A scandal in Illinois prompts criticism of deals for houses, cars and country clubs
Firing a leader is supposed to end a crisis, not make it worse. But when the board of trustees at an Illinois college voted to get rid of the institution’s president after word began to get out about extravagant spending and secret insider contracts, it quietly gave him three-quarters of a million dollars’ worth of severance pay.
The deal to ease the departure President Robert Breuder’s exit from of the scandal-ridden College of DuPage, which is now also under federal and state investigation for alleged misdeeds including falsifying enrollment figures, has focused attention on a range of lavish perks given to university and college administrators around the country.
“Many of these agreements are done in secret, denying the public the right to weigh in on the appropriateness of such generous packages, while students suffocate under non-dischargeable debt,” said a report from the Illinois Senate Democratic Caucus. The full Senate voted to cap such buyouts to no more than 30% of final earnings for any president making $200,000 or more, but the measure was defeated in the House after lobbying from the Illinois Council of Community College Presidents.
Breuder, who had been earning nearly half a million dollars a year before he went on medical leave in April, didn’t get just a massive buyout. His benefits as head of the community college included a $21,000-a-year housing allowance and a $10,000-a-year car allowance, among other things, the legislative report said. The Chicago Tribune also disclosed that Breuder and other administrators spent more than $190,000 on food, Champagne, wine, and expensive vodka in the three years before he abruptly went on medical leave, which allowed him to continue to collect severance.
Other Illinois university and college presidents, the Senate report noted, also enjoy housing allowances, cars, drivers, and paid-for dues at country clubs. “At the same time tuition and student debt are rising at a breakneck pace, the administrative systems of public institutions have expanded into sprawling behemoths, with some of those at the very top enjoying lavish perks, including expense accounts, club memberships, vehicles, and golden parachute severance payments,” the report said.
It’s not just Illinois where this is happening.
While their high salaries are given much scrutiny — presidents at research universities make an average of $450,000 a year, according to the College and University Professional Association for Human Resources, or CUPA-HR—more than 60% of university and college presidents nationwide, at both private and public universities, also get all or part of their housing provided, CUPA-HR said. More than 70% get a car or a car allowance, and more than a third get free club memberships.
But it is severance pay provisions–which more than half of the nation’s college presidents have in their contracts, according to the consulting firm Yaffe & Company– that have created awkward and expensive dilemmas for several universities and colleges.
When Graham Spanier was fired as president of Pennsylvania State University after the child-sex-abuse scandal there, for example, the university paid him $1.2 million in severance pay, plus $700,000 for a sabbatical he hadn’t had a chance to take.
Harold Raveché got $320,000 in severance pay when he resigned in 2010 as president of the Stevens Institute of Technology in New Jersey after charges of financial mismanagement were brought by that state’s attorney general, who alleged that he had gotten $1.8 million in low-interest loans from the university to buy two vacation homes. The case was settled on condition that, among other things, Raveché repay the loans.
And in 2013, Yale President Richard Levin received an $8.5 million “retirement bonus,” which the university said had been promised years before to encourage him to stay as long as possible.
These perks aren’t limited to school presidents, CUPA-HR says.
Six percent of provosts, 4% of chief development officers, and 3% of executive vice presidents and chief business officers have houses provided or receive housing allowances. More than a quarter of chief development officers, 13% of chief business officers, 12% of provosts and executive vice presidents, and 17% of athletic directors get cars. And 16% of development officers, 7% of executive vice presidents and provosts, 6% of chief business officers, and 11% of athletic directors have club dues paid for.
Universities and colleges have little choice but to compete on such measures, said Raymond Cotton, a partner at the law firm Mintz Levin in Boston, who represents higher-education executives and boards of trustees and often negotiates contracts.
“They’re all responsive to supply and demand in the marketplace,” Cotton said. He noted, for example, that providing housing can help lure top administrators. “The cost of housing itself can be an impediment to recruiting. If the university can take that off the table as an impediment, it can benefit the university.”
Not everyone agrees with this.
“It’s become kind of a self-perpetuating thing,” said Richard Vedder, an Ohio University economist and director of the Center for College Affordability and Productivity, which opposes the rising cost of college. “One school will start doing these and other schools will say, ‘We have to do this.’ It’s an academic arms race.”
Saranna Thornton, an economics and business professor at Hampden-Sydney College and chair of American Association of University Professors’ Committee on the Economic Status of the Profession, said there isn’t evidence that universities need to shower prospects with such benefits to attract them.
“Increasingly you hear spokespeople or chairs of boards of regents saying, ‘This is what we need to pay to get good people,’” Thornton said. “Nobody’s backing that up with any data.”
Even if they did, she said, universities and colleges are nonprofit institutions with high-minded missions.
“There’s a public service argument,” said Thornton. “I see people going into all sorts of jobs not motivated by the money.”
Such growing criticism is among the reasons experts said the growth of benefits for top administrators has flattened out since the economic downturn, though they have not gone away.
“Ever since the great recession, there’s been very little change with benefits and other compensation,” said Matt Hamill, senior vice president at the National Association of College and University Business Officers.
That’s because “There are appearance issues,” with such benefits as pay for presidential spouses, Cotton said.
There are also conflicting rules about whether university executives can be taxed on these perks. Bonuses and severance pay are taxed as income, but some deferred compensation, free tuition and business use of a provided car are not. Federal tax law does not consider free housing to be income, as long as it’s a condition of employment and on the business premises.
Most universities interpret this to mean that housing provided to executives on their campuses is exempt from being taxed. But in at least one case, the IRS has disagreed. It said the president of Ohio University did have to pay taxes on the 7,000-square-foot home the university provides for him for free.
So the board of trustees agreed to pay the $19,000-a-year cost of federal, state, and local taxes for him, plus another $11,000 in taxes the IRS said he owed on the term life insurance that’s taken out on his behalf.
“Whether higher education likes it or not, public scrutiny has increased,” said CUPA-HR President Andy Brantley. “I know a lot of institutions are questioning things like club memberships.”
Belonging to a country club can pay off by helping presidents and development officers bond with potential contributors, said Rich Ekman, president of Council of Independent Colleges. But, “For some people, those are outrageous benefits,” he said.
“The public reaction to highly compensated people in any sector can be critical,” Ekman said. “There’s more sensitivity to that by colleges in the past few years.”
Yet few of the perks have so far gone away, Vedder pointed out.
In fact, there’s a new one: financial bonuses for top executives, meant to encourage them to improve such things as graduation rates. Nearly four in 10 presidents now are eligible for bonuses, Yaffe & Company says, and 66% received them in 2013-2014, the last year for which the figure is available, with an average payout of $30,400. So did three-quarters of provosts and 68%of chief financial officers.
“I was anticipating that there might be some moderation. But I don’t sense there’s been much retrenchment in contracts,” Vedder said. “I’ve been waiting for sanity to set in.”