Moving Up

Billion-Dollar Presidents

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By Raymond D. Cotton

Several publications, including The Chronicle, have been tracking the progress of billion-dollar fund-raising campaigns at universities throughout the country. In an earlier time, such large campaigns were unheard of. Today, as this online chart demonstrates, 25 such capital campaigns are in progress, with many exceeding the $1-billion mark.

Most of the media coverage of those enormous fund-raising efforts focuses on the goal itself and the progress toward reaching it, particularly the big multimillion-dollar gifts from individuals, foundations, and businesses. Such reporting is interesting, informative, and appropriate. In this article, however, I will be looking at the compensation awarded by boards of trustees to the presidents of universities who lead those extraordinary campaigns.

Most presidents that I interact with talk about their expanding mandates and shrinking resources. Many public-sector universities today are not being supported by their state legislatures as well as they were in the past. For private universities, it is always a scramble to meet the growing demands placed on their operating budgets while at the same time trying to enhance their endowments. Nationwide, that has resulted in large increases in tuition.

Even though the challenge of meeting a $1-billion fund-raising goal is daunting to both trustees and presidents, they need the money, and that's why higher education is seeing more such campaigns than ever before.

As a backdrop for discussing the compensation of the leaders of large-scale campaigns, I should mention some salient statistics about the modern presidency. From data I have seen, it appears that higher education is in the midst of a sea change in leadership.

Many presidents who were born in the post-World War II baby-boom era are now beginning to retire. That social process has made sitting presidents who are five to 10 years from retirement extremely attractive to governing boards seeking to replace their retiring presidents. However, since the pool of sitting presidents five to 10 years from retirement is limited, while the demand for them is growing, experienced presidents are being offered larger and larger compensation packages to relocate.

Meanwhile, many universities that have presidents who are successful at fund-raising and possess the other key qualities that trustees value today (good management skills, credibility with the faculty, the ability to successfully represent the university in many forums, etc.) are striving to make sure they hold on to those leaders. To do so means, among other things, making sure the president's compensation is sufficient to prevent him or her from being recruited away.

Beyond those factors, the job of the presidency has become more and more demanding. While presidents may not actually work 24/7, they are certainly on call at all times. I advise my presidential clients to view themselves as the embodiment of the university. Wherever they go, they are looked upon, and should view themselves, as the one individual who represents all of the departments, the schools, the laboratories, the sports teams, the students, the faculty, the administrative staff -- in short, the entire university.

Indeed, as Harvard University's president, Lawrence Summers, discovered to his dismay, society today does not permit a sitting university president to remove his jacket and tie and engage in an "off-the-record" discussion as any other member of the university might. As long as that person is the president, he or she is always "on the record."

What, then, is the value of those leaders to their respective universities? It would be nice if I could give you a simple formula. But, based upon my work with scores of trustees, I have concluded that there is no set formula that can be applied mechanically in every case. Instead, each board can and should decide for itself, using its own best judgment and current, comparable, peer-compensation data to determine how much a particular president should be paid.

In addition, as a "best practice," every board ought to evaluate the performance of its president on an annual basis and document the rationale for setting the president's compensation at an appropriate level.

As for the 25 presidents who are currently in charge of capital campaigns set to raise $1-billion or more, the data we have collected shows that the total compensation of those presidents ranges from $250,350 a year (University of Arkansas at Fayetteville) to $1,407,588 a year (Vanderbilt University).

Let me say a word about the data: First, it was collected by the diligent research staff members of my firm under my direction. All of the public universities except one cooperated fully and immediately. For reasons that weren't explained, the University of California system took more than six weeks to produce the data about its chancellors' compensation.

With regard to the private universities contained in our project, some of them, too, not only delayed in responding to our requests but also refused to submit current compensation data, telling us they would not divulge any information regarding their president's compensation beyond what they were absolutely required to do under federal law.

I do not agree with such a policy. Indeed, universities ought to be completely transparent about all aspects of their president's compensation package. Otherwise, the public may conclude there is something to hide.

Fortunately, all of the private universities in our study met IRS requirements and filed a Form 990, which contains the president's compensation data. Those informational tax returns are publicly available but do not contain current data. Accordingly, for those private universities that did not cooperate with our study, we have taken their Form 990 data and projected it forward -- a process which, barring such things as large bonuses or substantial increases in base salary or deferred compensation, should closely approximate their actual packages for the 2005-6 academic year.

I have specifically chosen not to discuss this effort with any of the presidents who are listed because presidents do not set their own compensation levels; governing boards do.

I have spoken with several board chairmen. While some of the compensation packages for the private-sector presidents are high, the heads of their boards have specific and documented reasons for that.

For example, we project that Shirley Ann Jackson, president of Rensselaer Polytechnic Institute, will earn a total package of about $996,552 this academic year. Samuel Heffner, chairman of the institute's board, thinks it's money well spent. He discussed at length the transformational successes that Ms. Jackson has brought to Rensselaer during her six years as president. Among other successes, he noted that she had brought a $360-million gift to Rensselaer, which at the time was the largest ever in higher education. He says that the value that her leadership has brought to the institution has far outweighed her compensation.

Moreover, in accordance with IRS regulations, the Rensselaer board has commissioned compensation studies on an annual basis by well-known human-resources experts in order to be certain that the amount paid to Ms. Jackson is not excessive when compared to her peer presidents.

At the Johns Hopkins University, William R. Brody will earn about $915,272 in 2005-6, according to our calculations. Raymond (Chip) Mason, president of the university's board, attributes that to the complexity of the job at Johns Hopkins, including the size of the operation (annual budget of about $2.4-billion; a world renowned medical center; 3,100 faculty members; 18,000 students; and more research grants then any other university in the United States).

Dr. Brody is a board-certified radiologist and was chief of radiology in the Johns Hopkins Hospital before he became president nearly a decade ago. His strong medical and scientific background has been of enormous help to the board during its deliberations. Moreover, fund raising has been very successful during Dr. Brody's tenure, propelling the institution into the top five university fund raisers in the country for the last several years.

Mr. Mason, who himself comes from the world of finance, has seen Dr. Brody's compensation grow in small increments over the years and now believes he is underpaid relative to the value he brings to the university.

When it comes to presidents at public universities, it is apparent from other studies that state-level politics play a major role in the amounts such boards decide on as compensation for their presidents. Inappropriate political interference can and does result in the heads of public universities being recruited away to better paying and more apolitical presidencies in the private sector.

Underpaying a top-performing university president is never good policy since it leads to instability and loss of leadership.

The attached chart documents the upward trend in presidential compensation for those who are leading huge fund-raising campaigns for their universities. It also shows a disturbing trend that I have seen in other studies: Many public-university salaries for presidents are not competitive anymore with private universities.

Indeed, the highest-paid president of a public university in this study is John T. Casteen III at the University of Virginia. He makes less than half of the package awarded to the highest-paid president at a private institution, E. Gordon Gee of Vanderbilt University.

The difference is also striking at the lower end of our study: We project that John A. White, president of the University of Arkansas at Fayetteville, will earn $250,350 a year in 2005-6, while the lowest-paid president at a private university in our group -- James Wright of Dartmouth College -- will be paid $488,266, almost double Mr. White's compensation package.

Another striking finding is how low even the highest-paid presidents are compensated in relation to the amount of resources they are responsible for bringing in to their universities. Although it is considered unethical in some circles for a board to pay the head of a nonprofit a percentage of the amount of money he or she raises for the organization, imagine if universities did pay their presidents a bonus -- say 1 percent of the money raised by their team. In the case of a $1-billion campaign, that would amount to a $10-million bonus.

As shown in this study, the highest-paid president, E. Gordon Gee, receives about $1.4-million a year, including bonuses, for all of his contributions to Vanderbilt, of which fund raising is only a part. While one hopes that university presidents care more about their missions than their compensation, they, like the rest of us, are entitled to be concerned about how much they are paid.

People who can manage these very complex and often very large institutions have employment options. Since the leadership of our universities is vitally important to the well-being of our society, we all have an interest in making sure the university presidency, for all its challenges, remains attractive to those younger people who may be studying for their bachelor's or master's degrees and just now deciding whether to go into business administration or nonprofit management. One of the ways we can continue to make university presidencies attractive is to make sure that compensation levels are sufficiently rewarding to attract the best and the brightest current and future leaders.