Does Your President Have a Platinum Parachute?

James Finkelstein and Judith Wilde examine whether such employment agreements are good for higher ed institutions and the public interest.

June 1, 2017
 
 
iStock/BsWei

While much longer ago than either of us care to admit, we attended college when the university president more likely than not wore a tweed sports coat with leather patches on the sleeves that were not a fashion statement. His -- and the president was almost always a he -- wing-tip shoes hadn’t been polished in weeks and probably needed resoling. He drove a 10-year old Saab or Volvo. His office, while comfortable, housed an eclectic collection of furniture accumulated over the years by his predecessors. He worked in a building that may have been called “Old Main” or simply the “administration building.” There was no security at the entrance and the president didn’t have a private bathroom. You frequently saw the president at the faculty club having lunch -- often with a group of faculty -- or maybe in one of the dining halls or the student union with students.

Today’s university president most likely wears designer clothes, highly polished bench-made British shoes and an Italian silk tie with the university logo and colors -- and he’s still probably a he. They most likely are driving a late-model luxury car -- although few actually drive themselves. Before they arrived, the board set aside money for decorating their new office.

Good luck trying to drop in to say hello. In fact, at some large universities you may not get past security without a university ID or being on the guest list. Lunch is probably at a top restaurant, private dining room or the country club with a major donor.

There is a significant body of literature that describes the changing nature of the university presidency. Over the years, the most thorough accounts have been the American Council on Education’s somewhat regular survey, “The American College President.” Another is the recent “Pathways to the University Presidency,” by the Deloitte Center for Higher Education Excellence. But perhaps the best hard evidence of the evolving university presidency is found in their employment agreements. Our study of these agreements documents what we call the “CEO-ization” of the university presidency.

In a previous article, we reviewed the structure of the employment agreements for public university presidents. In a second piece, we took a detailed look at the bonuses and various perquisites we found in the 116 employment agreements for public university presidents included in our study. In this final essay, we will examine a distinct type of “platinum parachutes” written into such agreement: guarantees for a postpresidential appointment.

The Elements of the Parachute

We found five major elements that are often part of a platinum presidential parachute.

  • A guaranteed sabbatical. We found these in nearly half (48 percent) of the agreements. The number is actually higher when those states that provide for such sabbaticals as part of state policy are included. In three-quarters of such cases, the president is paid a full administrative salary for that period of time -- most often for a calendar versus an academic year. In a few cases, while on leave, they receive an expense account and administrative support. When specified, they most often keep their presidential benefits during their sabbatical. That could include continuing their deferred compensation, supplemental insurances, car allowances and even country club memberships. In those cases where the president lived in an official residence, we found that a few contracts (12 percent) also provided for move-out expenses.
  • “Earned” payouts associated with a successful completion of the contract. These include deferred compensation payouts, which varied from $17,000 to $500,000, and we found such payouts in 40 percent of the contracts in our study. Contract completion bonuses, found in 13 percent of the contracts, varied from $50,000 to $1 million.
  • Assured postpresidential employment. This most often takes the form of a tenured professorship or guarantee that tenure will be granted at the end of the contract (69 percent), or a contract for a specified term (3 percent). In some states where a president cannot be granted tenure as part of the employment agreement, the parachute includes language that states that the president can be considered for tenure upon completion of the contract. That, in our view, is all but a guarantee of tenure. We also should note that some states prohibit the granting of tenure or any form of postpresidential appointment, either expressly or implied.
  • A specified salary when returning to the faculty. We found this in 77 contracts, and it usually is set in one of four ways: relative to the highest paid faculty member in the department in which the president will serve (23 percent), as a percentage of the president’s most recent salary (17 percent), the same as the average full professor in the president’s new department (4 percent) or in some other, undefined manner (23 percent). Regardless of which method is used, not only are past presidents likely to be the most highly paid faculty member in their academic unit, but they are often so by a factor of two or three.

Finally, we found some other less common, but nonetheless notable, elements in some parachutes. These ranged from a guarantee of continuing administrative support, graduate assistants, reduced teaching loads -- or no teaching at all -- discretionary expense accounts, research funds (in one case $2 million to establish a laboratory), and even free lifetime tickets for athletic and cultural events. Perhaps the most striking was a mid-six-figure payment for signing a noncompete clause that prohibited the retired president from accepting another presidency for a specified period of time.

Taken together, a postpresidential platinum parachute can represent a substantial future liability for the university -- perhaps as much as eight figures -- depending on the president’s age when stepping down. In one case where we were asked to serve as expert witnesses, we computed this liability for a president who returned to the faculty at age 65 to be in excess of $5 million. It is worth noting that this president would teach two courses per year, both of the president’s own choosing, with the option to teach both in one term and no requirement for research or service. Put another way, the university would be paying their past president $250,000 per course. To borrow a title from David Lodge, nice work.

There is no doubt that our colleges and universities are vital to our nation’s well-being. It is also true that these institutions are complex and often large enterprises. But we must remember that the leaders of our public colleges and universities are not only presidents but also public executives. We know of no other positions in the public sector in which those who occupy the top leadership job are paid as much, receive as many substantial bonuses, are eligible for such lucrative supplemental benefits and have such valuable perquisites. Certainly, no elected official or agency head who leaves a position receives the types of parachutes we have described.

Our takeaway, based on the data from our study, is that employment agreements for public university presidents bear little resemblance to those for faculty members or any other university employee, perhaps with the exception of coaches. The often-heard argument is that such agreements have become necessary to attract the best and brightest to these positions. However, we have found no empirical data that support this claim.

Indeed, recent studies of the corporate world indicate that, if anything, there is a negative relationship between salary (with bonuses and perquisites) and company performance. Perhaps it is time we ask ourselves whether or not providing corporate-style compensation packages for our university presidents serves the public interest. We think it is.

Bio

James Finkelstein is a professor emeritus and Judith Wilde is chief operating officer and a professor in the Schar School of Policy and Government at George Mason University.

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