Colleges give faculty perks as student costs grow

The University of Chicago paid James Madara $2.5 million in severance when he stepped down in 2009 as medical dean and hospital chief. Madara, who remained on the faculty, later joined the American Medical Association.
Congress is taking a look at such payments following disclosures that Jacob Lew, the new U.S. Treasury secretary, received a $685,000 bonus when he left New York University and had $1.5 million in housing loans from the school.
Harvard and Stanford universities also offer real estate loans with sweet terms, records show. While the amounts are small relative to university budgets, the perks insulate faculty and administrators from the costs upsetting many middle-class families, said Jonathan Robe, a research fellow at the Center for College Affordability and Productivity in Washington.
“It certainly gives the public a clear example of how out of touch some universities are,” Robe said. “Parents will think, ‘Here I am scraping by, raiding my retirement plan to pay for college. Why are they making me do this just to enrich these executives?”’
Congress and President Barack Obama have been pushing colleges to control tuition and other costs, which can exceed $60,000 a year at a private school. In a weak job market, students are struggling to pay off $1 trillion in education loans.
Exit bonuses are becoming more common among senior executives at large colleges in major cities, said Stephen Joel Trachtenberg, a former president of George Washington University who does executive-pay consulting.
Typically, such “super severance” amounts to one to three times an administrator’s annual salary and bonus, according to Charles Skorina, founder and president of an executive-search firm in San Francisco who specializes in placing finance executives at universities.
Especially at universities on the East and West coasts, where real estate expenses and other costs are high, trustees including Wall Street executives are eager to pay their presidents top dollar, Skorina said. They look for ways to pay additional compensation that doesn’t show up in annual surveys that can anger donors and employees, he said.
“You look for sweeteners, the car and driver, the house and then a back-end exit bonus,” said Skorina. “An exit bonus is palatable because until the guy leaves you don’t have to deal with it.”
Colleges say they must offer compensation packages to win over talented executives and faculty. Harvard and Stanford said they keep tuition affordable with generous financial-aid programs. High-level administrators focus on efficiency and financial health, said NYU spokesman John Beckman. “When they have been successful – as was the case with Jack Lew – the benefit to the university can range in the tens of millions of dollars,” Beckman said in an email.
At the University of Chicago, Madara’s severance payment, including deferred compensation and retirement benefits, reflected money earned over the course of his career, part of a package typical of executives at peer institutions, according to Steve Kloehn, the school’s spokesman.
Colleges must “attract and retain the best leaders we can,” Kloehn said. Madara, 62, who became chief executive officer of the AMA in 2011, declined to comment.
In terms of favorable loan deals for faculty and some administrators, Harvard and Stanford are among the biggest players. As at NYU, the colleges said they do so because of high real estate costs.
Harvard offers mortgages and education loans because it is “committed to recruiting the most talented teachers and researchers in the world,” said Kevin Galvin, a Harvard spokesman.
During Lew’s confirmation hearings, Sen. Charles Grassley, the Iowa Republican who has long been critical of higher education compensation, sharply questioned such perks at New York University, where Lew was executive vice president and chief operating officer from 2001 to 2006. NYU forgave $440,000 of Lew’s real estate loans.
“Universities have to answer for their executive perks in exchange for their tax exemption,” Grassley said.
Lew said he repaid his loan by refinancing privately.
NYU won’t discuss details of individual employees’ compensation, said Beckman, the spokesman.
In 2010, NYU’s neighbor, the New School, paid former U.S. Sen. Bob Kerrey a bonus of $1.2 million when he stepped down as president.
Kerrey, in a telephone interview, said he had received job offers that year far above his pay at the New School. The board offered him the bonus to keep him in his job during his final year, until a successor arrived in 2011, he said.
“There was no compelling reason for me to stay” without the extra money, said Kerrey, 69. “This was a payment to retain me on the job.” •

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