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How to Pay a President

September 29, 2005

Presidential compensation is just about always causing a controversy somewhere.

American University is debating whether lavish spending of university funds by Benjamin Ladner, placed on leave as president by the board, was justified. When a member of Harvard University's governing board quit this summer, he cited his objection to giving a raise to Lawrence H. Summers, Harvard's president, in a year when his performance had been less than stellar. These incidents and many others raise the question of how presidents should be evaluated and what sort of perks they should have.

Campus experts on pay and benefits gathered this week in Orlando for the annual meeting of the College and University Professional Association for Human Resources. At a session on executive compensation, they discussed the delicate role they play in helping colleges and boards figure out these issues. The potential controversy attached to presidential pay and benefits issues can put college HR officials in the position of advising on how their boss or the boss's boss should be paid.

The sensitivity of the issue was clear in that several of those who participated in the informal discussion asked that their names and institutions not be cited in this report -- even though their comments generally indicated that their institutions took these issues seriously. Speakers discussed both legal concerns (scrutiny from the Internal Revenue Service) and public relations concern (bad publicity) that could arise from not taking these issues seriously.

An HR director at a private university, for example, spoke about how she had been asked by her college's board and president to help develop a system for evaluating and setting compensation for the president. Prior to this request, which was just a few years ago, presidential raises had been set informally by the board. This HR director said that she provided the board with information about average salaries paid to presidents of comparable institutions and how they were evaluated.

With the president, she also set up a system that might have benefited President Ladner at American, who is being criticized for such expenses as having a personal chef on staff and sending him for professional development to Europe. This HR director's president has all of his expenses reviewed critically in an audit once a year, so any questions are answered and any problems are fixed.

There have been no problems or scandals. But the HR director said that her president "wanted to be sure he was above any suspicion."

Warren Kerper, a principal with Mercer Human Resource Consulting, said that he is surprised by the diversity of practices on executive compensation in higher education. He outlined processes that colleges can take to protect themselves from IRS questions or public criticism. He suggested, for example, that college boards discuss and adopt a specific philosophy about presidential compensation and evaluation. As part of that philosophy, he said it was essential for boards to be able to show that they discussed presidential performance and compensation outside the presence of the president (something that was not always the case with many boards until recently), and that they were receiving independent information about presidential compensation.

Kerper acknowledged that as an HR consultant, that might sound like a pitch to hire an HR consultant, and he said that a college could fulfill that requirement using data gathered by CUPA or other groups, so that the data didn't necessarily need to come from a consultant.

Following such procedures doesn't guarantee that there will never be a controversy, he said, but any college that doesn't have such procedures in place is much more vulnerable.

One HR director in the audience agreed, saying that she had recently been asked to put together some information for her board about presidential compensation. She looked for a board policy statement to use as a guide in figuring out what information to provide -- and there was no such policy.

"You're much better off if there's something to start from," she said.

 

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