Tuesday, May 15, 2018

Goodbye, Mr. Chips

The U of M administration recently presented the 2018 annual report on employee compensation to the Regents. The vice president for human resources "compared higher education to the private sector . . . ." One of the Regents observed that the administration is "paying many employees far higher than the state or county does." The vice president responded that "most employees come from private industry and not from the state." See pp.5--7 of the March 2018 BOR Docket.
The Minnesota Council of Nonprofits notes that the public expects that non-profit organizations will avoid paying high salaries and benefits in order to concentrate their funds on the charitable and educational purposes of the organizations. See, Executive Compensation Best Practices.
The University of Minnesota observed this principle for its first 150 years. Then the U of M was transformed into University Inc.
In 2003 the legislature cut state appropriations to the University. Rather than making adjustments to the university budget and raising tuition slightly, then President Bruininks adopted (either by design or in effect) a high tuition high financial aid model. See the June 16, 2011 Minnesota Monthly report on The Man Who Slew the U.
The high tuition high financial aid experiment has been a disaster for students and their parents. This was a predictable result of the experiment as college administrators classify student loans as "financial aid."
In the years that followed tuition increases (for undergraduate and graduate students and students in the professional schools) continued on a sharp upward trajectory. See the U.S. Labor Department chart at the beginning of The (Over) Billion Dollar Administration. This occurred even in years when the legislature increased appropriations.
Along the way the dollars required to feed the beast of administration increased substantially. By the end of his term Bruininks was receiving an annual salary of $750,000 plus an annual contribution of $100,000 to his retirement account (plus free housing). Then he gave bonus payments of hundreds of thousands of dollars to each of several departing senior administrators and accepted a $455,000 payment for a one year vacation for himself. See the reports from the Star Tribune and from the Pioneer Press reprinted at: U Execs Paid Handsomely on Way Out; and Vacation Pay $455,000.
The defense to the high spending on administration is that it is necessary to attract "top talent." The senior administrators bring in compensation consultants to show that their compensation is comparable to that of administrators at other large universities. But the comparison is in a closed system that does not consider compensation in other positions of public service that require similar qualifications and have similar duties. And the compensation consultants come from the very few firms that cater to institutions of higher education. So they make recommendations that are very favorable to senior administrators who then refer the firms to their fellow administrators at other universities and who also hire the firms for other matters. The consulting firms know who butters their bread.
A couple of years ago the U of M administration retained Sibson Consulting of New York to provide a "spans and layers" analysis. At the time the Sibson web site had this description for an upcoming presentation:
"Incentives are becoming more common in higher education, as institutions seek creative compensation to reward for performance, excellence and attract and engage highly qualified talent. Join us for an interactive discussion on how incentives have been successfully implemented in some institutions, and what you can do to introduce this concept in your organization."
The New Reality: Incentives in Academia
(Sibson Consulting) (emphasis added).

There are about 40 vice presidents (at senior, associate, and assistant levels) at the U of M. At the senior level some of the annual salaries are hundreds of thousands of dollars greater than the annual salaries of the commissioners who serve as the chief executive officers of state departments (with annual salaries around $145,000). Here are a few examples: senior vice president for finance at the U of M, $410,000; executive vice president and provost, $446,000; director of the Institute for Health Informatics, $410,000; vice president for equity & diversity, $241,00; general counsel, $300,000. At the associate VP level the annual salaries are tens of thousands of dollars greater than the annual salaries of state commissioners. The total compensation for these senior university administrators, including deferred compensation and other substantial employee benefits, is even greater.
We need to develop a different way to operate and to finance higher education. See A Modest Proposal.

Michael W. McNabb

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

University of Minnesota Alumni Association life member

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