TwitterFacebookPinterestGoogle+

Study: Investment in public university presidents doesn’t mean return in philanthropy or state funding

What’s the return on investment on a public college president?

It’s a complicated question, because the return part of the equation is much more difficult to calculate than the investment portion. A president’s total compensation — the investment — can be looked up or sought via a freedom of information request. But the return on that investment — the president’s performance — can take many different forms.

A president might raise more revenue than his or her predecessor. He or she might prove particularly adept at improving an institution’s academic standing — or at standing up for academic values. Some presidents just have to clean up the mess left by a predecessor.

The discussion is nonetheless important as presidents at publicly subsidized universities take home hundreds of thousands of dollars in compensation. A study recently published in the winter edition of The Review of Higher Education seeks to look at one element of return on investment from presidential compensation by examining two slices of institutional revenue.

Specifically, the study asks whether presidential compensation at four-year public research institutions is correlated with more revenue from state appropriations or more revenue from private fund-raising. The answer: it’s not correlated, at least according to data from a relatively small sample of research institutions examined over a seven-year period.

“We find no evidence of a relationship between presidential compensation and revenue generation from increased fundraising or state appropriations,” wrote the study’s authors.

Experts in executive compensation caution that the study was relatively limited in scope and that the relationship between compensation and performance is complicated for a number of different reasons. The study’s authors acknowledge its limitations but still argued that the logic of associating pay with revenue is flawed.

The study’s findings are important, they say, because it undercuts a key justification for high presidential salaries, or at very least gives governing boards more to think about when considering what and why to pay a president.

“There are folks out there saying we need to go out and spend all this money on a president because of this revenue argument,” said the study’s lead author, James M. Hunt, who is director of institutional research at Florida State University. “There’s just no correlation there. That argument is sort of nullified.”

Authors analyzed a sample of 119 public four-year institutions over a seven-year period starting in 2007 and ending in 2013. All 119 were doctoral degree-granting institutions. Eleven were classified as doctoral research universities, 48 were research universities with high research activity and 60 were research universities with very high research activity.

In public higher education, those would be the institutions that have tended to become more ambitious in fund-raising over the last decades. They are also in many cases the institutions that have increased presidential pay.

Using data from the National Center for Education Statistics’ Integrated Postsecondary Education Data System and the executive compensation survey from The Chronicle of Higher Education, plus some other complementary data, the authors examined fund-raising per full-time equivalent student and state appropriations per full-time equivalent student. Fund-raising was defined as gifts and contributions from affiliated entities in the IPEDS finances survey divided by IPEDS full-time enrollment. State appropriations were calculated in the same manner. Presidential compensation was measured as total compensation — base compensation plus bonus, deferred, unvested and retirement compensation. Reported severance pay was subtracted.

Authors also adjusted for factors that could influence state appropriations and fund-raising, like whether an institution is a state’s flagship and whether it has a medical school. In addition to those more-obvious adjustments, they adjusted for other factors like an institution’s tuition revenue per full-time equivalent, enrollment demographics and selectivity, plus state political, economic and demographic characteristics.

“After controlling for covariates as well as year fixed effects, we fail to find statistically significant effects for presidential compensation on either fundraising per FTE or state appropriations per FTE,” the authors wrote.

Some wondered if examining a compensation total that includes base pay was the best way to test the question of return on investment. Judith A. Wilde is the chief operating officer and a professor at George Mason University’s Schar School of Policy and Government. She has extensively studied presidential contracts in higher education.

“Using total compensation to try and correlate with the monies that they can bring in from philanthropy I think is kind of difficult,” she said. “In the corporate world, they would look at any benefits that executives received that might be because of bringing in extra funds.”

In the corporate world, some studies have found higher salaries are inversely related to executive performance, Wilde added. So a study finding no correlation between presidential pay and philanthropy in higher education is still notable.

“What it’s telling us is philanthropy is not a reason to give a president a salary or to have expectations that it will be great,” she said.

Hunt, the study’s lead author, said that future research could look at different slices of a president’s compensation. Analyzing contracts for incentives tied to revenue could be a route to explore.

“Incentives in contracts, I think, could be important,” he said. “Broadening away from revenue, are these incentives effective? Maybe they are, maybe they’re not.”

Incentivizing contracts that way hasn’t been historically common, at least according to one search consultant. Jan Greenwood, partner and president of the search firm Greenwood/Asher & Associates, knows of no cases where presidential compensation is tied to generating revenue. Tying the two together has been discussed and generally abandoned, she said in an email.

“In my experience the conclusion has been it is not ethical or keeping with the higher education culture to tie the two together,” Greenwood said. “It is not unusual to have more macro-level goals as part of presidential evaluation which can lead to retention of and sometimes compensation for presidents — for example, improvement of retention, successful completion of capital campaign, increase enrollment, improving national rankings, etc.”

Regardless of that question, Hunt cautioned against reading his study as an argument that presidents shouldn’t be well compensated for working.

“We limited our scope only to these two forms of revenue,” he said. “For those out there trying to hire a president, if you’re making a decision based purely on revenue and you’re trying to set a salary based off the prospect of future revenue, from what we’ve seen, they should know there’s not going to be this automatic return on investment. But there may be other, more fundamental areas of the institution than revenue that may justify higher compensation.”

Editorial Tags: 
Image Source: 
Istockphoto.com/Scar1984
Is this diversity newsletter?: 
Newsletter Order: 
0
Disable left side advertisement?: 
Is this Career Advice newsletter?: 
Magazine treatment: 

Leave a Reply

Your email address will not be published. Required fields are marked *