The Growing $500,000 Club

From: The Chronicle of Higher Education
Nov. 19, 2002

27 private-college presidents earned more than half a million in compensation in 2000-1

By JULIANNE BASINGER

The half-million-dollar club isn't as exclusive as it used to be.

Until 2000, no more than a dozen presidents of private colleges made that much money in any given year. In 2001, the number of top leaders earning over $500,000 annually more than doubled, to 27. Their ranks are dominated by presidents of top doctoral institutions.

Judith Rodin, president of the University of Pennsylvania, earned $808,021 in pay and benefits in the 2001 fiscal year. While Connecticut College's departing president, Claire L. Gaudiani, received a severance package that put her at the top of the list of leaders in The Chronicle's annual survey of private-college compensation, she didn't receive any of the exit money during that 2001 fiscal year. So Ms. Rodin's annual earnings made her the highest-paid college president in the United States.

She was followed by Harold T. Shapiro, the former president of Princeton University, who received $705,683 in total pay, including approximately $200,000 in deferred compensation that he got when he retired in 2001. After Mr. Shapiro was William R. Brody, president of the Johns Hopkins University, who earned $677,564.

Top doctoral institutions have led the pack in presidential pay increases. An analysis of the median compensation of private-college presidents from 1996 to 2001 shows that increases in the going rate for leaders of doctoral universities have far outpaced those of presidents of master's and baccalaureate institutions. Many of those top doctoral institutions have gone through searches to hire new presidents within the last few years. Trustees, higher-education experts, and search-firm consultants say the rises in compensation reflect supply and demand, which so far have been unaffected by the current economic recession.

"The talent pool is thin," says Shelly Weiss Storbeck, managing director of the higher-education division at A.T. Kearney Executive Search. "When you do the math, would you pay somebody $500,000 who could help you raise a billion?"

"The return is a no-brainer," she says. "It makes eminent sense to pay somebody who is really superb, and who has a brilliant track record."

Top doctoral universities tend to want to hire and keep leaders who have already proved themselves as college presidents, and who have the academic background, fund-raising ability, and managerial expertise to run complex research institutions. "The list of people who have really solid academic credentials to go with solid records of achievement in terms of managing and governing those kinds of operations is not very long," says Thomas C. Longin, vice president for programs and research at the Association of Governing Boards of Universities and Colleges.

As a result, private research institutions have been competing with public ones for the same people, which has driven up the compensation for leaders of top public universities. A Chronicle survey in August found that many public-university chiefs are getting compensation packages that put them on a par with the best-paid private-college presidents (The Chronicle, August 30). At the top of the list were three leaders hired within the past year.

Mark G. Yudof, who became chancellor of the University of Texas System in August, will earn salary and benefits of at least $787,319 during the 2002-3 academic year, making him one of the highest-paid university leaders in the nation. He was followed by John W. Shumaker, the new president of the University of Tennessee System, who will be paid as much as $734,000 this year, and Mary Sue Coleman, who became president of the University of Michigan system in August, and who will earn $677,500.

"For those institutions that are up in the stratosphere, a bidding war is indeed obviously going on among them," says Raymond D. Cotton, a Washington lawyer who specializes in presidential contracts.

More Money in Research Universities

In The Chronicle's study of private-college presidents' pay for the 2001 fiscal year, the highest-paid leaders after Ms. Rodin, Mr. Shapiro, and Dr. Brody were L. Jay Oliva, then the president of New York University, who earned $651,000; Constantine N. Papadakis, president of Drexel University, $637,839; Richard C. Levin, president of Yale University, $612,453; Steven B. Sample, president of the University of Southern California, $605,086; H. Patrick Swygert, president of Howard University, $603,031; and Jon Westling, then the president of Boston University, $591,017.

The doubling of the ranks of top-earning presidents in 2000-1 was accompanied by a smaller rise in the number of presidents earning between $300,000 and $500,000. During the 2001 fiscal year, 85 presidents earned that much, compared with 74 the previous year.

An analysis of current and past Chronicle surveys shows that the median compensation of presidents of doctoral institutions increased 30.4 percent from 1996-97 to 2000-1, and 18 percent when adjusted for inflation, to $356,092. Leaders of institutions with medical schools earned even more, with median compensation in 2000-1 of $481,220 -- about 35 percent higher than the median for doctoral institutions over all.

By comparison, the median compensation of leaders of master's institutions and liberal-arts colleges has remained relatively flat during those years, when adjusted for inflation. At master's institutions, presidents' median compensation increased only 8.3 percent, to $173,547. At liberal-arts colleges, the increase was only 3.7 percent, to $205,323.

In addition to the competition factors, the big research institutions had the financial resources to pay presidents more, particularly during the economic boom years, Mr. Longin says. "Any institution that is tuition dependent can't do this."

The compensation figures were calculated from a federal tax return called the Form 990. Federal law requires private tax-exempt, nonprofit institutions, including independent colleges, to make the forms available to the public upon request. The Chronicle analyzed returns from 595 private colleges and universities. Amid a slew of other financial data, the forms include compensation figures for an institution's officers, as well as its five highest-paid employees who earn more than $50,000 a year. Public institutions do not have to file the forms.

Twenty-two of the 27 private-college presidents earning more than $500,000 were leaders of doctoral institutions. Three presidents of liberal-arts colleges had compensation in that range, but only because they received severance pay when they left their jobs. Ms. Gaudiani of Connecticut College received a severance package of $551,550 that increased her total compensation for that year to $898,410. She received none of the severance money in the 2001 fiscal year, however. Instead, the college paid it to her during the next two fiscal years. (See related article below.)

Robert H. Edwards earned $591,006 in 2000-1, the year he stepped down as Bowdoin College's president. That amount included $217,250 in severance pay. And Ruth J. Simmons was paid approximately $145,000 in deferred compensation when she left Smith College's presidency to become Brown University's leader, so that her total compensation for that year was $539,169.

Only two leaders of master's institutions made it into the half-million-dollar echelon in 2000-1: I. King Jordan, president of Gallaudet University, and Donald E. Ross, president of Lynn University, in Florida. Both men have been long-serving presidents at their institutions. Mr. Jordan, Gallaudet's president since 1988, earned $513,368 in 2000-1. Mr. Ross, Lynn's president for 31 years, received $500,255.

Corporate Approach

Trustees of doctoral universities that pay presidents top dollar say that, as they have increased compensation, they also have focused more in recent years on presidential performance. Those boards now do more-formal evaluations of presidents and increasingly offer presidents performance bonuses for reaching certain goals.

"Boards are getting adventuresome," says Mr. Cotton, the contract lawyer. "We do see more and more bonus provisions, and more golden-handcuff provisions for deferred compensation."

New federal rules encourage more-formalized compensation processes. The Internal Revenue Service in January published final rules on how the agency plans to enforce a 1996 law that imposes stiff penalties on top officials at nonprofit entities, including independent colleges, who receive undue compensation.

Under the law, institutions' boards must show that top officials earned their compensation, and that the salaries and benefits they received are comparable to those given to leaders at peer institutions in similar geographic markets. Presidents and boards who fail to do so can be assessed penalties.

James S. Riepe, chairman of the University of Pennsylvania's Board of Trustees, says that the federal tax law "was very much one of the driving forces" that spurred Penn to take a more corporate approach to setting compensation for Ms. Rodin and other senior officers. The board also wanted to emphasize performance. Toward that end, it created a compensation committee that, four years ago, hired outside consultants who meet regularly with the committee. Since they do similar work for other universities, Mr. Riepe says, the consultants provide perspective on what Penn's peers are doing.

At the consultants' recommendation, the board set formal criteria for annually evaluating Ms. Rodin's performance and created a bonus for her if she reaches specific goals. Those objectives include measures of how the university has performed in admissions and finances, the upkeep and construction of campus facilities, and faculty and staff hiring and retention. The trustees also consider whether, in their opinion, the overall reputation of the university has been enhanced, says Mr. Riepe, who is vice chairman of the T. Rowe Price Group.

He declines to give the exact amount of Ms. Rodin's bonus for the 2001 fiscal year, but says that it is "well below half" of her compensation -- and far less than the compensation packages of corporate executives, who often receive the bulk of their pay in bonuses. Given the size and complexity of the university, and the quality of her leadership, Penn's trustees are comfortable with her being the highest-paid president in the nation, he adds.

During the past five years, boards have increasingly recognized the difficulty of presidential responsibilities and the importance of hiring a skilled leader, Mr. Riepe says. "That all is reflected in what's been going on with the compensation. The difference between getting a good person and one who doesn't perform as well can have an enormous impact."

The Board of Trustees at Johns Hopkins also bases part of the president's compensation on performance goals. It reviews his work once or twice a year, according to Raymond A. Mason, the board's chairman. At least 75 percent of Dr. Brody's compensation is base salary, and the rest is performance pay.

The board is careful to keep the goals general rather than specific. "We're not trying to lead him with bonuses," Mr. Mason says.

"This isn't that kind of job. It's a university, and we shouldn't try to mess with the way it's being run by leading him in certain directions with incentives."

Performance bonuses and competition with peers have caused presidential salaries to increase more rapidly than faculty salaries at those same institutions in recent years. Average salaries for full professors at the University of Pennsylvania increased by 20.3 percent between 1996 and 2001, according to data from the American Association of University Professors. Meanwhile, federal tax records show that Ms. Rodin's compensation jumped 56.9 percent. At Johns Hopkins, average salaries for full professors increased 10.2 percent during that time, while Dr. Brody's compensation rose by 55.6 percent.

Derek Bok, president emeritus of Harvard University, warns that such disparities can bring trouble. "A huge presidential salary tends to exacerbate tensions that too often exist between faculty and administration," he writes (The Chronicle Review, Page B20). "When hard times come and faculties are asked to assist in making cutbacks, presidents with huge salaries are not likely to inspire much sympathy or cooperation."

Still, if institutions are doing well under a highly paid president, people on the campus usually don't complain, according to Ms. Storbeck, the search-firm executive. Even most of Penn's faculty members have no gripes about Ms. Rodin's compensation, according to Mitchell P. Marcus, a professor of computer and information science who heads the Faculty Senate. "The faculty here are largely -- although quietly -- in agreement that Judy Rodin does an amazing job at a very large institution and earns pretty much what she's paid."

A few staff members, however, have questioned her compensation, says Rick Wexler, a senior programming analyst for Penn's administrative information-technology division. He wrote letters this year and in 1998 to a Penn newsletter, criticizing Ms. Rodin's pay increases during a time when staff members had been limited to annual raises of about 3 percent.

"If she is that great, she's not doing it by herself," Mr. Wexler says, in an interview.

"This is supposed to be a not-for-profit entity. It just doesn't seem right."

Mr. Riepe, the board chairman, responds that her compensation is comparable to that of her peers. Unlike some universities, Penn chose to give Ms. Rodin only deferred compensation or perquisites that have to be listed on its federal tax return. That may mean that presidents elsewhere are earning comparable amounts in a different form.

"We don't have all these hidden benefits and promises," Mr. Riepe says. "What you see is what you get."

Higher-education consultants say that some boards will funnel part of a president's pay and deferred compensation to the leader's spouse, or they will sometimes provide tuition benefits for a president's children. Those amounts then don't appear on the college's tax forms as part of the leader's pay. Some types of deferred compensation are not listed until after a president retires, and may not show up at all if that former leader is not among the highest-paid people at the college at the time.

Academe's Top Earners

Even so, presidents are far from being the highest-paid people in academe.

William T. Spitz, the vice chancellor for investments at Vanderbilt University, was at the top of the list in The Chronicle's survey of private-college compensation, with $3,217,311 in the 2001 fiscal year.

However, more than half of it -- $1,875,000 -- is deferred compensation that will not be paid out until 2005 and is contingent upon his staying at the university until then, according to Michael Schoenfeld, a Vanderbilt spokesman.

Still, Mr. Spitz has received handsome raises in recent years. His pay alone, excluding benefits and deferred compensation, more than doubled from $608,871 in the 2000 fiscal year to $1,301,193 the following year.

Performance pay contributed to most of the increase, Mr. Schoenfeld says. Mr. Spitz earned about $500,000 in base salary in the 2001 fiscal year. The rest was bonus pay for helping the university achieve investment benchmarks during the three previous years.

Including Mr. Spitz, 23 people earned more than $1-million in the 2001 fiscal year. Nearly all of them were medical professors, surgeons, and hospital directors.

Following Mr. Spitz were Edward E. Manche, an ophthalmology professor at Stanford University, who earned $2,904,342; James A. Grifo, an obstetrics and gynecology professor at New York University, $2,079,000; Zev Rosenwaks, a professor of reproductive medicine at Cornell University, $1,918,155; and Alan Berkeley, a professor of obstetrics and gynecology at New York University, $1,832,000.

Just as market forces help determine physicians' pay, they may continue to cause increases in college-presidential compensation, search-firm consultants and higher-education researchers say. But they and trustees add that a prolonged recession may bring financial limits that could curb increases in presidential pay.

That means the number of presidents joining the half-million-dollar club may decline.

PRIVATE-UNIVERSITY PRESIDENTS WITH THE HIGHEST ANNUAL COMPENSATION, 2000-1

Judith Rodin
University of Pennsylvania

Annual university compensation

* $808,021
o $690,405 in salary and performance bonuses
o $117,616 in benefits

University perquisites

* $250,000 loan, at 3-percent interest, made in 1997; no repayments made to date; full repayment due in 2004
* A house

Annual compensation from corporate sources

* Approximately $196,600 in annual pay for membership on the boards of Aetna Inc., BlackRock Funds, and Electronic Data Systems Corporation

Other corporate compensation

* About $52,000 in annual pay for membership on the board of AMR Corporation, received as deferred compensation that is converted to stock
* $50,817 in travel on American Airlines, which is owned by AMR Corporation
* Other stock options and shares in the companies on whose boards she serves

Harold T. Shapiro
Princeton University

Annual university compensation

* $705,683
o $658,323 in salary, a portion of which was deferred compensation paid when he retired in June 2001
o $47,360 in benefits

University perquisite

* A house

Annual compensation from corporate sources

* Approximately $77,000 in annual pay for membership on the board of Dow Chemical Company

Other corporate compensation

* Stock options and shares in Dow Chemical

William R. Brody
The Johns Hopkins University

Annual university compensation

* $677,564
o $510,231 in salary and a performance bonus
o $167,333 in benefits

University perquisite

* A house

Annual compensation from corporate sources

* At least $145,250 in annual pay for membership on the boards of ALZA Corporation, Avistar Communications Corporation, Medtronic Inc., and Mercantile Bankshares Corporation
* An undisclosed amount of annual pay for membership on the board of AEGON USA, the American subsidiary of AEGON, a Dutch insurance company

Other corporate compensation

* Stock options and shares in the companies on whose boards he serves

SOURCES: Universities' federal-tax filings; corporations' reports to the U.S. Securities and Exchange Commission; Chronicle reporting

Copyright © 2002 by The Chronicle of Higher Education