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Salary “Pressure”

David Zimmerman is an outstanding scholar and, by reputation, an excellent teacher. But, even the best and the brightest among us occasionally get things very wrong.

The jump in salaries and benefits this year has caused speculation as to why college presidents earn significantly more today than in years past.

According to David Zimmerman, chair of the economics department and a participant in the Williams Project on the Economics of Higher Education, there are two primary reasons for the increase in salaries. “The compensation for highly competent CEOs in the private sector is very intense and more people who have been college presidents have private sector opportunities,” Zimmerman said. As a result, “there is some pressure for presidents to be compensated with salaries comparable to outside academia.”

Zimmerman said that at one time, presidents earned only two to three times what full professors earn.

Precisely which “private sector opportunities” do college presidents and senior faculty/administrators at places like Williams have outside of academia?

The short answer: very few, and almost none that look better than being a tenured college professor. How can I be so confident when I am not privy to the job offes that come flowing into the mail boxes in Hopkins Hall everyday? Simply because so few senior academics at places like Williams ever take such jobs.

To be precise, let us define our universe as the top factulty/administrators (President, Provost, Dean of the Faculty and Dean of the College or their equivalents) at the 11 NESCAC schools over the last 20 years. There are probably more than 200 smart, talented, hard-working individuals who have held these positions during this time. Virtually all have Ph.D.’s and tenure. If there really were active competition from the private sector, you would expect some of these individuals to succumb to the lures of the marketplace. Many would, of course, prefer to stay in academia, but at least a handful would jump ship each year.

How many in our sample of 200 have done so? How many senior faculty/administrators from NESCAC schools have actually left tenure behind and moved to the private sector?

Answer: None. Or, lest I be accused of rampant ignorance, I am not aware of a single such case in the last 20 years at a NESCAC school. (No one would, I think, try to cite cases like Carl Vogt or Richard Sabot as counter-examples.)

Now, surely, there must be at least one such example that I am unaware of. If so, I would like to here about it. But it is inconceivable to me that there are as many as five.

Perhaps there is a “market” for senior administrators at NESCAC-type schools. Harry Payne, for example, went from Hamilton to Williams. Neil Grabois went from Williams to Colgate.

Perhaps there is a “market” for senior executives in the private sector. In fact, I am deeply suspicious of these sorts of claims, but that is a side point.

But these two markets, whatever their successes and failures, have nothing to do with one another, other than providing a convenient smoke-screen for the apologists of run-away administrator salaries. (To be clear, I wouldn’t classify Zimmerman as an apologist. I just think that he hasn’t really thought through the arguments. Some of the other folks quoted by the Record, on the other hand . . .)

Imagine that a junior professor in the economics department came to Zimmerman and the following dialogue ensured:

Junior Professor: You need to pay me much more, at least $250,000 each per year.

Zimmerman: Why?

JP: I have “private sector opportunities,” to turn a phrase. For example, I might decide to become a Major League baseball player.

Zimmerman: But why do you think you can become a baseball player?

JP: Well, baseball players have two legs. I have two legs. Many baseball players were born in the United States. I was born in the United States. Seems there might be some “pressure” for junior economics professors to be compensated with “salaries comparable to outside academia,” i.e., those in Major League Baseball.

Zimmerman: But how many junior professors like you at other college like Williams have actually taken a job as a baseball player?

JP: Uh, none.

Zimmerman: Well how many junior professors have at least been offered such a job?

JP: Uh, none.

Zimmerman: Well, then it seems clear that the market for junior professors and the market for major league baseball players have no overlap. That is, the salaries for baseball players are irrelevant for the setting of your salary because neither you, nor any of your peers, has the option of becoming a baseball player.

JP: Well, even if I don’t have an offer for the Red Sox right now, I might still leave academia, work on my baseball skills, get picked up by a minor league team and then work my way to the majors. So, since I have the theoretical potential to be a baseball player, Williams needs to compensated me as if I were one.

Zimmerman: Good luck with that plan. Let me know how it all works out.

Although this example is somewhat absurd, it is exactly analogous to claims made by Zimmerman and others that the market for senior executives in business has any connection to the market for senior administrators/faculty among the schools in NESCAC.

Maybe there are reasons why Schapiro et al need to be paid so much. High salaries in the executive suite is not one of them.

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#1 Comment By Aidan On December 14, 2004 @ 10:51 am

this reminds me of a fascinating article in the Times (or was it the Journal? I forget) about Harvard’s endowment team. Harvard’s endowment manager made 25 large* last year. So did his two top lieutenants. So, some have argued, as you are, that this is excessive. Why should Harvard’s endowment team be compensated to the tune of 25 large (or 30 large)? Isn’t that immodest?

Simply put, Harvard has the finest endowment in the world. It is bigger than the GDP of Sub-Saharan Africa. It is the envy of princes and CEOs.

Harvard pays for performance; (in fact the endowment team gets bonuses for good year to year performance and has to pay back said bonuses if expectations are not met in the following calendar year) so does Williams. I think it is one of the great strengths of our college that we are willing to pay for the best. Morty, after all, is the best (two years straight, #1, millions and millions of donations served) and I’m sure is well worth every penny.

* large = 1×10^6

#2 Comment By Loweeel On December 14, 2004 @ 11:27 am

David,

I agree with most of your point, however, you fail to note the exceptions: I’d say that most of the the science faculty, as well as some of psych, have reasonably competitive job opportunities in govt. research labs and/or the private sector.

However, this is orders of magnitude more true at schools like Columbia that offer Engineering and Business, rather than liberal arts schools, though important to note.

#3 Comment By Loweeel On December 14, 2004 @ 11:30 am

Aidan – and California’s GDP is somewhat larger than France’s. If only Arnold could replace Chiraq’s crony on the Security council… I guess he deserves oil kickbacks too!

#4 Comment By David Kane ’88 On December 14, 2004 @ 10:09 pm

My main point was that the job market for senior administrators in NESCAC, the job market for baseball players and the job market for senior executives in the private sector have nothing to do with one another because the people in one market are of little if any interest to the employers in the others.

It is true that certain professors at Williams have private sector opportunities that other professors lack. Certainly, chemistry professors will find this fact a compelling reason for why they should be paid more than English professors of similar seniority, as they probably are and should be. But this has *nothing* to do with the salaries that NESCAC schools pay for presidents, provosts and the like. Those salaries do not vary by the academic field of the person who occupies the spot.

The topic of compensation for money managers is an interesting one but, largely, beside the point that I am trying to make. I am not making a moral argument about what administrators should be paid. I am making a factual claim about the reasons for the rise in their salaries.

There are many reasons for that rise, but competition from the private sector is not one of them. NESCAC schools do not need to fear that, unless they pay the big bucks, Schapiro, Roseman, Lenhart, Hill, et al will quit and go work for GE or Monitor or Goldman Sachs. It hasn’t happened and won’t happen.

It is also a separate issue as to whether Williams has and should “pay for the best.” Zimmerman made the claim that the salaries for presidents as a class — everyone from the best NESCAC president (Morty, presumably) to the worst — have risen is because of (invisible) competition from the private sector.

Another difficulty here, but probably worth a separate post, is the epistemological question of how we know that Morty is the best president in NESCAC. No one thinks more highly of Morty’s performance than I do, but how, precisely, do I know that he is a much better president than that of Bates or Colby or Hamilton? I don’t even know the names of the people who hold those jobs. Although he is no doubt more informed than I on this as on all other matters, I wonder how Aidan knows that Morty is the “best”.

As a side note, it would be quite interesting to compare the performance of the Williams endowment to Harvards endowment over the last decade. I don’t know the numbers, but I suspect that Williams has not done as well.

As a final side note, I would wager that Williams pays its money managers on a similar scale to that of Harvard (although there is no way to use the College’s public filings to confirm that). The difference is that Harvard’s managers are actual employees, so Harvard has to publicly disclose the salaries of the most successful among them. Because Williams, reasonably enough, contracts with outside managers, we only know how much Williams pays those firms, not how much the individuals at those firms bring home. (If any readers knows anything about Williams money managers, I would be eager to learn more.)

#5 Comment By phil culhane On December 14, 2004 @ 10:53 pm

Some random thoughts:

Do we feel better about Williams knowing that our President makes piles and piles of dough? Maybe we do–maybe the Williams president making a fat salary makes us feel better about ourselves and our college, as in, hey, my college can afford to pay lots, it must be a great school and I must be a great guy.

However, certainly in the private sector there is a growing perception that CEO’s of public companies are probably wildly over-compensated. Why should M. Eisner, who is essentially a money-manager, be given enormous amounts of equity in Disney year-in year-out, without, arguably, due regard for the performance of Disney in the year in question. But in the Disney scenario, if you happen to be a shareholder, then you can be pissed–Eisner is taking too much of your money–and you can vote against him at the next shareholders’ meeting.

Here, Morty doesn’t directly cut into your dividend as there is only a pyschic dividend for alums, not a real one (altho, wait a second, maybe that isnt true, maybe every nickel I earn is because I was so well educated at Williams that all my current nickels are my Williams dividend).

But wait, unlike a Disney shareholder, we are disenfranchised aren’t we? Do alums get to vote to approve Morty’s salary? If not, why? Shouldn’t we enfranchise at least anyone who gives to the Alumni Fund? Alums do get to vote for a couple people on the Board of Trustees but is that enough?

Shouldn’t Morty’s salary be performance based? Let’s say the current fund raising drive, The Williams Campaign, falls short of its goal–should we dock his pay?

I suspect that the problem with College President salary inflation is two-fold: (i) alums at some point may give less money if they think too much is going into Morty’s pocket and (ii) the more Morty makes as a differential between his salary and that of what a “mere” teaching professor makes, or should make, people may start to think that if something goes wrong, it isnt the collective Williams CGCL that should be held responsible but rather simply Morty’s head should go on the block. If Morty makes soooo much more than a simple teaching prof Morty should stand ready to fall on the sword of accountability.

Full disclosure, I am a class agent.

Personally, I say pay him and if things dont go well, give him the axe of market forces.

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