Why Higher Education Executive Compensation is So High

I have a hypothesis about executive compensation in higher education. I believe that our effort to make matters better has made them worse, insofar as “better” means controlling the escalation in salaries for chief executive officers and “worse” means allowing them to rise. 

Here is how it has happened. Congress decided that unreasonable levels of income for college presidents, among others, could trigger financial penalties, including for the board members who approved lavish deals. It was deemed abuse of non-profit status. The legislation which was passed may have achieved the opposite effect from what was intended, because of how parties could protect themselves from potential liability by relying on an expert report.

The threat of such “intermediate sanctions” created an industry of compensation consultants. They compile data, referencing appropriate comparators, to opine that contract terms fall acceptably within the norms. They are objective and independent, even if they are service providers always pitching for business. The look at everything, extending from base pay and retirement benefits to subsidized housing and health clubs. That’s commendable.

The mania for metrics, however, has led as elsewhere to the assumption that decisions are good if they were based on information. Judgments typically are not good if they are not based on accurate picture of the world, but it is a logical fallacy to suppose that they thus are automatically wise if they have some plausible premise.

The problem is that everyone wants to keep up with the Joneses. That’s human nature. We compete as institutions and individuals. The institution is reflected in the individual and vice versa.

The president, no less her board, has decided that such and such group of schools are “aspirational” benchmarks. They would like to make progress toward their model. They are sure they will achieve their goals if they simply behave in a similar manner. What higher-ranked schools do must be smart.

At a minimum the board would like the leader they have chosen to be treated as an equal to their rival’s designee. If they are circumspect, they will look to averages. Among a dozen schools in their athletic conference, with budgets and enrollments within a range of their own, if the going rate for a president appears to be $350,000, so it is that they will set their president’s wages at the same amount, more or less.

It ratchets upward from there. Nobody wants to be embarrassed by making less than a peer or predecessor. Transparency ensures the figures can be obtained easily enough. “More or less” means likely more, not less.

The next school that was below the mathematical mean, perhaps for the good reason that it lacked enough of an endowment to cover anything greater, wants at least to match in turn. All it takes is a single school to say, not extravagantly, well, our gal (or guy) is worth slightly more than the mean, why don’t we take it up to the 75% mark — and it does not take any skill with numbers to see that the mean moves. If the school said, modestly, we want our person to make one single dollar more than the mean, even that generates an effect.

Ironically, the more like other business colleges try to be, the more they exacerbate matters. Critics suppose that it is academic culture, out of touch with marketplace reality, that explains everything wrong on campus. 

To the contrary, as non-traditional candidates from the private sector are recruited into higher education administration, they claim to have a skill set that is more valuable than a former professor’s, which earns them if not what they previously made then more along those lines. Those who hold roles such as college president argue that their responsibilities are complex, comparable to any other head of a multi-million dollar enterprise, and they no doubt are right that the portfolio has expanded well beyond what self-governing faculties imagined when they ceased to be itinerant lecturers. They insist that a college should function like a corporation. They have introduced concepts such as performance bonuses. It all seems like a good idea at the time.

Deans, provosts, presidents, and the many other specialists are professionals, no longer amateurs who have some some knack for paperwork, drafted for a sabbatical from research and teaching. The more a track is created for them, with national searches, the more they establish a set of standards for themselves. The prevailing “free agent” ethos of our era discourages old-fashioned virtues; only chumps “leave money on the table” nowadays.

I have seen how this works from both sides of the table. I have been a member of governing boards of two colleges for a total of sixteen years. I also have been employed as a dean and then chancellor-dean of a standalone law school for cumulatively just shy of ten years. The time as a trustee prompted me to bargain against myself as chancellor and dean, especially on perquisites. A leased car for an executive is not abnormal, but the “optics” issues it causes are not worth the trouble for anyone.

The point is that passing rules, using data, and being business like, following what are in the jargon “best practices,” does not necessarily produce the outcomes that might be expected. It merely starts in motion phenomenon that continue of their own accord. 

For any specific school, executive compensation will settle down only if the executive, and her board, make a personal commitment. All the rules, data, and business like “best practices” won’t make as much of a difference as the collective conscience of the folks in charge.

This article originally appeared at Huffington Post.