Monday, September 29, 2008

Gee Whiz: Rent-Seeking Run Amok

By Richard Vedder

We all have been aware that universities have been giving large salary increases to senior administrators at the same time they have been crying that they are poor to legislators, taxpayers, parents of students, and alumni. The Columbus Dispatch has done a detailed investigation of top administrator salaries at one of America's largest public universities, Ohio State, and the results are shocking.

Gordon Gee became prez at Ohio State for the second time last year, and in ONE year he has DOUBLED salaries for the top administrators that make up his cabinet --from
$2.9 million to $5.8 million. The number of these senior administrators grew from nine to fourteen, implying that average administrative pay rose from a bit over $300,000 a year to over $400,000 --about a 30 percent increase in a single year.

Moreover, that is not the whole story. A system of bonuses exists for most of the senior employees, often 30 percent of base salary. The bonuses depend on certain performance objectives being met. Additionally, deferred compensation worth six digits is added on for most of the administrators. As a consequence, at least three administrators potentially will make over $1 million this year --and that does not count Gee himself, the football coach (who makes at least double that), and the basketball coach. Five years ago, no one made a million dollars a year in public higher education --now it appears that six persons make more than that at ONE institution!!

As the school grabs more federal grants, larger state appropriations, and raises tuition substantially, it has used some of the incremental funds to finance huge salary increases for the elite who run the institution, while swelling the bureaucracy. For example, there was one very well paid governmental relations person in the cabinet --now there are two, both with base pay of over $300,000. One, who is filling a new position, is a current legislator who now makes well under $100,000 a year. I bet she would have loved to take the job at a salary of $150,000 a year. One of the lobbyists is on the bonus plan, which seems to suggest that he gets a kickback the more money the legislature gives to the university, opening up a moral cesspool of untold dimensions.

All of this is going on in the midst of a poor economy (particularly in Ohio), with the governor forcing some budget cuts. Some schools are laying off staff, but the rent-seeking greed financed by third parties continues, and, indeed accelerates. Let the public be damned.

Higher education is facing a day of reckoning, and actions like those taken at OSU will hasten the day.


capeman said...

Maybe after Congress is done with the Wall Street gang, they can take care of the pikers in the universities.

Maybe the Doc and his Republican/conservative/libertarian pals can help them out, after the Republicans are finished with the financial crisis.

capeman said...

It occurs to me that maybe the president of Ohio State isn't causing a national crisis after all. If the president of Ohio State is such a problem, somebody in Ohio -- the Governor? the State Board? -- has the prerogative to replace the president. Maybe the good Doc should take this up with the Gov.

Unknown said...

Doc's obsession with Gordon Gee is getting downright creepy. I guess it's only natural that Doc would rage against the nearest research university. Isn't this about his fifth or sixth column attacking Gee.

Musta been hell to sit in Athens these past few decades and watch all the research money, prominence, National Academy memberships, Fulbrights and Guggenheims land just up the road. Meanwhile, the good Doc is sitting next to the phone like an ugly duckling on prom night waiting for the phone call that never came.

Oh well, in any event, it might be time for Gordon Gee to take out a restraining order on the Doc.

Unknown said...


It must absolutely burn up the good doc that the Governor and Ohio's higher education chancellor absolutely love Gordon Gee and personally took a role in recruiting him back from Vanderbilt.

BTW, last time I checked Ohio State was financially solvent, sitting on a 2+ billion dollar endowment and had an athletic department that kicked back several million dollars per year into the university's general fund. The doc's institution was running annual operating deficits while cutting Olympic sports to pay for their football coach's salary.

Ken D. said...

The issue is not how much OSU executives are paid in absolute dollars. Rather the issue is all about transparency and oversight of public funds.

These mega research universities can't have it both ways. They want to be able to soak in hundreds of millions of dollars each year from State funds, Federal grants, healthcare, big pharma, endowment income, rising tuitions, etc., and at the same time they want to be implicitly trusted like the humble and poor state universities of old. They can't have it both ways.

Now we know how much some OSU execs make. Big deal!

How much money does the university have? How much is spent on instruction? What other internal financial machinations don't we know about? What other side incomes do the university and its execs have, and where is the money going?

Universities are extremely secretive about the workings of their internal financial activities. If they want to continue to enjoy the public trust, there needs to be more transparency and oversight. If they want to do private deals with industry, put those in separate corporate nonprofit entities. For their publicly-funded activities, their books and records should be opened up for public inspection.

capeman said...

Ken, you say:

"Universities are extremely secretive about the workings of their internal financial activities."

Actually, the information you ask for -- how much is spent on instruction, for example -- is readily available at least at public universities like Ohio State (or should be, at the direction of the state of Ohio). They have pretty standard accounting procedures, and with a little effort, they're not so hard to understand -- I'm not an accountant, and I learned about this stuff in a matter of hours.

RWW said...
This comment has been removed by the author.
capeman said...

cowboy -- thanks for your latest comment, as always with your consistently high level of lucidity, insight, and dignity.

I especially liked your reasoned response to my comment about accounting practices at public universities.