July 16, 2007

Gee’s Ironclad Contract

Overstaying his welcome hasn’t been a problem for E. Gordon Gee in his presidencies. But his new contract with Ohio State University, which last week lured him away from Vanderbilt University, is notable in part for its duration. The term sheet for the agreement indicates that the contract could easily be for 10 years — a duration in a single contract that is highly unusual for a public university president.

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The chair of the Ohio State search committee that selected Gee said that the board was aware that its contract is much longer than normal — and that this was intentional. Alex Shumate, the chair, said that the possibility of the contract for Gee covering 10 years “sends a clear message: that he is going to be here at Ohio State until he is 70 years old and beyond — that this presidency is going to be the capstone of his career.”

Officially, Ohio State officials have described the contract as being for seven years, a period that by itself would exceed the norm for public university presidents in a single contract. While trustees have worried about presidents who (like Gee) move from institution to institution, the norm — especially at public universities — is not to exceed five years in a single contract. The thinking is that institutions and presidents change, and so do the priorities of boards, especially at public institutions where new governors’ appointees are regularly changing board composition. Too long a contract doesn’t lock in only a current board, but could lock in a future board.

Gee’s contract could easily go beyond even the seven-year mark. According to the term sheet he signed with the Ohio State board, “the initial term shall be extended for an additional period of one year on each of the first, second, and third anniversaries of the effective date unless the Board of Trustees has previously acted to the contrary.” That means that in the fourth year of his contract, Gee will in all likelihood be in the midst of a 10-year contract.

“That’s completely unheard of,” said Raymond Cotton, a Washington lawyer whose practice focuses on presidential contracts, and who is considered one of the top experts on how boards negotiate with their chief executives. “Boards rarely commit for more than five years. This is a huge financial commitment for a board to make.”

Cotton also noted that the potential contract extensions are not “roll-over” provisions that appear in many contracts. In those provisions, a board and a president may agree that if — a year before the end of a contract — both parties want to keep it going, they just keep the same basic terms for a few additional years. That’s a way of both sides indicating interest in a long-term relationship, but it requires the support of the board as constituted when a contract winds down, not just as the contract gets under way.

Many presidents work “at the pleasure of the board,” meaning that they do not have any fixed term. It is impossible to tell if Gee’s contract provisions on length are unprecedented — as Cotton suspects — without reviewing every public university contract. But there is considerable evidence that suggests that the time period is at the very least unusual.

The book Presidential Compensation in Higher Education: Policies and Best Practices, published in 2000 by the Association of Governing Boards of Universities and Colleges states: “Contracts typically extend for three to five years, although some are year to year, and some are open-ended.”

According to data collected by the American Council on Education, in 2006, 72 percent of presidents at public institutions had a written contact. Of these presidents, 37 percent had a three-year contract, which was the most common contract length reported. Only 13 percent of presidents at public institutions had a contact length of 5 years or more.

The ACE data are a mix of first-time contracts and renewals, the latter of which are more likely to be a little longer than the former. Which category Gee belongs in is unclear since he already led Ohio State, but both Gee and trustees have talked about how the university and Gee have both changed in the decade since he was president there. It is also the case that in some areas (especially total compensation), large and complicated institutions may provide more than smaller publics. But here too, Gee appears to be far exceeding the norm. For example, Mary Sue Coleman, president of the University of Michigan was last year reappointed as president, with a second five-year contract.

Shumate, the search committee chair, said via e-mail on Sunday that the board was “well aware” of all of the data on presidential contracts. “We know that five years is the norm... But we decided to take a different path,” he said.

“Like Gordon Gee, the board believes that this is Ohio State’s ‘time’ — that we have a unique opportunity to move to the next level of excellence.... That requires an extended period of time. During the past decade, Ohio State has benefited from the leadership of two outstanding presidents. Yet, in presidential tenures of four and five years, a university cannot get the sustained momentum needed to develop new strategies and implement new programs. So from the beginning, the board made it clear that we were looking for someone who would be here for a longer period than the normal tenure of university presidents,” and was happy to build that idea into the contract.

The Rest of the Terms

In statements in Columbus after he was officially appointed, Gee said that he was taking a pay cut to take the Ohio State job, but the details in the term sheet suggest that he could end up with a package close to the value of the one he has at Vanderbilt (worth about $1.2 million) and that, at the very least, Gee will not be taking a vow of poverty to return to public higher education.

Here are details of the term sheet Gee and the board signed, and which was released by Ohio State:

• Base annual compensation is set at $775,000, with deferred compensation of an additional $225,000. To be vested for the latter, and to receive it for his first five years, he must serve five years as president.
• On top of those funds, Gee is declared eligible for “additional compensation via bonuses or otherwise for achieving performance targets and goals as mutually developed by Gee and the Board of Trustees and shall be eligible to participate in other applicable retention or retirement-related programs that the board may hereafter develop.” While there are no details provided, the provision states that these additional forms of compensation should be based on “Gee’s standing as a preeminent national educator and the compensation packages offered by other major universities to similarly qualified individuals.” At the growing number of large universities that use bonuses and targets, six figures are not uncommon.
• Gee will receive health, retirement and disability benefits, plus the university will reimburse Gee for existing life insurance premiums, provide retirement health care and disability insurance, and continue Gee’s existing TIAA-CREF and Fidelity programs, at Ohio State’s expense.
• Gee is expected to live in the presidential home, which “shall be renovated, appointed and staffed consistent with Gee’s duties and the necessity of university development objectives. (No dollar totals are specified in the Ohio State term sheet, but at Vanderbilt, Gee oversaw spending of $6 million in renovations to the presidential home, while spending more than $700,000 annually on events there, The Wall Street Journal revealed last year.)
• Gee will be reimbursed for moving expenses, provided with a car for business and personal use, and will fly first class on domestic business travel and business class for international travel.
• Should Gee be terminated without cause, he would become a law professor with tenure at Ohio State. For the remainder of the contract term, he would receive his base compensation at the time of termination. After the expiration of the contract, he would receive the same salary as the highest paid faculty member at the law school.

— Scott Jaschik

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