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Renewal in Springtime

Late Spring traditionally brings with it the negotiation of renewal contracts for successful sitting college or university Presidents or Heads of an independent school.

First, some context:

An oft-repeated family story is my younger daughter’s reaction, half in amusement and half in exasperation, at the end of her pre-college tour: “My dad never saw a school he did not like!” I was forced to admit the truth of her observation.

And even today, when colleges and universities are on the front pages, with protesting students being arrested, I still believe that our institutions of higher education are among the most important aspects of American life.

As executive employment attorneys who concentrate on negotiating the contracts of college and university Presidents, we have seen that many of our clients have had an extraordinarily difficult year.

The mainstream press has published many articles with headlines such as “Who Would Possibly Want To Be A College President?” And whether it is such negative press or the real-life fallout from the past year, it seems that the pool of potential candidates for these jobs is meaningfully weaker than it was even five years ago. I have spoken to provost- and dean-level executives who have chosen to avoid presidential searches entirely. While recognizing that the monetary compensation for these jobs may be considerably higher than their current salaries, they feel “life is too short” for the ceaseless work the presidential job requires (and they add that if their primary interest had been money, they would never have pursued an academic vocation in the first place).

And while there are still good potential presidents, the narrowed pool of candidates for the top jobs challenges Boards of Trustees who are hunting for a new leader.

Accordingly, colleges, universities and independent schools which already have an existing President or Head who is a “proven product” should go out of their way to seek to retain that person if he or she is willing to continue in the leadership role.

Even before this current situation, presidential renewal agreements were, as you might expect, different from the initial contracts given to a new President or Head.

First, and most importantly, increased compensation—in both amounts and types of compensation—are standard in renewal agreements, since these agreements are designed, in part, to acknowledge and reward the incumbent President for successfully completing one or more terms in a fiercely tough executive position, and in part to incentivize him or her to “hold on” in order to make it through another substantial term of office.

A renewal contract saves the school the expense and uncertainty of finding a new leader, including the real possibility of hiring the wrong person no matter how carefully a national search is managed. Since the average term of a college or university President is now estimated at only seven years (the idea of a President lasting in office for 20 years is a relic of bygone days), the value of retaining a trusted and experienced leader in today’s environment is clear.

One frequent difference between a President’s initial agreement and his or her renewal contract is in the area of deferred compensation. Some colleges, universities and independent schools are hesitant to give a first-time President or Head a separate deferred compensation plan. As a result, the school initially contributes only the modest amounts (less than $50,000 per year in total) which the government allows as contributions to both 403(b) and 457(b) plans.

This deferred compensation piece is customarily expanded in renewal agreements, with a percentage of the President’s base salary, often amounting to more than a hundred thousand dollars per year, being contributed by the school to a 457(f) plan or SERP for payment to the President on the completion of his or her extended term.

Other common emoluments added to renewal contracts are “re-up” bonuses; “completion” bonuses; sabbatical entitlements at the presidential salary (both well-deserved and badly needed); special bonuses tied to a specific event such as the completion of a capital campaign; and supplemental disability insurance if the President or Head is insurable.

With a good renewal contract, the President or Head has a strong rationale for “staying the course” through another three to five years.

In a future column, I will address the reasons why a first-time President or Head of school is well advised to have an attorney with experience in academic executive contracts negotiate his or her agreement.

Finally, in my last article, I directed my readers to the wealth of information to be found in Richard Harrison’s monthly insurance newsletter. Richard tells me that folks who wish to receive this newsletter should not go to his website, but should email him with their request directly to:

Lisa, Theresa and I wish our readers a sunny and happy late Spring.

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.