• July 23, 2014

Vanderbilt Sets an Expensive Precedent, With 10 Million-Dollar-Plus Earners

40 Vanderbilt

Neil Brake, Vanderbilt U.

Of the 10 employees of Vanderbilt U. who earned more than $1-million in 2008, four worked at the medical center (above). Seven-figure salaries are becoming more common at American colleges.

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close 40 Vanderbilt

Neil Brake, Vanderbilt U.

Of the 10 employees of Vanderbilt U. who earned more than $1-million in 2008, four worked at the medical center (above). Seven-figure salaries are becoming more common at American colleges.

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.

Comments

1. jeff1 - July 09, 2010 at 06:54 am

Do they have any opennings? If they do I have to gain some weight before they decide how much gold to give me!

2. feudi - July 09, 2010 at 07:38 am

Who does Vanderbilt think they are? Phoenix U? Seriously, when not for pofits start emulating for profit schools in paying their adminstrators, we need to take pause and reflect on our values.
Even at these high pay rates though, for profit education executives typically earn five times more in non-cash income as they get in salary through stock options, deferred compensation, etc. All that being said, a few of these salaries at Vanderbilt are over the top and excessive...just ask their students and the American taxpayers who are, in the end, footing these salaries.

3. ludwigandrose - July 09, 2010 at 08:39 am

I'd be curious to know what stock options Vanderbilt can award--or is that just illustrative of the IRS category? I must admit, it's refreshing to see a list where coaches aren't making more than everyone else.

4. lsmaterna - July 09, 2010 at 09:48 am

The trend is not pretty. It is higher education's version of what's happening in the society at large: the concentration of wealth in fewer hands augmented further by the capital capacity of that wealth locus to generate yet more wealth. Meanwhile faculty salaries stagnate or fall, and the compensatory benefit of tenure is accessible to fewer and fewer of them. The model will duplicate that in the private for-profit sector. Concentrated wealth at the top and a workforce without power and subject to constant reshuffling, layoffs and dismissals. Not sure how this makes sense for students either.

5. 7738373863 - July 09, 2010 at 10:23 am

What thoughtful economists have noted as an emerginng trend in the private sector is a growing disparity between workers' wages and the compensation of leadership--not merely in dollars, but in the ratio of compensation. Given how little adjuncts make, we in higher education were already shadowing the trend with $800K salaries for presidents and $3K/course stipends for adjuncts. The Vandy salaries, no matter what the motives for tendering them, reach a whole new level of greed and obscenity.

6. 11271415 - July 09, 2010 at 10:49 am

Look, only one woman and one minority in the top ten!! Is this 2010?

7. physicsprof - July 09, 2010 at 11:17 am

I am delighted to see the coaches so far down the list.

8. hawkeyecc - July 09, 2010 at 11:18 am

As faculty we continue to lose ground. When I started teaching at our community college I made approximately one-third of what our president made, now it is down to one-fifth. And this doesn't reflect his retention bonus, which is utilized in small public colleges as well as large private and for profit institutions. The previous comments are spot on, the rich get richer, and the best educated, who serve the students, and actually generate the revenue, fall closer and closer to the poverty level.

9. hmallon - July 09, 2010 at 11:31 am

Unlike the past, the new Form 990 significantly increases the transparency of the five components of the total compensation package (cash salary, bonus or incentive compensation payment,other compensation, deferred compensation and non taxable benefits)for those eligible employees reported on Schedule J with W-2 wages of $150,000. In addition, the new Form 990 also requires reporting all wages and/or reportable income
from all related organizations, which in the prior form 990
was more often excluded.

Retention is defined as an act of retaining or a state of being retained. The payment (retention bonus)in a one-time cash settlement is an irrevocable by definition and, as such, provides
absolutely NO element of retention (EMPHASIS ADDED)

As a compensation consultant,who works exclusively within the tax-exempt community, retention bonus should be constructed to impose Golden Handcuffs on those participating in this plan - "Yos Stay We Pay!"

Under a retenetion bonus plan, the tax-exempt contributes a sum of money, either in a lump sum or over the retention period into a non-qualified supplemental retirement plan (NQ SERP) with a fixed date of payment in the future, e.g., 60 months. The contribution and earnins thereon, as applicable, are subject to significant risk of forfeiture during the retention period.
Inthe event that the eligible participant "stays the course",he or she would receive the accumulated sum of money as of a fixed date as defined in the plan document.
Under the terms of a true retention retention plan the following will occur:
1.
However, in the event that the eligible participant fails to stay the course ( quits - volentary termination by employee or is terminated by employer fo cause, the departing participant forfeits the entire balance in the plan.
is terminated for other than termination for cause by the tax-exempt or termination of employment by the employee, the participant is eligible to recieve either (i) 100% of the value as of date of termination (death, disability or termination of employment by the tax-exempt for without cause) or prorated share as determined by the board. Retention bonuses are not paid in cash. There is absolutely no retention element in cash bonuses - it is an irrevocable of cash to the employee without recovery by the tax-exempt. The is another example of poor governance which is also exemplified in the AIG example of 2008. The question is how many of those who received the retention bonus at AIG are still employed today - the anser is very few!

In our opinion, the board, or designated committee, received faulty advice ( in the event that they even sought such thrid party consulting advice as indicated in the Interim Report of the finding of their survey of 400 colleges and universities activities, governance and compensation practices). The action of the board' in paying the retentention bonus in cash probably
will not achieve the desired result - retain the services of the selected management team members for a predetermined period of time. Quite frankly, board failed to perform their
responsibility well in affirming a total compensation package, which included a retention package which actually has "teeth" (forfeiture if they do not stay the course) the retention element of the plan. If reviewed by the regulatory agencies (IRS or States Attorney Generals office), they might conclude that the retention bonus payment is excessive give it lacks any element of the act of retain the service for a predetermine period.

It is time that we take a harder look at the total compensation package for senior management positions to assure that the tax-exempt benefits from the package provided.



10. robstol - July 09, 2010 at 11:44 am

@11271415

Well -- she is retired, so no women next year?

11. 988776 - July 09, 2010 at 11:52 am

"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."

I feel fairly certain this will be widely discussed and that *many* are concerned.

12. ucs2009 - July 09, 2010 at 12:23 pm

You want me to donate to Vanderbilt in order to perpetuate a travesty of this magnitude? Don't bother asking. Use the postage saved to line the pockets of another bloated administrator or faculty member. Shame.

13. hmallon - July 09, 2010 at 12:35 pm

We am a first time responder, somehow we hit submit prior to final statements and edits. Here we go again....hopefully it is helpful

Unlike in the past, the new Form 990 significantly increases the transparency of the five components (cash salary, bonus and incentive bonuses, other compensation, non-qualified deferred compensation and non taxable benefits provided) for eligible employees reported on the new Schedule J with $150,000 or more of W02 wages). In addition, the new Form 990 also requires the tax-exempt to report all wages and/or reportable benefits received from related organizations which were not presented in the prior Form 990.

Retention is defined as..an act of retaining or a state of being retained. The payment of a one-time retention bonus in cash is irrevocable, by definition, and, as such, provides absolutely no element of retention (Emphasis Added)

As a compensation consultant who works exclusively in the tax-exempt sector, a retention bonus should be constructed to impose upon the participants a significant risk of forfeiture ("Golden Handcuffs" - You Stay, We Pay!)

Under a retention bonus plan, the tax exempt contributes a sum of money, either in a lump sum or series of payments into a non-qualified supplemental retirement plan (NQ SERP) with a fixed payment date, e.g., 60 months. During the retention period, the contributions and earnings thereon, as applicable, are subject to significant risk of forfeiture (not vested in anyway).

The following is a summary of the retentions plan's triggering events and related payouts:

Termination For Cause by the Tax-Exempt (fired) - forfeits 100% of the account value (contributions and earnings)

Voluntary Termination by the Employee (Quits) - forfeits 100% of the account value (contributions and earnings thereon)

Involuntary Termination of Employment by the Tax-Exempt - the participant is eleigible to either receive (i) account balance or (ii) prorated share of the account value as determine by the board.

Death and/or Total Disability - 100% of the account value (contributions and earnings thereon)

Retention Bonus arrangements should never be paid in cash. There is another of a retention bonus which was paid in cash - AIG in 2008. The question is how many of those that received the retention bonus in a one-time cash settlement is still working at AIG? The answer is most like a small percentage due to lack of significant risk of forfeiture for not staying the course.

In our opinion, the board or its designated committee received faulty advice in the event that the board sought advice from a third party consultant. According to the most recent report from the IRS (May 7, 2010 "Interim Report" summarizing its findings from the College and university Compliance Project) a large percentage of colleges and universities have failed to utilize
the services of an independent third party consultants to (i) assist in complying with IRC section 4958 - Rebuttable Presumption Guidelines and/or (ii) to acquire independent data on the total compensation packages offered.

The action of the board in paying a one-time cash settlement as a retention bonus will not achieve the result of retaining the services of the participants to a fixed date in the future, if it was ever considered as part of the design. Therefore, the board
has failed to perform their governance responsibility well in affirming an appropriate and reasonable total compensation package, which included a retention bonus, that also benefits the tax-exempt.

In the event that the plan was reviewed by the regulatory agencies (IRS or States Attorney General's Office)they might conclude that the retention bonus payment is excessive as it lacks any elements of retention to a fixed date.

It is time that boards take a harder look at their responsibility in this regards.

14. mxb22 - July 09, 2010 at 01:25 pm

The Boss's pay is none of your business. His salary is not a "social justice" issue; it's your envy issue. You want what he makes, then do what he does. If you find the entire salary system in your institution "obscene," then quit. If you decide the country's social system is wholly "intolerable," then get out. It's called emigration. You want socialism, move to Europe and pay up. Whatever, spare the rest of us your whining and your rectitude. We don't have to do things your way.

15. greenhills73 - July 09, 2010 at 02:49 pm

Oh, so well said, mxb22.

16. physicsprof - July 09, 2010 at 04:15 pm

mxb22, while sharing the dislike for a socialistic society, I have to point out that your advice to "get out" and "move to Europe" seems to leave out a perfectly sound possibility of attempting to change the existing system to a form of a socialism. After all, the "system" is not fixed by the geography and represents a social consent of majority, which of course could change as the time goes by.

17. 7738373863 - July 09, 2010 at 04:23 pm

I'm sorry, @mbx22: at any nonprofit institution of higher education the boss's pay is my business, because as a faculty member, I am that business--not merely the producer of the product, but a part of the organization's capital as well.

And please get over the imputation of base motives. I do not want to earn what the Gordon Gees and their ilk earn. I want salaries to stop contributing to the skyrocketing costs of higher education and transforming higher education leadership to corporate leadership.

What I find most embarrassing about your tirade is the untested assertion that you and those like you are in the majority on the issue. Implying that I and others like me are self-righteous, whining socialists is not argument. It's defamation

18. shiksha - July 09, 2010 at 04:24 pm

Way to go mxb22!

19. ethicsbrentwood - July 10, 2010 at 03:50 pm

I would like to see the comparison in compensation between the employees at vanderbilt and leadership!!!!

20. observer001 - July 11, 2010 at 12:27 pm

These striving, second tier, regional schools like Vanderbilt (or their trustees and donors) need to realize that an institution becomes (and stays) great not by paying high admin salaries/bonuses (which now makes them look laughably like a Phoenix U.), but by consistently offering the highest faculty salaries in the nation across the board in order to recruit and retain those who actually make or break an institution's academic reputation.

I agree with 'hmallon'- these yokels even blew their chance to make the bonuses effective at forcing the recipients to stay, though I guess you can't blame the administrators for taking them and waiting a year or two before then stepping up to Ohio State.

21. jeff1 - July 11, 2010 at 01:43 pm

Right on 7738373863! This is disgusting and indeed it is a non-profit institution. I am a senior administrator and I am embarassed. We are not all in need of ridiculous salaries to do our jobs or remain at the institutions where we engage in our life's work. Faculty, in my experience (and I there are over 300 here) are very interested in the success of the institution and not focused on socialism. mxb22 does not get it and Vandy's compensation approach, and others like them, are part of the reason higher education's image is tarnished in the public's perception today!

22. mtnlover - July 11, 2010 at 04:44 pm

observer001 - you state "These striving, second tier, regional schools like Vanderbilt" but I don't get your meaning.

Vanderbilt is a RU/VH, one of the best schools in the South if not the nation - how is it a striving, second tier, regional schools?

Having lectured there as a guest many times, I would rank maybe 10 schools in the nation above it. Their post-docs in medicine (hundreds of them by the way) are second to none.

23. observer001 - July 11, 2010 at 07:26 pm

"mtnlover"- I should have modulated my comments- it was exasperation with the admins making bush-league decisions, wasting money and opportunity. Some areas, like medicine, are strong and have a good reputation in the southeastern U.S.; however, they don't have research programs or PhD's in many of their social sciences, humanities departments or library strengths.There is so much room for growth, but Vanderbilt (or others like it) will never join the ranks of, or be respected like, Harvard, Princeton, Yale, Stanford, Chicago, Berkeley, Columbia, Hopkins, Cornell, Penn, MIT etc. unless they invest in faculty and programs across disciplines like these do.

24. jeff1 - July 12, 2010 at 06:53 am

Your views asside Vanderbuilt is not a top ten school and observer001 points how a few that are much better. I would also say Dartmouth and Brown are stronger as well and there are others. It is not a first tier school in any objective measure your opinions and experience as a lecturer there aside.

25. ecklesweb - July 13, 2010 at 10:21 am

@observer001:
What in the world are you talking about? They have Ph.D. programs in over 20 humanities or social science disciplines (see http://www.vanderbilt.edu/academics/disciplines/). They have at least 10 different libraries with over 8 million items and a $25 million budget.

26. groland - July 16, 2010 at 09:54 am

@mxb22, the boss' pay is everyone's business. Consider how much Vandy receives in indirect costs form NIH and other government grants to pay for overhead and infrastructure. Consider tax breaks for non-profits, consider how many faculty must generate their salaries off of government grants while the U sits on a multi-billion dollar endowment.

These salaries mirror the CEO trends in business. Are we to believe that these jobs cannot be done by others for significantly less? We have a very competent CEO of the health system at larger school that outranks Vandy and SHE only gets about $600K. The internal markets for CEOs and coaches are rigged. For example, does anyone really believe that there are no football coaches out there at successful junior colleges, even high schools, that would take the Vandy job at 300K? The problem is that within the circle of insiders, the same people are being chased by the money. No one considers expanding the pool and letting more people into the circle. It is the same administrators who are feeding at the trough that end up making the hiring and salary decisions, often with little oversight.

27. quinonc1 - July 17, 2010 at 01:25 pm

This is a socio-economic sin, not because many of us (normal people) are not in that selected group, but because that big money includes some tax payers' money, and because other big contributors to a successful university, faculty, are not even close to make that big money. There is something wrong.

Ulises el Criollo.

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