than $1-million, and the largest number of million-dollar employees at any one university was seven—also at Vanderbilt.
To some extent, new federal reporting requirements underlie the apparent jump in compensation. The Internal Revenue Service has revised its 990 tax form and now asks more questions about compensation and indicates much more clearly when and how pay must be reported. The 2008 tax forms also require that compensation figures be reported based on the calendar year, not the fiscal year, which makes it difficult to compare 2008 pay levels to previous years.
Even so, Vanderbilt's compensation numbers stand out. Seven people earned more than $1-million at Cornell University in 2008, but all were doctors or administrators at the Weill Cornell Medical College, in New York City. At some other universities, the top earners were concentrated in athletics. But at Vanderbilt, they were spread across the campus: Four of the 10 employees earning more than $1-million worked at the medical center, two were coaches, and four were administrators.
"Normally you don't see seven figures below the president, and when you do that's an indication something's going on," said Raymond D. Cotton, a Washington-based lawyer who specializes in compensation.
At Vanderbilt, that "something" was a leadership transition. When the former chancellor, E. Gordon Gee, left for a second term as president at Ohio State University in 2007, Vanderbilt wanted to be sure he didn't take his team with him. To entice high-level administrators to stick around with the newly promoted chancellor, Nicholas S. Zeppos, the university's governing board devised a retention plan.
"The compensation for executives that year reflects the strategic decision of the Board of Trust to offer additional incentives to keep the university's management team in place," said Beth A. Fortune, Vanderbilt's vice chancellor for public affairs, in a written statement.
The compensation numbers are evidence of that strategy. All four employees who earned $2-million or more were high-level administrators, even though the employees with the largest base salaries—with one exception—were not.
Most of the money those four administrators received was in bonuses, incentive pay, and what the IRS calls "other reportable compensation," which includes stock options, employer-provided automobiles and housing, and contributions to nonqualified retirement plans.
According to Vanderbilt's tax filing, all four received distributions from the university's supplemental executive retirement plan, which provides benefits to "a select group of highly compensated employees as a retention strategy." These distributions were substantial. For example, David Williams II, vice chancellor for university affairs and general counsel, earned $1,339,968 from the retirement plan—almost twice as much as he earned from his base salary.
In the university's eyes, the plan has worked. "As a result of keeping a talented and skilled management team largely intact during a leadership transition," Ms. Fortune said, "Vanderbilt has continued to make great strides."
Faculty leaders, too, say they understand the reason for the unusually high compensation numbers.
Cynthia B. Paschal, who served as chair of Vanderbilt's Faculty Senate until June 30, said the topic of executive compensation was not often discussed among the faculty. Some professors, she said, get outraged over high pay, but most aren't as concerned.
"If that's what it takes when there is a competitive hiring environment to keep somebody, then that's what it takes," Ms. Paschal said.
Seven-figure salaries could become more common in higher education as colleges try to attract top talent. According to Mr. Cotton, the number of college presidents reaching retirement age is significantly larger than the number of qualified candidates, and institutions may need to shell out large sums for top-tier leaders.
"Having a good president is so important to a university like Vanderbilt that it's worth its weight in gold," he said.