Wednesday, August 29, 2007

Ripping Off Taxpayers, Pennsylvania Style

By Richard Vedder

Probably nothing has lowered the respect of the public for higher education more than the payment of huge salaries and bonuses, compensation far out of line with most public service jobs and with any historical norms. We now have million dollar university presidents (and, of course, two million dollar football coaches). Poor kids borrow buckets of money to pay soaring tuition fees that finance the soaring growth in compensation.

My sidekick Bryan, a Pennsylvania native who reads the Pittsburgh papers religiously, has informed me of the scandal du jour. The Pennsylvania Higher Education Assistance Agency, which supposedly is in the business of helping kids go to college, is also into the business of ripping off taxpayers, by paying top executives perhaps double what they should be getting. Dick Wiley, the head of this nefarious organization, was recently granted a six digit bonus on top of a salary already nearly double that of the governor (Ed Rendell)--and three other top execs got six digit bonuses as well, bringing their annual pay to well over $300,000 a year (Wiley's was closer to $500,000).

Why is this happening? Proponents of this rip off will argue "we have to pay what the market dictates." The reality is most of these payments are pure economic rents --unnecessary transfers of income from one class of persons (taxpayers) to another (the executives). They occur because accountability is nearly absent. I suspect that the day will come when taxpayers will shower retribution on the higher education organizations employing these greedy individuals who look at public employment not mainly as a way to serve fellow citizens, but rather as a way to get rich at public expense.

What is the solution? For starters, I might simply get rid of the Pennsylvania Higher Education Assistance Agency. States should not be in lending business, and scholarships are best administered as universal vouchers available to reasonably good and diligent students on demand, without a huge, expensive bureaucracy. Short of that, some salary caps are needed, even though in principle I abhor price and wage controls. But stealing is stealing, even if it is legal. I would also fire the PHEAA's board and make its employees civil servants like most government workers, with good but not exorbitant rates of pay. If Mr. Wiley doesn't like it, he can go elsewhere.

14 comments:

sciencedoc said...

It's hard to take this too seriously when heads of for-profit financial organizations are making 100 times as much. It's amusing to see supposedly pro-market people get upset when institutions that they hate give salaries that are higher than they think appropriate.

Out here in the real world, I know all too well the joys of search committees that go into the marketplace with lowball salaries, i.e. sub-market. The result is usually a sub-standard applicant pool and trouble hiring somebody good if you do find them. It can lead to real disasters down the line when the people you do hire turn out to be turkeys. Of course, that can happen at any pay grade, but when deliberately set out to get cheap, then cheap is more often than not what you get.

Go ahead, offer these people what the governor makes. Tell them that it's a privilege to perform public service, even at less than the ordinary public service rate for these kinds of positions. Offer them half, a third, a quarter what the market says they are worth. See what you get.

Center for College Affordability and Productivity said...

Sciencedoc -- this is Bryan -- I feel compelled to respond again.

What exactly does PHEAA do that they should get these types of salaries? ????? They are a government agency that distributes grants and student loans.

I should also say that I have relatives that live in the Harrisburg area where PHEAA is based and there is no question that these salaries are out-of-line with the cost of living in that area. Very few doctors, attorneys, or business people make half a million dollars in relatively rurual central pennsylvania. Why should the heads of a supposed non-profit take home that much?

sciencedoc said...

I am not familiar with this particular agency. But when I read

proponents of this rip off will argue "we have to pay what the market dictates."

then I get very antsy. I've seen what happens when you try to lowball the market. It doesn't matter if it's a nonprofit or a government agency. I may think the head of Goldman Sachs should not be making $30 million or $70 million or whatever he makes. But try hiring someone to replace him at $1 million and see what you get.

It's possible that this agency is indeed ripping off whoever is supposed to be in charge of it, I'm in no position to say. But when I see the likes of Richard Vedder constantly harping on the supposedly outsized salaries of higher education administrators, in areas where I do have some familiarity, I am very skeptical.

sciencedoc said...

This agency actually sounds pretty impressive, at least from their own puff:

http://www.pheaa.org/about/index.shtml

The news stories say that the Gov. is suggesting that the agency become private. Maybe a good idea. That way nobody would have to pretend that a business with tens of billions in loans can be well run at the Governor's salary.

sciencedoc said...

While we’re at it – some CEO compensation at some leading conservative institutions – note the high % of total revenues in many cases – from charitynavigator.com -- not too shabby, I must say:

Hillsdale College Larry Arnn President $332,656 0.52% of expenses

Heritage Foundation Edwin J. Feulner Jr. President, CEO $601,452 1.67%

American Enterprise Institute Christopher DeMuth President $600,000 2.80%

Cato Institute Edward H. Crane President $407,900 2.39%

David Horowitz Freedom Center David Horowitz President $336,000 8.34%

Claremont Institute Brian T. Kennedy President $180,000 4.44%

Federalist Society Eugene B. Meyer President $368,750 5.69%

American Council on Science and Health Elizabeth M. Whelan President $286,888 15.54%


For comparison, here's Stanford University -- the Pres makes all of 0.02% of expenses in compensation

Stanford University John Hennessy President $572,750 0.02%

sciencedoc said...

Hey, this is fun. Go to charitynavigator.com and see what the ceo's of these rightward little institutes make. Pretty nice work if you can get it!

The Ayn Rand Institute
Pacific Research Institute
Reason Foundation
National Center for Policy Analysis

Bob Yates said...

Sciencedoc, what an interesting post on what fellow travelers on the right make!

Of course, these are organizations that worship at the alter of the market place. For those who don't want to be regulated, such organizations perform a valuable service. How dare you question what the market place pays such shills

sciencedoc said...

Bob Yates, glad you liked it.

Kind of amazing that these guys do not check out this stuff themselves before putting out their wild and rather vicious accusations about higher education officials.

And I was floored to see that David Horowitz, who has complained at times about professors making over $100K, himself pulls down over $300K at his "Freedom Center" with its puny budget.

As a grubber, he really puts the college presidents to shame.

Actually, I really do not begrudge any of them the high pay, nice work if you can get it, as I say.

Except, I do check the CEO compensation at charitynavigator.com before contributing to an organization. If I think it is out of line, I stop contributing.

A lot of these conservative organizations are over the line, in my book.

Something else I have noticed: leftwing advocacy groups do tend to have more reasonable CEO comp.

Center for College Affordability and Productivity said...

Sciencedoc -- we could go back and forth on this all day but you are comparing think tanks and universities. There are critical differences between the two, namely:

1.) The people who run the organizations you mention ARE NOT charging students $30,000 and $40,000 per year to come to their institutions. They are not using tuition dollars to achieve their goals.

2.) And the institutions you mention are NOT asking the state and federal government for more $$$$$. Their compensation is set by their board of directors and private donors. They are not asking the government for handouts, either in the form of direct subsidies or more loans for students, like nearly all colleges and universities.

If colleges and universities were not in the business of charging people tons of money and also asking the government to fund the whole enterprise, I don't think we would care that much about them. It's really like comparing apples to zebras.

Furthermore, as you keep mentioning corporate salaries -- there are real ways for corporations to tell if the person at the top is getting the job done. Look at the corporation's bottom line. If CEOs can not deliver results, they are history. Take for example the recent CEO of Wendy's -- read her grim tale in the WSJ last week. The corporate world is brutal and companies fire people all the time.

But what is the "bottom line" in higher ed? How do we know if Stanford had a good year last year? Your compensation should not be determined solely by some mechancial formula like percentage of revenues. Maybe the Stanford President should make EVEN MORE money. Maybe he should make less. Our outrage is not that people make six figure salaries, per se, but that there isn't enough accountability to figure out who warrants that kind of compensation. The way that higher ed currently operates it's impossible to figure that out. And anytime somebody talks about higher ed in a busines sense, they are scolded that the business world has no place in the Ivory Tower!

sciencedoc said...

CCAP: Last time I noticed, contributions to all these conservative think tanks were tax deductible. I know, I get lots of mailings from them. I've become a lot less receptive to donating, in part because of the info on charitynavigator.com and in part because of the attacks of some of them on higher education.

But the colleges (including Hillsdale, I might add, whose president makes pretty good dough) charge students for their services. As if that makes their presidents less worthy, not more.

But let all that pass. The real point is that these non-profit conservative think thanks with small budgets -- what is THEIR bottom line, by the way -- pay very decent salaries to heads of relatively small operations.

If CCAP wants to claim that the head of the nonprofit, tax-benefitted Heritage Foundation is worth his $600K but that <$600K for the president of Stanford, which is 50 or so times as big and includes major medical facilities and research institutes as well as undergraduate and graduate programs, is an outrage, go ahead!

Center for College Affordability and Productivity said...

On purpose, I ignored the tax deduction arguments but since you bring them up, that opens up a huge can of worms for colleges. Why should contributions to college football stadiums be tax deductible, especially when we are still charging studenst tens of thousands of dollars? Why don't colleges and universities have to spend 5 percent of their endowments every year, like every other non-profit? The fact is that if you are going to look at the tax aspects of this, the case is even *worse* for colleges. Look at the report that the wonderful Wick Sloane did for us on the subject of taxes and higher ed.

Furthermore, you completely ignore my point. The president of Stanford might be worth what he is paid. He might be worth A LOT MORE than what he paid. He might also be worth less. But the way that higher ed is currently structured, it is impossible to figure that out. And when you throw in that colleges ARE NOT just another non-profit like the Heritage Foundation -- in that they charge students thousands of dollars, they urge the same students to take out federal student loans, and they go to both the state and federal government for handouts -- it should not be above colleges and universities to offer some type of accountability to the masses. Check out the Wall Street Journal this past week and the interview with the Dartmouth trustee. You start asking questions in higher ed and the response, unfortunately, is to give you the ax.

As to what is the bottom line for a think tank -- that is up to their board to decide. I agree that can be a fuzzy subject but when you are a relatively private organization, I am less inclined to care about it (and by that I mean if the only public benefit you get is the tax deduction one). It's all of the other "unique" aspects of higher ed that makes them an area of interest.

sciencedoc said...

If you want to make college athletics taxable, go ahead and try. In my parts you'll find out real fast what the public holds "accountable".

I read the interview with T.J. Rogers. From what I can tell about the situation at Dartmouth, I agree with a lot of what he is trying to do. Hire more professors? I'm all for it!

But you mention the boards of nonprofits. Dartmouth has a board. If T.J. gets himself kicked off the board, as he seems to fear, I'd say that says as much about him as about the board. He sounds like a whiner to me. Calling it an issue of "totalitarianism". Complaining about how horrible it has been to be on the Dartmouth board. Poor baby! I know some Russian and Chinese professors who could tell him a thing or two about totalitarianism.

For my money, the president of Stanford is giving the taxpayers a really good deal. A much better deal than the CEO of Boeing, or of the Heritage Foundation (with its pampered scholars, who after all don't even teach; its lavish facilities; its expensive gatherings).

"Handouts" for Stanford? Well, you can call it that if you want. I'd say the government is getting a pretty good deal, especially on the research done their e.g. for the National Institutes of Health and the Department of Defense. You could just as well say that military contractors go to the government for "handouts". Your vocabulary really is revealing.

Bob Yates said...

Have I missed something, but is Stanford a PUBLIC university?

I wonder what the annual budget of Stanford is. Is the amount the President making out of line with CEOs in companies with such a budget?

sciencedoc said...

Bob Yates -- you can find the budget of Stanford at charitynavigator.com. It is about $2.6 billion. Their total assets are around $16 billion, that must be physical facilities + endowment. (Not having stock with a market value like a for-profit corporation.)

As to whether his salary is out of line with corporate salaries at corporations of similar budget -- if you look at compilations of executive compensation in places like the Wall St. Journal, you'll find in general that corporate compensation is far higher. That's total compensation, which of course often includes bonuses and stock options that dwarf actual salary.

So, by that criterion, the president of Stanford is grossly underpaid. I don't believe that corporate compensation should determine compensation at nonprofits, but looking at this does help to put things in perspective.

I really find the whole discussion of university presidents' pay to be quite bizarre.