Perks and Pay Under Fire

A spate of higher education scandals in Illinois prompt the question: Is it time for states to crack down on executive compensation and exit packages?

October 6, 2015
The senator's website
Illinois State Senator Bill Cunningham, head of a new panel on higher ed compensation

Nowhere in the country are the governing boards, presidents and executive pay structures of colleges and universities receiving more scrutiny and attention than in Illinois.

The state has weathered scandal upon scandal in recent months. Central among the controversies is the question of what kind of pay presidents should receive on their way out the door, especially when their tenure has been tumultuous. And contention in Illinois, some say, is highlighting a broader question about the state of nonsalary compensation in public higher education.

Illinois’s governor last week signed a measure -- dubbed the Breuder Bill, after one of the presidents in question -- that curbs the severance payments community colleges can offer their leaders and limits presidential employment contracts to four-year terms. The bill passed the State Senate in a 53-to-1 vote in May. It is a response to outcries over a lucrative exit package, approved by trustees during a closed session in January, that offered College of DuPage President Robert Breuder $763,000 to retire in March 2016, three years before his contract was set to expire.

As Breuder’s exit package came to light, so did some of the president’s extravagant spending practices, such as thousands of dollars spent with trustees on meals and wine at the campus restaurant. These controversies were fresh when University of Illinois at Urbana-Champaign Chancellor Phyllis Wise was poised to receive $400,000 upon resigning in August, despite leaving under a cloud of controversy. Under immense political pressure, the IU governing board scrapped Wise's deal.

The Breuder Bill went into effect just a few days after DuPage trustees, several of whom joined the board after the exit package was approved, voted 4 to 3 to scrap Breuder’s employment contract and make him an at-will employee in an effort to nullify his severance.

The Legislature is now poised to consider a number of additional higher education reforms, including extending restrictions on severance payments and contract terms to four-year universities. The legislation appears to be among the most radical measures in the country aimed at curbing the compensation of college leaders.

“Illinois is bankrupt. It’s broke, and it has been for a while,” said Jeanne Ives, an Illinois state representative who is on the search committee for the next DuPage president and co-sponsored the Breuder Bill. “And when we see these lavish buyouts of people who have done something wrong … people just get outraged.”

One bill would require boards to publicly post the terms of new or amended contracts two days prior to approval. If passed, the measure would make Illinois institutions outliers among their public higher education peers, the vast majority of which keep agreements under wraps until after a president is hired.

Another bill would ban nonsalary compensation like housing allowances, country club memberships and severance from being counted toward an employee's pension. Another would ban community college boards from establishing or altering a president’s contract during lame duck sessions, as was the case with DuPage.

Another would require community colleges to undergo an audit every three years in order to receive state funding. Currently only four-year public universities are regularly audited. Yet another would require training for college and university board members, including on contract law and the state’s Open Meetings Act.

The bill concerning severance payments would restrict an outgoing university president's severance payment to a year's salary. Contracts would be limited to four-year terms. Yet for many colleges and universities, it is standard to offer a presidents five-year contracts. 

The bills reflect a changing in the tide of public opinion about the compensation packages of Illinois college administrators, said co-sponsor Bill Cunningham, a state senator who heads the newly created Subcommittee on Public Higher Education Executive Compensation.

“We thought it was important we put a spotlight on some of the spending habits of these institutions in an effort to weed out some of the more extravagant benefits,” Cunningham said. “I use the word ‘extravagant.’ We think all of the perks are exactly that,” he said, despite the fact that “all of these things in the higher education universe are normal.”

He continued, “When you talk to an ordinary taxpayer, an ordinary voter, and you tell them about a state employee getting a $300,000 golden parachute or getting a free country club membership … that really drives the taxpayer crazy.”

Illinois has a multibillion-dollar shortfall, a broken pension system and the worst credit rating of any state in the country. Its public universities were threatened with a one-third cut this year, a reduction that has since been lowered to 6.5 percent.

Cunningham and many of his fellow legislators say that, prior to the DuPage scandal hitting headlines earlier this year, there wasn’t widespread public knowledge concerning the compensation packages of public college and university administrators.

Yet Raymond Cotton, a Washington-based lawyer who negotiates contracts on behalf of university presidents, says that the legislative measures, if passed, would put Illinois institutions at a competitive disadvantage with their peer colleges. They also signal a lack of trust in board governance and could discourage board service, he said.

“The Illinois Legislature and the governor, to the extent that he agrees with them, are doing a disservice to their institutions. If these measures are passed, the institutions in Illinois will not be competitive in the marketplace,” Cotton said. “Their neighboring states will have a competitive edge in recruiting the best and brightest presidents.”

He added, “Politicians should keep their hands off colleges and universities.”

More Scrutiny

It wasn’t that long ago that an Illinois university president was given a cushy exit package despite a controversial exit. In 2014 Timothy Flanagan resigned as Illinois State University’s president just eight months after taking the job. At the time, he was under investigation for a conflict with a landscaper outside the university’s presidential residence. Illinois State's governing board approved a $480,000 severance package to facilitate Flanagan’s early exit.

There have been other, arguably higher-profile cases in other states. When Graham Spanier left Pennsylvania State University under the cloud of the Jerry Sandusky scandal, he received millions in severance, sabbatical pay and deferred compensation. Gordon Gee, after his ouster from Ohio State University due to a series of verbal gaffes, received a similarly generous exit package.

“There are the packages that are done to deal with a problem, to either get rid of someone or reach an agreement so new leadership can be brought in,” said James Finkelstein, a public policy professor at George Mason University, adding that such packages “get boards increasingly in trouble.”

To be fair, some realize the undesirable optics of taking a severance or bonus after an early and controversial exit from the presidency. The former University of Illinois System leader B. Joseph White gave up a $475,000 retention bonus in 2009 after he resigned from the presidency following an admissions scandal.

In almost all cases, compensation continues long after a president is out the door. White remains one of UI’s best paid professors, and Wise is now earning $365,400 a year -- or 73 percent of her starting salary as chancellor -- as she prepares to return to teaching in the spring semester. Like the employment agreements of many university presidents, Wise’s contract entitled her to earn a salary equal to the highest-paid faculty member in her discipline upon joining the faculty.

Meanwhile, news media reports continue to uncover new extravagances by Breuder. Not only did he and other members spend freely at the campus restaurant, but The Chicago Tribune reported in September that Breuder had a private locker room built for him and other administrators.

So after Wise’s abrupt resignation in August, followed by the revelation the next day that she used private email accounts for official business but withheld some of those emails in response to public records requests, pushback against an informal agreement that would have awarded Wise $400,000 in retention pay was swift.

“The buyout would have happened had we not had this Breuder contract,” said Ives. “The Breuder deal has been in the paper every week, sometimes every day, since January.”

In addition to the email scandal, Wise faced criticism over her controversial decision to block the hiring of Steven Salaita after a series of controversial tweets on the 2014 conflict between Israel and Gaza. The spotlight on compensation resulting from the Breuder scandal, coupled with Wise’s controversial tenure and exit, made the offer politically unpalatable. “There was no way they were going to get away with that without having a big trust problem,” Ives said of the UI governing board.

When Wise first agreed to resign, Illinois System President Timothy Killeen told her, pending regents’ approval, that she would receive a $400,000 retention bonus. Her original employment contract outlined a retention incentive of $100,000 a year for five years “contingent on your continued service … for the full five years.” The contract provided that if she left UI “at the election of the board,” then she would receive a prorated portion of the incentive. So Killeen’s offer was well within the status quo.

Yet a letter from Trey Childress, Illinois’s deputy governor, made it clear the status quo was not acceptable. The governor’s office urged the university's board to scrap the package, calling it “a major step in the wrong direction and against the best interests of the Urbana-Champaign campus, the University of Illinois campus or the state of Illinois.”

It was in this context that the board vetoed the retention agreement. Wise called the move “unprecedented, unwarranted and completely contrary to the spirit of our negotiations,” and hinted at a possible lawsuit, though no litigation has since been filed. Wise declined an interview request for this article.

“There’s the idea, even though they didn’t officially state this, that she’s being let go for cause. She’s being let go for performance problems. And the idea of giving someone a golden parachute is not looked upon kindly in Illinois, given what happened at DuPage and given what happened a few years ago at Illinois State University,” Cunningham said. “If a person is being let go because their performance is not up to par, they should not remain on the payroll, essentially.”

And concerns over secrecy exacerbated the public’s distaste for exit packages, says Cunningham. He said much of the Illinois legislation is aimed at increasing transparency by making “sure the public knows about these perks” and that they’re determined “in the light of day.” Yet some worry that attempts at transparency, such as requiring the public posting of contract terms before the contracts are ratified, could lead to misunderstandings and muddle an institution’s ability to negotiate with a candidate.

“Tying the hands of trustees and not allowing them to negotiate sends a message that the Legislature doesn't trust the trustees and puts the trustees a position where they cannot be competitive with their peers,” Cotton said.

There’s also concern that the heightened level of scrutiny will itself be a deterrent to otherwise interested candidates.

“[If] presidents are going to be scrutinized like that from the very beginning, just even signing their contract, it’s going to affect the presidential pools quite a bit,” said Angela Provart, president of the Pauly Group, an Illinois search firm aimed at placing community college administrators.

Cotton said that the withholding of Wise’s retention bonus already sends a clear message to fellow college administrators. “Given the messy way in which the president's exit was handled,” he said, “there will be reluctance absolutely” among candidates who would have otherwise considered applying for the Illinois presidency.

But Cunningham said he wants boards to think twice before setting an administrator’s compensation, adding that he and fellow legislators have “lost patience” with the argument that compensation should take a certain form “because everyone else is doing it.”

“We understand that our universities and colleges want to be competitive and that in order to get top-flight talent they need to offer competitive [compensation],” he said. “But we want the governing boards at these institutions to pause and see that they're working on behalf of tax-supported institutions. They’re not major league baseball teams.”

He continued, “They have to ask themselves first, ‘How much can we afford?’ -- not ‘How much will it take?’ -- when they're considering hiring a new president.”

‘Groundswell of Pushback’

Some who watch higher education closely say the Illinois legislators -- while an outlier in penning legislation -- are not alone in their budding concern over executive compensation.

“We’re coming out of a period of economic stress and people nationally have been questioning all of these buyouts and deferred compensation, not only just in higher education but in industry as well,” said Dan King, president of the American Association of University Administrators. “Boards are becoming more sensitized to it because they realize people are looking at it.”

Michael Poliakoff, vice president of policy with the American Council of Trustees and Alumni, agreed.

“There has been this growing pathology in higher education of these outsized packages, both at hiring and at the end of an administration. Certainly college presidents deserve to be well compensated, but there has to be some reasonable scale,” he said. “There’s been a groundswell of pushback against the out-of-scale compensation and perks and severance packages.”

Poliakoff pointed to contracts like Mitch Daniels’s at Purdue University as a good example of board restraint. Much of Daniels’s compensation is contingent on meeting performance metrics laid out by the board in the contract. Daniels’s contract does not provide for a retention bonus. Legislators like Cunningham and Ives encourage performance-based bonuses over pay like retention incentives and deferred compensation. One piece of legislation under review by the Illinois Legislature states that annual performance review must be considered before a president receives a raise, bonus or severance package.

“A retention bonus, from the institution’s perspective, there ought to be some reason to have it before you make it available,” King said. “But the fact is that because people have been getting them and it's kind of publicly known, it actually becomes a bit of expectation …. I’m just not sure that it belongs in every contract.”

Yet much of what is being debated in Illinois is commonplace in higher education. 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, although just 22 percent of respondents offer severance if a president voluntarily resigns.

Housing and car allowances, along with country club memberships, are standard in most college and university contracts, including those for community colleges. Yet as Cunningham and Ives consider compensation packages, such “perks,” they say, seem excessive.

“If you’re already making a salary of $300,000, we’re not going to give you a housing allowance or a country club membership,” said Ives. “You’re not going to get an unlimited budget to remodel offices.”

Yet Cotton said limiting the traditional offerings included in a president’s contract provides “a significant disincentive” for sought-after candidates to consider Illinois. Things like country club memberships, he added, are important because such arenas are often used as settings to elicit donations or recruit faculty: “If you take away a tool that the president is using to raise money for the institution, how is that helpful to the institution?”


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