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Executive Compensation for College and University Presidents: Are They Really Overpaid?

The latest received wisdom in this country is that College and University Presidents are overpaid — sometimes shamefully, even grotesquely overpaid.  They are also supposed to get ridiculous “perks” like housing (What college campus doesn’t have a President’s house where he or she is required to entertain?), a car and sometimes (gasp!) a driver, as well as membership at the local country club.

Earlier this year, The New York Times fulminated about the “shockingly lucrative deals that have become almost commonplace among college presidents” while warning that “extraordinarily generous compensation packages … are in sync with this era of lavish executive pay and glaring income inequality but out of line with the ostensible mission of academia.”  Media outlets geared to the educational profession like Inside Higher Ed routinely run stories with headlines like “Perks and Pay Under Fire.”

Deemed “outrageous” by (largely underpaid) journalists looking to beef up yet another screed about the ever-escalating cost of American higher education, such criticism may sound like a “right on,” justification for a torch-lit protest outside the President’s mansion.  But is this narrative actually fair?

No, it isn’t.

As a lawyer who regularly represents college and university presidents as well as commercial executives in finance and media, I do not agree that American colleges and universities routinely overpay their leaders in Higher Ed, itself one of the remaining areas of endeavor where the U.S. maintains a global leadership position.

For openers, being President of a college or university, no matter how prestigious, is an absolutely horrendous job.

Think about it.  Here’s just some of what the position requires: continuous public exposure, tolerance of constant conflict, sufficient ability and stamina to charm potential donors in a non-stop regimen of receptions, speeches and appearances before large audiences, some of whom are skeptical if not downright hostile.  On top of this, they’re required to have demonstrated substantial scholarly achievement (books, papers, research grants, etc.) after earning their Ph.D.

The Ph.D. and the scholarly accomplishments which go with it is now an absolute requisite for almost all college and university presidencies.  Note that the personality traits required for the work and life of a scholar (i.e., thoughtful introversion, ability to spend a lot of “alone” time doing research) are in many ways diametrically opposed to those skills needed to run an academic institution in the 21st century.  This means the talent pool for a university leader with this unusual mix of abilities is extremely small.

Then let’s look at who these presidents have to satisfy.  If a business leader makes money in a lawful fashion without cutting jobs or salaries too dramatically, his major constituencies — the Board, the markets, the shareholders, the financial journalists — will be satisfied even if the boss is a cold fish.  (OK, there may be some dissenters, but the leader’s direct audience is pleased.)

This is not true of academic leaders.  Beyond the President’s most essential task — presiding over the institution with thoughtfulness and dignity — today’s leaders rarely escape having to be intimately involved in a complex mix of budgetary demands and the development of sustained financing, some of it through fundraising on a private and public level.  If they satisfy the Board of Trustees, at least one of the President’s other constituencies — faculty, parents, students, alumni, the press (and at big schools the athletic department) — are likely to be not just unimpressed but actually angry.  Why is money the focus of so much effort?  If the school is more affluent, why aren’t faculty salaries higher?  Why isn’t tuition lower?  Why aren’t the facilities better?  How about newer, better, more affordable housing?  More lab space?  A new performing arts center?  (And since few if any such additions to the campus are themselves profit centers, the President has to raise the budget yet again, and preside over the next capital campaign.)  Success in pleasing all of a college president’s constituencies is far harder and more problematical than pleasing a purely commercial audience for whom improving the “bottom line” is the only real objective.

There is another difference which actually depresses the level of compensation to educational as opposed to business leaders.  The US Tax Code, under the anodyne heading of something called “Intermediate Sanctions,” requires the base salaries of Presidents of private non-profit colleges be kept in line with leaders of “peer” institutions, meaning that the president of — for a random example — Williams College, regardless of qualifications, achievements or a competitive marketplace, cannot be paid dramatically more than the Presidents of Amherst or Middlebury without risking an inquiry and possible tax surcharge from the IRS.  This anomaly of our tax law does not apply to corporate leaders — many of whom are paid substantial multiples of what even the most well remunerated college or university presidents receive.

The whole question of the nature and validity of these “Intermediate Sanctions” in higher education, and what a presidential contract can fairly contain without awakening the regulators, will be the subject of discussion in a future post.  For the moment, it is enough to note that they constitute another meaningful downward pressure on executive compensation for college and university presidents, who do their jobs under tremendous other stresses as well.

In our experience, no one wants to become a college or university president because of the paycheck.  It has been said that of the world’s premiere institutions of higher learning, almost 80% of them are located in the United States.  The leaders who manage these institutions during a period of unprecedented change and challenge deserve to be adequately rewarded.  And I assure you that no College or University President makes enough to affect the level of tuition.

About the Author

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George Birnbaum

Since 1980, sophisticated business people have relied on George to apply the meticulous preparation, attention to detail, and devotion to his clients he learned from fabled trial lawyer Louis Nizer. A graduate of Harvard College and Harvard Law School, George has over 35 years of distinguished deal-making, litigation, mediation and arbitration experience which he has used to negotiate high-stakes agreements for senior executives and select business clients throughout the United States.