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The Review of Higher Education 25.1 (2001) 15-37
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Paying Our Presidents:
What Do Trustees Value?
Ronald G. Ehrenberg, John J. Cheslock, and Julia Epifantseva
In 1997-1998, five private college and university presidents earned more than $500,000 in salaries and benefits. One reporter quipped in a recent story in the Chronicle of Higher Education, "If you're a private college president and you are not making at least $300,000 a year, maybe it's time to renegotiate your contract" (Burd, 1999).
To many faculty members at private, doctoral-level, comprehensive, and baccalaureate institutions whose average compensation in 1997-1998 was $91,972, $64,774 and $64,286, respectively, compensation packages for presidents of these magnitudes do indeed seem excessive (American Association, 1998). These highly paid presidents, however, are the chief executive officers (CEOs) of institutions whose operating budgets sometimes reach [End Page 15] well over $1 billion a year. Viewed from this perspective, private college and university presidents are paid considerably less than their CEO counterparts who head for-profit corporations of similar sizes. Nonetheless, just as some have argued that corporate CEOs are over paid, high compensation levels or compensation increases for some college presidents have recently been publicized, criticized, and used as examples of waste and inefficiency in higher education. For example, the New York State Board of Regents ruled in 1997 that the pay and benefits of Adelphi University's president Peter Diamandopoulos was excessive and disbanded the Adelphi Board of Trustees for failing to exercise adequate fiduciary responsibility.
Surprisingly, very little is known about the compensation structure applied to American college and university presidents. The extensive literature on corporate CEOs shows that their compensation is often either explicitly or implicitly structured to provide incentives for them to act in their shareholders' interests (Murphy, 1999). Incentives also apparently exist in the compensation structures of such appointed government executives as city managers and school superintendents, encouraging them to act in their constituents' interests (Ehrenberg, Chaykowski, & Ehrenberg, 1988; Goldstein & Ehrenberg, 1976). However, the few studies that have addressed private college and university presidents' compensation have used only cross-section data to explain differences in compensation across institutions (Boulanger & Pliskin, 1999; Pfeffer, & Ross, 1988). Such data do not enable researchers to ascertain if academic presidents' compensation is structured to provide incentives for them to act in the best interests of their institutions' constituents.
A private academic institution's constituents include its students, faculty, and alumni. Its constituents also include corporations, private foundations, and federal, state and local governments. However, in the end it is the board of trustees that determines the compensation and tenure in office of private college presidents. At base, then, our paper is an effort to infer what the trustees of private academic institutions value.
This was not be an easy task. Nearly 20 percent of the private academic institutions that took part in one recent national survey do not require performance reviews from their presidents (Atwell & Wellman, 2000, p. 59). Similarly, there is not always agreement that president's compensation changes should be related to the results of board-conducted performance reviews (Ingram & Weary, 2000, pp. 17-18). Nonetheless, within these limitations, we strive to infer whether variables that we believe trustees should value do, in fact, influence their presidents' compensation changes.
Our study makes use of data from a panel of over 400 private colleges and universities on their presidents' salaries and benefits. These data, reported annually to the Internal Revenue Service on Form 990, have been collected by and reported in the Chronicle of Higher Education for academic [End Page 16] years 1992-1993 through 1997-1998. 1 We merge these data with those from other sources including the American Association of University Professors, the American Council on Education, Who's Who in America, the National Association of College and University Business Officers, the Council on Aid to Education, and the National Science Foundation's CASPAR system. This array of sources permits us to estimate salary and compensation level and change equations...