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Some Differences Between First-Time and Renewal Contracts for College and University Presidents (Part 2)

Renewal Contracts for the President: A Different Focus

By contrast, when a college or university president’s contract is up for renewal, the situation is different and a different set of assumptions govern.

Now the president is no longer an untried and unknown commodity; he or she has been sufficiently successful that the Board is eager to extend the president’s term.  (One noted and widely experienced academic consultant believes that “there is nothing a Board likes better than to do a talent search,” paid for by the institution. Accordingly, any first-term president who is not believed to be of genuine benefit to the particular college or university is likely to be replaced.)

Thus, the position of the president whose contract is going to be renewed is quite different from that of a first-term president.  The essential concerns of the renewal contract negotiated by the president’s employment lawyer will be different as well.

Now, as the focus shifts from job security to increased compensation and eventual retirement, the renewal contract can add important enhancements to a sitting president’s compensation package, such as:

  • it can increase the president’s base compensation past the mean and the median of other presidents in the institution’s peer group;
  • it can create or improve a deferred compensation plan, utilizing several sections of the tax code (e.g., 403(b) matches, 457(b) yearly contributions, one or more 457(f) or SRP plans).  These tranches of deferred compensation, if properly structured, will add up over the renewal term or terms, grow tax free and provide the president a meaningful payday on retirement.

Boards of Trustees generally like to reward a successful sitting president by thoughtful accretions to the President’s compensation by way of these deferred amounts. First, such deferrals are easier on the “optics” and are not as heavily scrutinized as increases to the president’s base salary. Second, such a program of yearly deferrals, which vest only at the end of the renewal term (or on death, disability or termination without cause), act like “golden handcuffs,” a powerful incentive to tie the president to the school until the renewal term expires.

  • it also can provide for several types of bonuses (on signing, for annual achievement and/or for benchmark performance accomplishments such as a completion of a major capital campaign).

And these are just some of the changes and improvements which the president’s executive compensation lawyer can negotiate in the president’s contract for a renewal term.

A renewal contract also can “fix” — and often improve — smaller, but not insignificant, aspects of the legal language which even a careful executive employment attorney could not have averted in the president’s first contract, which is often entered into under pressure by a Board’s determination to make an immediate public announcement that a new president has been chosen to lead the college or university.

The higher ed press is full of stories about the shrinking (and aging) pool of talent to which even the top schools must resort in order to fill academia’s most (some would say impossibly) demanding leadership roles.  The women and men selected to head American colleges and universities literally are required to put their private lives on hold in order to attend to a barrage of pressing needs and problems, from full-time fundraising to student unrest.  Whether entering their first or a renewal term, these presidents deserve to have contracts which, to the extent possible, make their lives easier by providing them with both security and meaningful compensation for their sacrifices. No one knows this better than their lawyers.

https://www.universitybusiness.com/article/negotiating-great-deals-higher-ed-leaders

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.