Monday, November 20, 2006

The Annual Chronicle Presidential Salary Survey

By Richard Vedder

This morning, the Chronicle of Higher Education's annual survey of university president salaries is out. The findings continue trends in the last few years: compensation is up, and increased use of non-traditional forms of pay are evident -- performance pay, deferred compensation, and other perks. The prosperity of higher ed is continuing to show up in the pay of the leaders of our institutions.

Moreover, two other trends appear to be continuing:

1. Salaries in research universities are rising much faster than in liberal arts colleges or schools with modest graduate work.

2. Presidential salaries are growing faster than those of mainline employees, including faculty, at least at the more prestigious institutions, not to mention the employment income of ordinary Americans.

In the four years 2000-1 to 2004-05, average presidential compensation at the research universities rose nearly 40 percent, or well over 8 percent a year. In inflation-adjusted terms, the annual rate of increase was about five percent a year, well above compensation growth in the economy as a whole. For private liberal arts colleges, however, the typical increase in inflation adjusted terms was more like 2-3 percent a year, one-half as much.

Higher Education Establishment types would note corporate leader salaries are rising even faster, that the job of college president is getting harder, and that the risks of getting discharged are rising, increasing the "combat" pay dimensions of the job. There is some truth in all of this.

At the same time, however, these trends are very worrisome and troublesome in other regards. Higher education professes to be a higher calling. We subsidize it rather than tax it. The public sacrifices to allow it to exist and flourish beyond what strictly market forces would dictate. University presidents are perceived by the public that subsidizes schools to be more akin to governors of states or ministers or priests --performing public services, for which they can expect to be comfortably paid, but not opulently so. I suspect most people believe a good university president of a fairly large institution should have the income of a highly successful doctor or lawyer, perhaps a $250,000 to $300,000 salary, a nice car, and maybe a stately presidential home for use while in office. If the president wants to earn perhaps another $50,000 to $100,000 a year serving on a corporate board, that is okay too. We want to reward our university presidents reasonably well, but not at the level of corporate executives. When salaries get over, say, $500,000 a year, and, in some cases, over $1 million annually, we have every right to wonder: are the public subsidies we give universities increasingly ending up as "economic rent", payments beyond what is necessary to have the service performed? Are university presidents selfless servants of the public trust, or money-hungry entrepreneurs? Why are we dropping money out of airplanes over college campuses, if the keepers of the purse are increasingly giving the money to themselves?

Also, why is it that teaching institutions are treated with far less opulence than research ones? Why do CEOs of big budget teaching institutions make less than CEOs of similarly sized research ones? Are federal research grants increasingly economic rents, something I have long suspected? The new congressional leadership may ask: why do we keep giving tax subsidies and grants to institutions that seem intent on allocating funds to bigger and bigger rates of compensation increase, even while universities operate in a stealth and inefficient fashion, raising tuition fees double the rate of inflation?


superhiker said...

Worrisome indeed. But I'll wait to take care of the $1 million/yr. university presidents until after taking care of the CEOs looting the big corporations for $10 million or $100 million or more -- often for no other service than running the companies they run into the ground, or merging them with some other company, and taking the golden parachute.

TC said...

Sin #1 - There is too much money available.

Sin #2 - The allocation of funds is problematic.

Whoever is responsible for allocating funds within the College or University needs to be "water-boarded."

In this epistle, CCAP is looking under the right rocks. If CCAP continues doing this, the question of where the money is going will develop quite clearly I should think.

(For productivity issues I would start with the burn rate of money and compare it with other colleges and univesities. there is some difficulty in doing this.)

superhiker said...

Actually, I've seen what happens when you do a search for a high position -- having sat on a couple of search committees for such positions -- and you don't offer the market rate. You get a very disappointing set of applications.

One may not like what the market is telling you, but you ignore it at your peril.

superhiker said...

"should have the income of a highly successful doctor or lawyer, perhaps a $250,000 to $300,000 salary"

Rich, you don't have a clue about what a "highly successful doctor or lawyer" makes these days.

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