Monday, December 22, 2008

University President Salary Increases: Pay for Performance?

By Richard Vedder

One of my Whiz Kids extraordinare, Jonathan Robe, and I have been trying to explain variations in the salaries of university presidents, and changes in those salaries over time. It is a fact that university leader pay has risen sharply in recent years, faster than the pay of rank-and-file university workers, the public at large, and the inflation rate.

The one question we were especially interested in was whether changes in compensation over time has been related to signs of improvement in the involved universities. As a first pass at this, we regressed salary changes against changes in US News & World Report rankings. The hypothesis was that schools moving up in the rankings would give their presidents bigger raises, to reward them for the improvement in the national perception of the institution.

Alas, we found no statistically significant relationship. Salary growth seemed to be not correlated with ranking changes. We may continue to explore this --did presidents who got big raises also preside over big increases in endowments? Time will tell what we find, but early indicators are that salary increases may be almost randomly distributed, a matter of the whim of governing boards and their personalities more than real changes in institutions themselves. To be sure, we have been highly critical of the US News rankings ourselves, and the findings prove little, but they make us wonder --why are some president salaries escalating a lot, while others grow at a more reasonable pace?

My hunch is that some presidents do a superb PR job on their boards, leading them to believe the president walks on water (or the equivalent), which then leads to huge salary increases. Other presidents have a more standoffish or politely civil relationship with their boards, and I would hypothesize that those presidents get smaller increases. In any case, in an economy that is tanking, large salary increases for university presidents become hard to justify on any grounds.

1 comment:

education strategy group said...

Very interesting piece.
A related question . . . how well do the individuals that make up the Board at universities understand higher education? We may find that many Board members have little experience outside of the private sector or within education. This may account for the difficulty some boards have in determining appropriate salary levels of Presidents.
Keith Hampson, PhD