Categorized | Salary

Academic Executives Learn About New Pay Practices

Posted on 03 May 2009

Salaries are rising faster than the rate of inflation for top college administrators and executives, but most of them aren’t in it for the money. Like other nonprofit employees, they choose their career paths primarily for public service and other nonmonetary reasons.

Top college development officers, in fact, cite money as low on their list of primary job satisfactions, according to a survey by search firm Educational Management Network/Witt Kieffer in Oak Brook, Ill. They cite quality of life, leadership and challenge as more important.

College presidents, the highest paid college executives, also are motivated by primarily public-service reasons, says Ray Cotton, vice president for higher education at ML Strategies, a consulting subsidiary of law firm Mintz Levin in Washington, D.C. Mr. Cotton, who helps colleges and new presidential hires negotiate pay packages, says presidents, like all executives, worry about having sufficient retirement funds and their employment security.

Yet “they aren’t in it for the money,” says Mr. Cotton. “There’s a strong element in public service in every president I have ever worked with.”

That’s not to say that pay for executives in academia isn’t improving. Salaries for senior college administrators, such as chief financial officers and vice presidents, increased by 5.4% in 2001, according to a survey by the College and University Professional Association for Human Resources in Washington, D.C. Salaries rose by 5.3% for college executives, including presidents and executive vice presidents. During the same period, the consumer price index gained 2.6%.

Meanwhile, salaries for administrators at U.S. graduate business schools rose by 4% in 2001, to an average of $100,800 from $96,900, reports the Association to Advance Collegiate Schools of Business in St. Louis.

Top development officers at U.S. schools earn average salaries of $98,700 annually, EMN/Witt Kieffer reports. Those at specialized research institutions make the most — an average of $182,900 annually.

In 1999-2000, 86 college presidents earned $300,000 or more, up from 74 presidents in the prior year, reports the Chronicle of Higher Education. A dozen earned $500,000 or more in 1999-2000, up from seven the year before. The highest pay package went to George C. Roche III, who received $1.2 million in 1999 after he resigned from Michigan’s Hillsdale College in the midst of scandal. This figure included $906,000 in deferred pay.

But CEOs and top executives at comparable-sized businesses in the private sector routinely earn more, often because of sizable incentive payments and stock plans. “People have learned in academia that while salaries are fair and equitable, they are fair and equitable in the higher-education community and may not have a relation to the for-profit world,” says Mr. Posner.

Moving for More Pay

Salary increases may decline or remain flat this year as demand for college administrators falls due to budget cuts, says Jay V. Berger, a principal with search firm Morris & Berger in Pasadena, Calif. States are reducing funding to public schools, while some private schools are suffering from declines in the value of their endowments. To cope with the cuts, schools are consolidating departments and jobs, filling positions without help from search firms or stretching out the hiring process, he says.

To boost their pay significantly, senior college executives usually must move to new jobs at other institutions. A bigger salary will accompany a promotion to a more senior role at a similar sized or larger institution. A lateral move to a richer or larger university also likely means a pay gain, as does a lateral move from a public to some prestigious private schools.

Development officers surveyed by EMN/Witt Kieffer say they’d require a 20% to 30% pay increase to take jobs at other schools. Some development officers at research and master’s degree institutions would need gains of between 50% and 60% to move, the survey shows. Chief development officers based in rural areas require the highest salary increases to move, possibly because 72% of them earn less than $100,000 annually, compared to 67% of chief development officers in suburban areas and 56% in urban areas.

Other college business executives have been asking for between 20% and 25% more pay to change jobs, says Gary Posner, senior vice president and director of the education search practice at EMN/Witt Kieffer.

“Typically, there’s two reasons they get it,” says Mr. Posner. “One is that the new job is a promotion, and the second is that they are moving to an institution with higher prestige, a bigger development budget and a bigger staff.”

As hiring declines overall, demand for skilled development executives who have led or been involved in a capital campaign and worked at significant institutions is “extremely tight and highly competitive,” he says.

“Development in the academic world is like sales in the for-profit world,” says Mr. Berger. “If you depend on contributed income and you lose your top person, you have no choice but to replace that person.”

College presidents also routinely bump up their pay by moving to new institutions. Some schools have private foundations that provide supplemental pay. One president who’s moving from a smaller college in Georgia to a larger one in Virginia will realize a 50% increase in her total pay package, says Mr. Cotton. The president’s pay raise is due more to the size and wealth of the new institution than to her past earnings, he says.

He advises boards to base pay packages for new presidents on those at peer institutions nationwide, not on the executive’s most recent earnings. This is what he told the board of a private university in Illinois that chose a former provost of a Maryland state university as its new president. “If they get him on the cheap and then he reads that others are being paid more, he won’t be very happy,” says Mr. Cotton. “Then he could be recruited away, so where’s the bargain?”

Changing Pay Practices

While university pay remains low in relation to private industry, compensation practices are changing in academia. College presidents’ pay packages are the most visible example of the changes. As the roles of college presidents have become larger and more complex, their earnings have increased. A decade ago, schools sought well-respected academics as their top officers. Now, they seek superior managers and fund-raisers as presidents and look to the provost to be the top academic officer.

“The kind of person a school might be looking for isn’t too different from the type of person a similar-sized organization in the private sector would be looking for,” says Mr. Cotton. “So when the board looks at the compensation package they need to be more competitive with private industry than they’ve been in the past.”

The changing makeup of college and university boards also is having an effect on pay. More trustees are business executives who are comfortable with performance-based pay and annual incentives. Once unheard of in academia, performance bonuses now are offered to presidents at about 10% to 20% of schools, says Mr. Cotton.

While still rare, bonuses are beginning to spread to other positions as well. Typically, a maximum bonus for a college executive equals only about 5% to 10% of salary, much smaller than typical bonus targets for high-level executives in private industry, says Mr. Berger. Not being able to offer a bonus is a “huge problem” when recruiting certain types of college administrators, such as IT professionals, he says.

Tricky issues surround bonuses for development executives. It’s considered unethical for their bonuses to be based on the total amount of revenue they raise, since some development executives might be tempted to seek immediate donations vs. larger “planned” gifts to be given in the future or over long time periods, says Mr. Posner. More effective goals might include increases in the percentage of alumni who give, gains in the amount of money collected from alumni annually or percentage gains in corporate foundation funds, he says. Still, most development executives surveyed by EMN/Witt Kieffer don’t receive pay incentives.

Deferred Compensation

Next in importance to college presidents after salaries are deferred compensation and employment terms, says Mr. Cotton. Deferred pay is set aside annually and awarded if they stay the length of their contracts, typically three to five years. What the school will provide if it dismisses the president, such as severance pay or deferred compensation, must be negotiated.

Housing or housing allowances, cars and memberships in private clubs also are typical compensation elements for presidents. Sometimes, negotiations get touchy concerning car choices. “One president wanted a Volvo because she thought it was the safest car on the road, and the board was mad because she didn’t want an American car,” says Mr. Cotton. “In another case, the president wanted a Cadillac, but the board thought it was too extravagant and wanted him to drive a Buick.”

When Ronald L. Applbaum, president of Kean College in New Jersey, takes the reins as president of the University of Southern Colorado in July, his pay package will be typical. It includes a $155,000 a year salary, a $7,800-a-year allowance to lease a car and a $29,000 annual housing allowance, reports the Chronicle of Higher Education. The state will contribute 11% of the value of his salary annually to his retirement and he will receive $45,000 in deferred compensation if he stays on the job for three years.

Fringe Benefits

Colleges are stepping up to the plate on a variety of creative pay elements as well. More schools are awarding hiring bonuses as a way to cover relocation and other costs, says Jean Dowdall, a vice president in Alexandria, Va., with A.T. Kearney Executive Search. “They aren’t so much salary sweeteners as they are a way of dealing with odds and ends, such as selling a home at a loss or a spouse leaving a job,” she says. “Colleges say, ‘We don’t need to see receipts, you take care of them and we’ll call it a day.’ ”

To recruit desirable executives, some schools are covering the costs of retirement and health-insurance plans during typical “wait” periods of early employment that can last up to six months, says Mr. Berger. In high-cost areas, such as California, institutions or their foundations might subsidize the cost of a new home or provide additional housing allowances for executives below the level of president. “For positions at Stanford University and other California schools last year, we negotiated some type of housing allowance,” says Mr. Berger. “That’s an area we’re seeing more flexibility on.”

Some candidates are receiving other perks, such as subsidized tuition for children or themselves, if they want to pursue additional degrees. Ms. Dowdall says she planned to approach a candidate about a position at another school until she learned that his current employer was paying his tuition to complete a prominent doctoral program. “My take on that was that I couldn’t recruit him away,” she says.

Organizations that can offer enticing perks to academic administrators should do so because it helps with retention, says Mr. Posner. “People are driven by lots of things,” he says. “Sometimes it’s money, while other times, it may be the chance to go to a specialized conference, take a sabbatical leave or take time off to work on another degree, write an article or a book. There’s a lot more individuation going on at the senior level to retain executives.”

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