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Monday, August 12, 2013

Data on Presidents: A First Look

Last time, I promised to show you some evidence about CEO pay at colleges and universities.  Well, a picture is worth a thousand, yada yada, so let's start things off with a chart.

 Real increases

What you're looking at are data from about 370 U.S. colleges and universities, drawn from tax returns and school filings with the department of education, and adjusted for inflation.  The bars represent total increases over the ten-year period, so the leftmost bar is telling you that mean CEO reported pay went up by 50% over that period in real terms (from $300 to $450K in 2007 dollars).

Many of our readers, of course, will enjoy as we do the relative sizes of the two leftmost bars (but we note that the faculty average salary appears to include full-time instructor averages, not just full-time tenure-track faculty).  The other item that is striking, given the theoretical relationship I sketched last time about the relationship between pay and tenure, is the similarity of those two bars.  (We report gross tuition here, but "net" tuition, or tuition minus financial aid, grew similarly over this period.)  By the way, CEO pay at Fortune 500 firms grew at a fairly small fraction of the rate of university presidents in this period. 

At this point, things are looking intriguing enough to want to look at these relationships more rigorously.  Is there anything else that might make us think it is "slack" or loose monitoring that drives the tenure/compensation run-ups?  Yes, yes there is.  Next time:  more pictures.

Posted by BDG on August 12, 2013 at 09:24 PM in Corporate | Permalink


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One effect of the dramatic increase in the salaries of university presidents (and the expansion of the president's well-paid administrative "team") is to create a class of corporate managers whose primary loyalty is to the boards and external interests seeking to restructure the faculty of universities. It certainly is no accident that at the time when budgets are under pressure--including public ones in states--that university courses are now dominated by adjuncts and non-tenure track teaching faculty. For law schools this occurred a few years later than the rest of the university but now is well on its way with the ABA's recent decision to remove the tenure requirement from its accreditation standards. This makes the costs to universities and states (but not students) considerably less and allows university boards and presidents to make decisions without having to pay as much attention as previously to tenured faculty demands. The extreme pay gap between a faculty member and the presidents in essence represents a fundamental shift in loyalty from faculty to other financial and external interests. Some of those interests are legitimate and some simply a power-driven "gutting" of the university in the traditional sense.

Posted by: David Barnhizer | Aug 17, 2013 11:18:35 AM

In all these studies and reports, I think there is a failure that lumps together all college degrees, and credits them as fostering higher future earnings. If anything, like everything else in society, there is an increasingly higher premium and greater demand for elite credentials, as opposed to all other forms of education, which is fueling the earnings gap.

To highlight the extreme... The graduating classes of 2013 of MIT and University of Phoenix tell a far different story of earnings/employment outcomes. A lifetime of higher earnings in this limited cohort will be entirely driven by the MIT degree holders. The mean earnings in this particular case study would severely understate the earnings of MIT grads and exacerbate the earnings of the Phoenix degree holders, while showing increased premiums for "college degrees."

Posted by: Cent Rieker | Aug 15, 2013 2:58:56 PM


The second URL seems to be broken.

But, assuming it's the typical "look how much more a college grad earns than someone who didn't go to college" argument, there's some serious criticisms.

Much of the earnings premium comes not from the university increasing the brain power of its students, but rather from employers unnecessarily engaging in credentialism. If getting an entry level job that had potential for promotion and could become solidly middle class was something you used to be able to do with just a high school education, but now the job requires your employer to check a box saying you have a college degree, you could argue that's an earnings premium, but I think it makes more sense to say we've just imposed a $50,000-100,000 tax on entry into the middle class.

Credentialism leads to an increased demand for the college degrees, and in simply supply and demand terms that would "justify" the increased price of education. But, if you were to say that non-profit institutions should have goals that trump maximizing revnue, it gets much harder to defend the current prices.

Posted by: Derek Tokaz | Aug 15, 2013 11:38:09 AM

All of these are reasonable questions, though for the most part they are not questions we're interested in answering in our paper. But you can make your own charts! Visit http://nces.ed.gov/ipeds/datacenter/ and build your own. You can even do very simple regression analysis using their web tool (but you shouldn't put too much stock in the results...).

Most commentators do think that rising costs have been offset by increasing premia for college education, e.g., www.brookings.edu/blogs/jobs/posts.2012/05-jobs-greenstone.

Posted by: BDG | Aug 15, 2013 8:54:06 AM

Adding to Joey's comment: it is important to know both the absolute magnitude as well as % change for the categories. In particular I doubt the president's pay is a substantial fraction of total expenses but maybe there was a large increase amount all senior administrators and this is meaningful to the tuition increase.

What about other income sources that balance tuition: state subsidies, donations, grants, return on investments? Even before the recession I have the feeling state subsidies were dropping.

Does compensation include health care and other benefits? Per capita health care spending in the US increased 50% adjusted for inflation during this period (based on a quick look at quandl.com).

Posted by: Alan | Aug 15, 2013 7:39:11 AM

In addition to the average faculty pay already show, it'd be interesting to see what happens in terms of average pay per credit hour taught.

Posted by: Derek Tokaz | Aug 14, 2013 11:02:58 PM

I would like to know how much of the total employee compensation is athletics

Posted by: Meredith Boyd | Aug 14, 2013 9:23:11 PM

I would like to know the increase in student affairs (or perhaps non-academic personnel) staff compensation.

Posted by: Joan | Aug 14, 2013 1:46:32 PM

Why was this particular period of time chosen, with an end date six years ago? Is not more recent data available, or is the point to show what happened pre-recession?

Posted by: Justin | Aug 14, 2013 9:54:46 AM

I'd like to see a chart breaking down "total employee compensation" paid over time. Something like the following categories:

(1) President
(2) Other senior administrators
(3) Tenure-track faculty
(4) All other employees who teach students
(5) Employees whose jobs are in research labs
(6) All other employees (i.e. those who are not directly involved in either instruction or research)

I'd like to know how much of the new, much larger pie is being eaten up by these various different categories. In some cases, it's about the rise in salaries toward the top (and that's why the "president" column on the graph is a good place to start -- there's always only one president, so this must be salary changes). But in other categories, it's partly a question of how many of each of these things a university employs.

From what I can tell based on anecdote and a smattering of actual data here and there for specific schools, there are a LOT more senior administrators now than there used to be, and universities are also employing a lot more people who neither teach nor work in research labs. (And those people are clearly not the janitorial staff -- that job is being cut or outsourced at many schools.) Anyway, data is better than anecdote, & I look forward to the promised additional graphs.

Posted by: Joey Fishkin | Aug 13, 2013 10:27:29 PM

Of course tuition went up, how else would we pay that 50% increase for the president?

Posted by: Jim D | Aug 13, 2013 4:24:58 PM

Rounding out the picture, it would be nice to see the increase in the value of a college degree over the same period.

Posted by: ATH | Aug 13, 2013 9:37:19 AM

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