Platinum Parachutes Revisited

Perhaps it is time for college and university governing boards to consider whether current and future students should have to pay for failed presidencies, argue James Finkelstein and Judith Wilde.

July 29, 2019
 
 
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Perhaps it is simply a matter of better and more comprehensive coverage by the news media, but it still seems that an unusually large number of university presidents are leaving with little notice and well before the end of their contracts -- as many as five in just one recent week. While the circumstances surrounding each of these departures may vary, there is a likely constant: some form of parachute for the outgoing president.

We have written before about “platinum parachutes” in the context of our study of presidential contracts. They are the guarantees written into an employment agreement specifying the terms of a postpresidential appointment, typically for two scenarios. The first, and most common, is in contemplation of a president completing the term of the contract and deciding to return to the faculty. The other is in the case of the governing board choosing either to not renew the contract or terminate without cause the agreement before it expires. The terms for the postpresidential appointment are usually the same and can be quite lucrative for the outgoing president -- and quite expensive for the university.

We did some back-of-the-envelope calculations based on publicly available salary data for the five presidents we have mentioned. Our estimate is that, taken together, these five individuals have a total base presidential pay of approximately $2.5 million. That does not include fringe benefits, bonuses, deferred compensation or any nontaxable benefits.

If each of these people were to receive the most common elements of a platinum parachute, they would obtain a fully paid sabbatical next year at their presidential base salary. They might also receive a discretionary fund, a staff member or research assistant, and a suitable office. Assuming they were all to return to the faculty after this sabbatical, they probably would do so as tenured full professors. Most frequently, we see this salary set as a percentage of the last presidential base salary -- usually 75 percent. So as a group, that would be in the neighborhood of just under $2 million per year. They also might continue to have discretionary funds, an administrative or research assistant, and a suitable office.

While we did not determine the age of each of these individuals, we did identify one president who is stepping down at age 61. If he were to remain in a tenured position for another 10 years, the university’s financial obligation for just his base salary could be in the neighborhood of $4.5 million, accounting for likely raises. If you add a typical fringe-benefit package to that, the cost could be close to an additional $1 million. If the group as a whole stayed in their professorial roles for 10 years, we would anticipate a future liability of roughly $30 million, including raises, fringe benefits and other perks.

That is just for five people, none of whom appear to have served the full term of their contracts. It’s also important to remember that at least some of them probably haven’t been in the classroom or active scholars in their respective fields for a while. Granted, we do not know how many, if any, will remain on staff as tenured faculty members. Some may have entered into a separate so-called exit agreement. Sometimes these agreements allow the institution to buy out tenure rights, which we occasionally have seen to be even more expensive than the parachutes in the original contracts, such as the recent agreement at the University of Central Florida.

As we heard during the first debates among Democratic candidates, college affordability is a growing public concern. Perhaps it is time for college and university governing boards to consider whether current, as well as future, students should have to pay for these failed presidencies. In fact, we are willing to go even further and suggest that platinum parachutes, even for successful presidents, are not only costly but of questionable value to both the institution and the public.

For most of us, when we leave our positions, we depart at best with the good wishes of our coworkers, not a lifetime sinecure. Why should college presidents be any different?

Bio

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

 
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