California Forum

Should university presidents and chancellors get compensated like corporate CEOs?

Linda P.B. Katehi resigned as chancellor of UC Davis in August after disclosures in The Bee that she accepted corporate board seats and used university funds to clean up her online image. A UC investigation found she had violated university policies for filing travel expenses and serving on corporate boards.
Linda P.B. Katehi resigned as chancellor of UC Davis in August after disclosures in The Bee that she accepted corporate board seats and used university funds to clean up her online image. A UC investigation found she had violated university policies for filing travel expenses and serving on corporate boards. hamezcua@sacbee.com

While it appears that serving on corporate boards was the catalyst for the UC Davis chancellor and the University of Arizona president to lose their positions, we believe that these directorships are part of a larger set of issues facing universities today. We call this overall concern the CEO-ization of the university presidency.

It has been a year since we testified at a joint hearing of the California Legislature regarding the outside compensation for executives within the University of California and California State University systems who serve on corporate boards. The UC and CSU systems were among the very few that had statewide policies limiting such service as well as policies that required prior approval by the system president.

Our testimony was based on nearly two decades of research on university presidents serving as directors of publicly traded corporations.

During our testimony, we stated that it is not uncommon for the president of a major research university to serve on a corporate board – nearly 40 percent of the presidents and chancellors in our sample did so, with many holding more than one directorship. These positions can be quite lucrative, with the average corporate directorship of a Fortune 1000 company worth more than $200,000 per year.

In a separate set of studies over nearly 10 years, we have been examining the contracts for presidents of public universities. We, along with others, including the Chronicle of Higher Education, have documented a dramatic increase in presidential salaries. But more surprising to us has been the growth of corporate-style perks, supplemental benefits and contract protections.

Our surprise comes in part because both of us are old enough to remember a time when the president of our undergraduate schools looked and acted more like a faculty member than a CEO. In many cases, the only real perk they received was living in a house provided by the university. Few were provided with a car, although they might have had access to one from the car pool if they had to drive to an out-of-town meeting.

This has changed. Here are just a few examples of the perks we see today. Those presidents who are not provided with an official residence typically receive a housing allowance. We have found such allowances can be in excess of $70,000 per year – enough to pay the mortgage for a $1 million loan – and appear to bear little relationship to the local real estate market.

In those cases where presidents are not provided with a car, they often receive a car allowance – in some instances up to $20,000 per year. As a point of reference, at today’s rates, the lease for a Chevy Malibu is less than $2,500 per year and a BMW 7-series would still be a bargain at $12,000 per year.

However, these are just the two most common perks we have identified. Others perks include shares in private jets, move-in and move-out expenses, reimbursement for tax and legal fees, country club memberships – sometimes with full golf privileges – the ability to earn outside income, travel for spouses/partners and more.

Then there are the lucrative financial incentive packages. These can include guaranteed annual raises (regardless of whether faculty or staff receive raises); a range of bonuses – signing, performance, completion, and/or renewal; parachutes when returning to the faculty such as tenure, pre-determined salary, discretionary funds and ongoing administrative support; supplemental deferred compensation packages often with interest-earning provisions; and additional insurance coverage for health, disability, life and liability.

We also found contracts with provisions to furnish and equip home offices; to reimburse for mobile technology and cellular data plans; and even to provide for lifetime benefits such as tickets to athletic and cultural events as well as supplemental Medicare insurance premiums.

A recent headline in the Financial Times caught our attention, “How paying chief executives less can help corporate performance.” And a recent report from Equilar, a leading provider of intelligence for corporate boards, concluded, “one irony is that many of those bonuses, ostensibly granted for long-term performance, have worked against genuinely sustainable management.” In fact, according to their report, “There is a massive amount of evidence now that (bonuses) are counterproductive.”

Even small perks such as cellphones are being targeted by some companies; for example, Bloomberg recently reported that Goldman Sachs has been cutting perks and bonuses, even going so far as to stop issuing company phones, limiting reimbursement for mobile data to a mere $10 per month, no longer reimbursing for WiFi expenses while traveling, and requiring itemization for reimbursement of calls made from mobile phones.

The presidents of our public universities are, we believe, public executives and not CEOs. They are leading knowledge institutions that serve the public good – not shareholders. While they lead complex and often large institutions, there are other government executives who lead organizations that are at least as large and complex. Yet, for some reason, the presidents of our public institutions of higher education receive compensation packages that are far more lucrative than others in public service.

Perhaps it is time to take a step back and ask ourselves if we want our universities to become part of the corporate world before we assume that their leaders should be treated as CEOs.

Judith A. Wilde is chief operating officer and professor in the Schar School of Policy and Government at George Mason University. She can be contacted at jwilde2@gmu.edu. James H. Finkelstein is professor emeritus of Public Policy at George Mason. He can be contacted at jfinkel@gmu.edu.

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