By Richard Vedder
The Chronicle of Higher Education's recently released annual survey of the salaries of university presidents provides empirical support for the proposition that higher education today appears to be less about achieving lofty goals like disseminating knowledge, building character, promoting virtue and expanding the frontiers of what humans can do than it is about something far more mundane: keeping the members of the academy happy and well fed.
I believe strongly that free markets work remarkably well and that includes the market for labor. The reason LeBron James, Oprah Winfrey and CEOs of highly profitable top corporations (including for-profit universities) are exceedingly well paid (many millions of dollars annually) is that their contribution to their employers is huge and can usually be pretty well measured--so markets dictate that they are paid, roughly, what they contribute to output at the margin. The Cleveland Cavaliers sank as a basketball power when Mr. James moved to Miami, and with that the revenue stream generated by Mr. James's talents fell as well.
Traditional higher education, however, is a different matter. Markets are not truly "free" (indeed, they are rather expensive!) Gordon Gee, the president of Ohio State, cost that institution over $1.8 million in compensation last year (double the next highest paid public university president). But did that school have a good year because of President Gee? Who knows? Are students learning more? Is Ohio State broadening our horizons of human potentialities more than in the past? Is President Gee worth roughly three times the salary of his predecessor? Is he well over twice as productive as the long-time president of the school's arch athletic rival, Mary Sue Coleman of the University of Michigan? Again, who knows?
In the past year university president salaries apparently showed only a very modest upward movement, maybe none after allowing for inflation. Yet this is a period of nine percent unemployment, sharply reduced public funding for colleges in many states, and tuition increases averaging two to three times the rate of inflation. It is an era in which corporate executives often are making less than two or three years ago when profits were higher.
The notion that university presidents are like corporate executives and should be similarly compensated ignores several things. First, unlike corporate titans, university presidents are rarely fired for poor performance—they have a much higher level of job security (in part, because there is no good bottom line on which they can be judged). Two, they work for public or quasi-public institutions, and, historically, college presidents have accepted that they have a public mission that should be performed for respectable but not opulent compensation. These schools get tax exempt contributions and direct state subsidies. Why should university presidents make more than governors or, in the case of President Gee, about four times as much as the President of the United States? Why should Graham Spanier of Penn State or Mark Emmert of the University of Washington cost society (and at least in part taxpayers) over $800,000 a year when, adjusting for inflation and economic growth, historically the person occupying their jobs made perhaps one half that amount?
Of course, the salary explosion among college presidents masks a bigger problem, namely sharply rising compensation for a broader variety of top university officials. Top medical researchers and clinicians make $1 million a year, although in some cases their productivity can be easily and poignantly measured in terms of the lives they save through their actions. Top football coaches make $2 to $4 million a year at some schools, although again their output is highly measurable and often substantial in terms of revenue generation. And there are more and more professors whose total compensation approximates $400,000 a year and who have very limited contact with students, in an era where more and more of university budgets are paid for by student fees.
In short, the torrent of third-party payments to universities, most recently indirectly in the form of massive so-called student financial aid (which ultimately ends up largely in university coffers), has allowed for a relatively uncontrolled wave of what economists call rent-seeking—payments beyond those necessary to get the job done. And conspicuous rent-seeking strongly strengthens the political viability of the efforts of some governors to reduce taxpayer contributions to higher education. Spanier’s university faces a 40 percent reduction in state aid (meaning a perhaps four or five percent decline in total institutional spending). Ohio, home to Gordon Gee and several other public-university presidents making more than $500,000 annually (counting fringe benefits), is facing statewide massive budget cuts. The same can be said for many other states. Sympathy on the part of politicians and the public for these schools is potentially severely impaired by these super-sized salaries.
Some University presidents grumble that their football coach makes far more than they do. Yet those same college presidents have a prestigious job, often garner a couple hundred thousand dollars annually or so on the side in corporate director fees, and earn typically three times or so the income of the governor of the state that provides them their beneficence. And, unlike the football coach, it is seldom obvious when they have a bad year and, even if they did, they are seldom fired (unlike football coaches).
What to do? I wonder what university presidential compensation would be like in a world without public subsidies, Pell Grants, federal student loans, state university appropriations, massive federal research grants, etc. My guess is that it would be considerably less—university presidents are taking a small cut of the funds provided by well meaning third parties wanting to advance the educational mission of colleges. Whatever that compensation would be, however, it generally would be accepted as being roughly appropriate, since the general taxpayer would not have much skin in the game.
As long as governments do the equivalent of dropping money out of airplanes over university campuses, some people are going to grab some of that money to enhance their own material well being. University presidents are certainly no exception.
Richard Vedder is Director of the Center for College Affordability and Productivity, is an Adjunct Scholar at the American Enterprise Institute, and Distinguished Professor of Economics at Ohio University.