Help, I’ve Got Some Cognitive Dissonance

by Andrew Gillen

I usually make it all the way to Wednesday or Thursday before breaking my brain, but this week, I didn’t even make it to lunch on Monday. The culprit was this article in CHE by Eric Kelderman. It turns out, the IRS is looking into

potential discrepancies between colleges' financial activities and what they report to the government.

Towards the end, there is this:

how private colleges set the salaries for their top employees, such as presidents and chancellors. Private institutions can be subject to a tax penalty if they pay key employees amounts above what is comparable for similar positions at similar organizations.

[AG: I didn’t know this. That’s pretty cool – perhaps if this is actually enforced it would curtail the practice of university presidents getting all the rewards of CEO’s without having any of the potential downside, like the possibility of running the business into the ground and them losing their job.]

Forty-five percent of small colleges and 38 percent of the largest institutions in the survey reported not using the IRS's suggested procedures for setting the compensation of their highest-paid employees.

[AG: What? The IRS has suggested procedures for setting compensation at private entities! How can they be private if the government is determining what they can pay? Well, maybe this is just my libertarian side getting out of line. From a practical perspective, the IRS needs some way to know if they are paying “above what is comparable for similar positions at similar organizations”, so maybe this is just a survey of what salaries are at other schools…]

The IRS also noted that it is concerned that too few private colleges are using an independent survey of comparable institutions to determine salaries.

[AG: Ahhhh – that “also” is killing me. Not only are these private institutions supposed to use a survey to help guide compensation decisions, but that is separate from the IRS sanctioned procedures. I need some help on this one – due to their tax advantaged status, I can see why it might be appropriate to restrict the compensation choices of these private institutions, but I’m pretty sure that having the IRS determine what procedures they must follow is way over the line. Can we have one without the other? If not, which one is more important?]