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Why a President Turns Down a Bonus

Why a President Turns Down a Bonus
July 16, 2008

James Ramsey had specific goals in his contract as president of the University of Louisville, and he met just about every one, entitling him, trustees said, to a bonus of up to $113,857 – 25 percent of his base salary. In light of his state’s financial hardships and their impact on his institution, however, Ramsey recently decided not to accept the bonus. Now, a decision that some view as purely symbolic is being viewed by others on his campus as a show of solidarity in the midst of a university budget constrained by state cuts.

“At the end of the day, I asked to be treated just like everybody else,” said Ramsey, who will receive a $700 raise instead of a larger bonus, the same percentage all full-time faculty and staff at the university will receive as a result of this year’s 1 percent salary pool increase. “This was a tough budget year for us. I don’t want the attention to be focused on me.”

Ramsey qualified for the six-figure bonus by successfully accomplishing 27 of the 28 goals for the previous academic year as stipulated for the Board of Trustees. Prior to the board’s decision last week to honor Ramsey’s request to forgo his bonus this year, his total compensation was $455,431, according to John Drees, special assistant to the president. Like many college presidents, Drees said Ramsey receives his pay from two sources – $331,218 from the university and another $124,213 from the university’s foundation, which manages donations to the institution and its endowment. This year’s $700 payment will constitute his raise from the university, he said, adding that a raise from the foundation has not yet been determined.

Most faculty at the university are pleased with Ramsey’s decision, said Beth Boehm, chair of the University of Louisville Faculty Senate, who called the president a “man of integrity.” Echoing his words about the state of higher education funding in Kentucky, she said she viewed Ramsey’s forgoing a raise as his sharing in the university’s current budget constraints. According to Boehm and Ramsey, the university was cut $5 million last year and $10 million so far this year as a result of budget cuts in Kentucky.

“I think it’s largely symbolic,” Boehm said of Ramsey’s decision, adding that most faculty at the university expected the president’s move. “I’m an English professor. We think symbolism is very important. Still, it’s a gesture that means something. It’s a show that we are one as a university.”

Though the one-time bonus offered to Ramsey would have come from private foundation funds instead of those from the university, some still note the importance of such a decision by the president.

"Presidents usually have some sort of supplemental pay,” said John Curtis, direction of the American Association of University Professors’ department of research and public policy, referring to compensation from non-university sources. “It is still a question of priorities, as [the bonus] could be used for other things. There is a certain amount of endowments that can be used for operation funds.”

This news at the University of Louisville comes at a time when, elsewhere in the state, University of Kentucky President Lee Todd requested that he receive only a portion of the bonus he is slated to receive this year. According to the Jay Blanton, the university’s executive public relations director, though Todd was eligible to receive a $145,500 bonus because of his recent 97 percent performance evaluation, he elected to only receive $95,500. He added that the remaining $50,000 will be used for various programs at the university. This bonus brings Todd’s total compensation to $549,510, Blanton said, none of which comes from private or foundation funds. Todd’s decision, like Ramsey’s, comes during a tight financial year at the university. No one at the University of Kentucky received pay raises this year, Blanton noted, with the exception of its largely self-supporting medical center.

Institutions in Kentucky are not alone in their budgetary concerns. These are difficult times for many institutions across the country, said Curtis, who researches faculty salaries annually for AAUP. In the past year, he said there have been many anecdotal stories about both faculty salary freezes and small increases that are below the current rate of inflation. These recent difficulties are magnified when considering recent trends for faculty salaries. Average faculty salary has remained relatively stagnant since the 2002-03 academic year when it took a small hit, Curtis said, noting that it recovered slightly in 2006-07 only to fall back down again this year. It is a paradox, he said, to sometimes see presidents take salary increases in light of these figures. Still, during the ten-year period from 1995-96 to 2005-06, AAUP research, adjusted for inflation, shows that the average presidential salary increased by 35 percent, while the average faculty salary increased only increased by 5 percent.

At the University of Louisville, Ramsey said his decision to forgo his bonus was foremost a notation that this year was a tough budget year for his institution.

This was “very prudent on his part,” said Charles Quatt, president of Quatt Associates, which advises nonprofit boards on executive compensation. He said that although there is not market information to tell how often college presidents have made similar moves, it is not uncommon for heads of non-profits to forgo bonus compensation because their institutions are not ready for pay for it.

Quatt said Ramsey’s decision to accept the same lump-sum payment as his full-time faculty and staff is uncommon. Still, he added it is also not uncommon for presidents to want to be seen, not just as leaders, but as another member of the faculty. This may explain Ramsey's decision to receive the $700 instead of a larger bonus. Ramsey himself said he did not wanted to be treated “any different that the faculty and staff.” Quatt, however, notes Ramsey’s move is only one of the many circumstances in which an executive may operate in a way he or she perceives as in the best interest of his or her institution.

“This can’t be a moral to other college presidents not to take your bonus when times are tough,” Quatt said. “Every circumstance is different. The design of these [bonuses] is to retain people because of performance goals. Given the fact that the funding for the university was below what was assumed, [Ramsey’s] gesture recognized that it would not be, in his particular circumstances, prudent to take a bonus when funding had been cut back as much as it was.”

 

 

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