Paid for Being Fired

A new survey finds that 60 percent of four-year colleges offer severance packages to fired presidents.

June 24, 2015

The College of DuPage sparked outrage earlier this year when it offered its controversial president a generous $763,000 severance package -- well over a year’s salary. Heads turned when fired Penn State University leader Graham Spanier was offered $1.2 million in severance, despite his handling of the Jerry Sandusky scandal.

Yet as dramatic as these examples of severance pay are, a new survey suggests it's common for higher education institutions to offer severance payments, typically before a president is ousted.

Sixty percent of respondents to a 2014-15 survey of four-year college and university presidents said they had severance agreements in place with their leaders.

Severance packages are an oft-overlooked component of the increasingly sophisticated and complicated college executive compensation package. Yet as more and more governing boards seek to mirror the corporate world as they craft compensation agreements, severance packages may be on the rise at colleges and universities.

“Severances are elements of retention packages that are very common in the corporate sector, so people on [governing] boards are very familiar with them,” said Lucy A. Leske, managing partner of education practice at the executive search firm Witt/Kieffer. “Boards are becoming more professional in their approach, in how they recruit and obtain candidates. Severance is one of those key elements.”

Severance packages are typically triggered by involuntary termination, usually without cause. Just 22 percent of respondents offer severance if a president voluntarily resigns. Severance is often meant as an assurance to presidential candidates that, should they be fired, they’ll have a financial cushion.

“Sometimes they step on a mine -- a political or media mine -- and for various reasons have to step away,” Leske said.

E. Gordon Gee, for example, stepped down from the presidency of Ohio State University after a series of verbal gaffes, including a joke about Roman Catholics and football, and was awarded a seven-figure severance package.

Such buyouts receive a lot of attention, especially when packages are seen as excessive. Both Gee's and Spanier’s severance payments were just a portion of their overall exit packages -- they each received millions in deferred pay, sabbatical pay and other compensation as well.

"Presidential contracts [are] becoming more complex and becoming more competitive,” explained Karen Hutcheson, a partner and executive compensation consultant with Mercer Higher Education. “As these contracts become more complicated, they’re subject to more scrutiny.”

Sixty-three institutions responded to the survey, which was conducted jointly by Witt/Kieffer and Mercer Higher Education. Some 400 institutions -- public and private, large and small, and rich and moderate in income -- were approached to participate in the survey.

Of the institutions that offer severance packages, the agreements at 82 percent were fixed and not contingent on the number of years the president served. The vast majority of severance packages are comprised of just base pay, and 58 percent of severance packages run the course of 12 months. Benefits, such as health or life insurance, would continue during severance at 64 percent of the institutions that offer the benefit.

Of the institutions surveyed, 40 percent allowed fired presidents to assume a job as a tenured professor at the institution. A few institutions -- approximately eight of the colleges and universities surveyed -- offer two-year packages.

The survey appears to be the first of its kind.

According to Leske, a dearth of information about common severance agreements in higher education has led some institutions to be overly generous. She recalled how one board offered its president a two-year severance package that was contingent on his or her contract not being renewed. “Now the board is stuck with a severance package in an uncertain environment,” she said, not naming the institution.

Leske continued, “You see some of these packages [and ask], ‘What were they thinking?’ They really weren’t thinking through the financial implications to the institution.”



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