Thursday, October 3, 2013

On The Cost of Administration Part IV

The Internal Revenue Service has released its final report on its compliance project on tax exempt colleges and universities. In 2008 the IRS sent a questionnaire to 400 institutions of higher education selected at random. The IRS received responses from 89 large colleges and universities (81 public and 8 private institutions with 15,000 students or more). See the link to the final report in the IRS notice.

The compensation of highly paid individuals was one of the major areas of inquiry. The average total compensation for presidents of large universities was $399,723 and the median amount was $337,881. See Figure 63 on p. 65 of Appendix C of the final report. The U of M president receives a salary of $610,000 plus an annual contribution of $50,000 to his retirement plan plus other benefits, including free housing. 

The IRS collected information on the six highest paid officers, directors, trustees and key employees (ODTKEs) at large universities. (The category includes trustees or regents, the president, the chief financial officer, and other persons in a position to exercise substantial influence over the affairs of the institution.) Among the deans in that category the average total compensation was $261,528 and the median was $230,137. See Figure 63 above.

The U of M has nine deans who receive annual salaries in the range of $231,600 to $444,367 and nine associate deans who receive annual salaries in the range of $232,862 to $368,461 (fiscal year 2012). See Minnesota Public Salaries. Their total compensation, including their employee benefits, would be greater.

The Carlson School of Management deserves special attention. The dean collects an annual salary of $444,367, two associate deans receive annual salaries in excess of $365,00, and another associate dean has an annual salary of $309,000. For more on the business school see Going To Market Part II.

The U of M also has three chancellors with annual salaries in the range of $201,904 to $276,560 and a vice chancellor with an annual salary of $316,539 (fiscal year 2012).

The IRS also obtained information on the five highest paid non-ODTKEs at large universities. Among the senior administrators in that category the average compensation was $217,131 and the median was $174,273. See Figure 62 on p. 63 of Appendix C of the IRS final report. 

The U of M has seven vice presidents who collect an annual salary in the range of $217,756 to $425,000 and nine associate vice presidents with annual salaries in the range of $201,737 to $407,897 (fiscal year 2012). See Minnesota Public Salaries above.

The law restricts the pursuit of personal wealth by the leaders of private tax exempt organizations. Section 4958 of the Internal Revenue Code imposes an excise tax on excessive compensation paid to ODTKEs of private colleges and universities. Section 4958 does not apply to public colleges and universities as those institutions are classified as units of government. As a consequence, the IRS did not determine whether the compensation of ODTKEs at public colleges and universities was reasonable. See pp. 14-15 of the final report.

But we must be concerned with the reasonableness of the compensation of senior administrators at the U of M--and not simply by comparison to compensation levels at other large public universities. Until recently no one has been watching the store anywhere in higher education. See State (and) University Part II and Nice Work If You Can Get It.

We should consider the compensation paid to senior administrators in state government who have similar qualifications and duties. We should also review the increase in administration at the U of M over the past 40 years. If there has been an increase in the number of administrators that is disproportionate to any increase in the number of students or in the level of research, we should ask why. If there has been a substantial increase (in constant dollars) in the compensation of any administrator, we should ask why.

Michael W. McNabb

University of Minnesota B.A. 1971; J.D. 1974

University of Minnesota Alumni Association life member

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