Private Sources Play More of a Role in Paying Public-University Chiefs

Does the extra money keep good talent or skew priorities?

By JULIANNE BASINGER

Lee C. Bollinger, the president of the University of Michigan, almost clinched one of the most lucrative compensation packages ever for a college president.

ALSO SEE: Private Dollars for Public Presidents

The package -- worth at least $700,000 annually -- was proposed this fall by some members of Michigan's Board of Regents and a small group of alumni who wanted to use public and private funds to keep Mr. Bollinger at Michigan. The donors offered to raise $5-million for an endowment, which would generate interest to supplement Mr. Bollinger's state compensation. His pay would have more than doubled overnight.

The deal fell through, however, and Mr. Bollinger instead accepted a job as president of Columbia University. He will take office there next month.

But the salary discussions at Michigan offer an insight into the increasing power that private money is gaining in compensating presidents of public universities. At some public universities, more than half of the president's pay comes from private sources.

Such situations are part of a sweeping trend of declining state support for public universities and an increasing reliance on private donors, who have gained more influence over the educational direction and research at those institutions, higher education scholars say.

Since those donors, who may not even reside in the state where an institution is located, already have clout with a president, the question then becomes who retains oversight of the university's leader. In many cases, the foundations providing substantial portions of a president's salary are not controlled by a university's trustees, who are supposed to guard the public trust.

"There's probably a broad terrain of yet-to-be explored issues concerning accountability and ethical questions," says Gregory McLauchlan, a political-sociology professor at the University of Oregon. "Personally, I would like to see a university president's salary come directly from state general funds, and not have any appearance of strings attached."

Many public universities have long relied on private donors for a little extra money for their presidents' salaries, or for benefits like country-club memberships or new cars that legislators might balk at financing with state appropriations. But the role of this private money in public-university compensation is taking off as never before, according to higher-education scholars and lawyers, as well as search-firm consultants. Even institutions that have not used private funds to augment a president's salary in the past are starting to do so now.

Such supplements can spark controversy, however, because private foundations are not held to the same laws of public disclosure as state entities are. Moreover, boards are often reluctant to divulge such salary arrangements, for fear of political repercussions.

"What the foundations generally are doing is covering those expenses that the university would find politically embarrassing to come up with," says Raymond D. Cotton, a lawyer who specializes in employment contracts for college presidents.

Universities that supplement presidents' state salaries with private funds are usually larger, flagship and land-grant institutions that have a hefty endowment or donor support to do so, higher-education scholars and consultants say. Thomas C. Longin, vice president for programs and research at the Association of Governing Boards of Universities and Colleges, says that in a survey of presidential compensation, for a report published by his organization last year, about one-third of all public-university boards reported that their presidents received supplemental compensation from private sources. It was difficult to obtain exact data, Mr. Longin says, because "nobody wanted to talk about it."

In cases where the information has become public, questions about potential conflicts of interest have arisen when individuals or small groups of donors are financing a substantial portion of a president's salary. For example, David B. Frohnmayer, president of the University of Oregon, came under fire several years ago when he accepted a salary supplement from a chair endowed by Philip H. Knight, the cofounder and chairman of Nike, who some people at Oregon said already had too much influence on the campus.

Still, public board members increasingly say that they must boost compensation to attract and retain top-quality presidents, as the gap between the salaries at public and private universities has widened to as much as 30 percent.

Few presidents leave to head other institutions solely for the money, says R. William Funk, managing director of college-presidential searches for Korn/Ferry International, an executive-search firm. "What they do require is a sense that they're being paid a salary commensurate with others in similar institutions."

The University of Louisville's trustees wanted to make sure they didn't lose their president, John W. Shumaker, to a better offer, so they decided a couple of years ago to pump up his compensation through private funds.

Mr. Shumaker has an annual compensation package of $597,455. The state provides less than half of that: $263,304 in base salary, $21,000 in deferred compensation, and $8,250 for leasing a car.

The rest -- $304,901 in salary, bonuses, and deferred compensation -- came from the University of Louisville Foundation, for which Mr. Shumaker also serves as president, and is a paid consultant.

Meanwhile, the university's Board of Trustees this summer agreed to give Mr. Shumaker a $1.5-million bonus from private funds if he completes his contract, which runs through 2008.

"Those are the golden handcuffs, and we call it that to him," says Jessica S. Loving, chairwoman of Louisville's Board of Trustees. "They're very attractive, and they don't hurt much."

Higher-education scholars and lawyers say that few universities volunteer information on private supplements to presidential salaries, for fear of repercussions not only in the state but on campus as well, especially when budget crunches have taken a toll on faculty salaries. Compensation provided to university presidents by affiliated foundations usually does not show up on their federal tax forms, except in the rare instance when the university president also is an officer of the foundation, as in the case of Mr. Shumaker.

For the first three years after Mr. Shumaker became the university's president in 1995, the foundation paid him only about $38,000 a year, tax records show. But in 1998, that amount increased to $125,000 -- more than half his base salary of $200,000 from the state.

Ms. Loving says that the board asked the foundation to increase the supplement after seeking the advice of a salary consultant. A Kentucky law prohibits any university president's public compensation from exceeding that of the head of the state office of postsecondary education, so the trustees skirted that by requesting foundation dollars.

"The realization was that if you want to recruit and keep really good people, you've got to be able to pay them adequately," Ms. Loving says. The trustees admired Mr. Shumaker's fund-raising abilities and administrative skills, and saw that he was generally well-liked by the faculty, so they wanted him to stay, she adds.

Some higher-education scholars, however, criticize Mr. Shumaker's overlapping roles as head of both the university and the foundation. "In this case, the president of the university is also president of the foundation and then also a consultant of the foundation," says John Thelin, a professor of educational policy at the University of Kentucky. "It seems to me that's quite a bit of self-dealing."

Mr. Shumaker declined to comment. Ms. Loving acknowledges the potential conflict, although she says that the university and foundation have had no problems with the setup before, since the foundation has a strong board. Still, she adds, "I can understand why someone might question it, and I think it's something that we probably should think about."

The Michigan regents also felt pressure to increase Mr. Bollinger's pay, before he was lured to another presidency. They had started worrying last spring, when he became a finalist in Harvard University's presidential search.

The regents and donors viewed their competition as the top private universities, and they wanted to try to offer him similar compensation, says George M. Perrin, one of the donors involved in the negotiations.

The group of seven alumni donors, only one of whom lives in Michigan, all had made gifts of at least $1-million in the past. They approached the board about increasing Mr. Bollinger's salary, says Mr. Perrin, who lives in Dallas and is the founder and former president of PageNet, a paging company.

The donors proposed raising the president's annual base salary from the current $326,550 to $600,000. They also wanted to offer Mr. Bollinger $2-million in deferred compensation, with accrued interest, which would only have been awarded if he had stayed five more years.

The plan called for the university to finance the base salary. The donors offered to give a minimum of $5-million to underwrite an endowment, to be controlled by the Board of Regents, that would have covered all of the deferred compensation, according to Mr. Perrin.

But when the board met to consider the package in June, regents voted 6-2 against it, regents and donors say. Some regents were concerned about the size of the offer, since Michigan is a public institution. Some opposed involving private donors, fearing that might allow them excessive influence. And some had become less supportive of Mr. Bollinger in recent years, because of philosophical differences.

"It's not an issue of whether you can afford to keep a president, it's how you afford it, and it's an issue that many public institutions are grappling with," says Daniel D. Horning, a regent who voted no on the package. "I'm one voice that doesn't think we should use private money, in a public setting, that lures or retains your CEO."

The regents finally made an offer to Mr. Bollinger in late September, but by then, he was already considering Columbia's presidency. The Michigan offer would have given him a $500,000 annual base salary; $500,000 in deferred compensation over five years; plus a year's sabbatical, during which he would have received a stipend equal to the $500,000 annual salary.

The offer hinged on Mr. Bollinger's agreeing to stay at Michigan for five years, regents and donors say. Not only would it have become invalid if he left, the contract contained an unusual clause that would have allowed the board to seek an injunction against him if he violated that. For Mr. Bollinger, that requirement was unacceptable.

But the battle over his salary package was only one factor in his decision to leave, Mr. Bollinger says. "At the end of the day, it was not a choice about compensation."

Top public universities have long recognized the need to raise salaries of their best professors or deans in order to keep them and remain competitive in academic quality with top private institutions, Mr. Bollinger says. "I see no reason why provosts or vice presidents or presidents should be an exception to that general rule."

During the search last fall for a new chancellor of the University of Wisconsin at Madison, the state's Board of Regents for the first time turned to the university's private foundation to supplement the chancellor's salary. System leaders said that David Ward, the former chancellor who is now the president of the American Council on Education, was underpaid with his salary of $193,000 a year, and they didn't want salary to be an obstacle in selecting his successor. John D. Wiley, the former provost at Madison, was appointed the new chancellor. He earns $96,000 annually from the foundation, in addition to his $202,250 state salary.

Other public boards are considering similar supplements. In Mississippi, where the state higher-education board is searching for new presidents for Mississippi University for Women and the University of Southern Mississippi, the board probably will turn to private sources to increase the salaries, as it already does for its three largest universities, says Bryce Griffis, the board's vice president.

Robert C. Khayat, chancellor of the University of Mississippi, received an annual state salary of $113,300 and had a supplement of $30,000 from the university's private foundation when he took office in 1995. That private supplement now is $130,000 annually, and his state salary is $150,000.

Other states also have turned to foundation supplements as a way to keep popular presidents. The Idaho Board of Education in 1999 approved a 50-percent salary supplement for Robert A. Hoover, president of the University of Idaho, to be paid by the university's foundation. The package included an annuity of $601,365 -- as well as cash payments of $125,000 to cover taxes on the annuity -- if he stayed through an eight-year contract. His current state salary is $161,346.

Foundation leaders asked the state board to set up the supplement because they knew the public salary was low for a president of a research institution, and they didn't want Mr. Hoover to take other offers, says Roy L. Eiguren, a member of the foundation's executive board. The state board agreed after "a very spirited discussion" about who would have control over hiring and firing the president if the supplement were approved, he says. Several months later, the state board approved a similar supplement for the president of Idaho State University.

But such deals can create disharmony in a state, as was the case in North Carolina. The Board of Governors of the University of North Carolina system in 1995 allowed its campuses to start providing supplements to chancellors' compensation. The resulting salary disparities drew criticism, prompting the Board of Governors in 1997 to kill the supplements and pledge to replace them with state money. James C. Moeser, the chancellor of the flagship campus in Chapel Hill, is paid $255,625.

The public salaries of presidents in some states, however, have been set at low levels for years. Legislatures have expected, or at least accepted, that the state funds would be supplemented through private sources. Several presidents in Virginia, for example, now receive supplements from private funds that sometimes match or exceed the state portion.

John T. Casteen III, president of the University of Virginia, receives only $153,954 from the state, about a third of his annual compensation of $452,943. The state portion is supplemented with interest on unrestricted funds in the university's endowment. Another $40,000 comes from an endowed faculty chair, which was established in 1985 for the university's president.

In Texas, a 1951 law limits the amount of tax money that can be used for paying presidents of public universities. The current salary cap for chancellors is $70,231. For presidents, the cap is $65,945.

So the state contributes less than one-seventh of the $506,925 annual compensation package of the University of Texas System's chancellor, R. Dan Burck. The state also pays only about one-sixth of the $414,033 compensation package of the University of Texas at Austin's president, Larry R. Faulkner. The rest comes from private sources.

Two gifts made in the early 1990s -- one from Nancy Lee and Perry R. Bass, and the other from Joseph D. Jamail -- set up endowments for the chancellor's salary, and the interest from those now provides a supplement of $315,967 annually, according to the university's budget office. Mr. Burck also receives $100,000 a year in deferred compensation from the university's foundation. Part of that is generated by a donor group, the Chancellor's Council, created in the 1960s with the specific aim of increasing the chancellor's pay.

The large, private supplements have drawn criticism from watchdog groups in Texas such as Public Citizen, which question the potential for conflicts of interest. Mr. Burck has dismissed that notion, although he has acknowledged that donors do "get added access."

Such questions about donor influence arose at Oregon when Mr. Knight, the Nike president, donated $15-million in 1996 for endowed chairs and earmarked one for the university's president, Mr. Frohnmayer. "People were concerned about whether there were going to be implicit strings attached," says Carl Bybee, a journalism professor who was head of the Faculty Senate then.

The $40,000 salary provided for the endowed chair became such a charged issue that the president decided to accept only a portion of it -- $17,600 -- in salary, Mr. Bybee says. The bulk of the rest of it -- $20,000 -- is placed in an account for presidential expenses, and the other $2,400 is used for benefits.

Meanwhile, Mr. Frohnmayer also receives an $85,000 salary supplement from the university's foundation -- a fact that surprised several faculty leaders, who say they didn't know about it.

At issue in many cases is accountability, says Ronald G. Ehrenberg, a professor of industrial and labor relations and economics at Cornell University who has studied the compensation of public-university presidents.

"How do we feel about part of a president's compensation coming from a source that is not directly accountable to anything except the people who run this foundation?" he says. "And would we feel more comfortable if the provisions of these arrangements were made public? I think this is a very serious concern."

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