Universities Pile on Faculty Perks as Student Costs Grow and students are struggling to pay off $1 trillion in education loans in a weak job market

Universities Pile on Faculty Perks as Student Costs Grow

By John Hechinger and Michael McDonald  Mar 12, 2013

The University of Chicago paid James Madara $2.5 million in severance when he stepped down in 2009 as medical dean and hospital chief. Madara, who remained on the faculty, later joined the American Medical Association.

Congress is taking a look at such payments following disclosures that Jacob Lew, the new U.S. Treasury secretary, received a $685,000 bonus when he left New York University and had $1.5 million in housing loans from the school.

Harvard and Stanford universities also offer real-estate loans with sweet terms, records show. While the amounts are small relative to university budgets, the perks insulate faculty and administrators from the costs upsetting many middle-class families, said Jonathan Robe, a research fellow at the Center for College Affordability and Productivity in Washington.

“It certainly gives the public a clear example of how out of touch some universities are,” Robe said. “Parents will think, ‘Here I am scraping by, raiding my retirement plan to pay for college. Why are they making me do this just to enrich these executives?’”

Congress and President Barack Obama have been pushing colleges to control tuition and other costs, which can exceed $60,000 a year at a private school. In a weak job market, students are struggling to pay off $1 trillion in education loans.

‘Super Severance’

Exit bonuses are becoming more common among senior executives at large colleges in major cities, said Stephen Joel Trachtenberg, a former president of George Washington University who does executive-pay consulting.

Typically, such “super severance” amounts to one to three times an administrator’s annual salary and bonus, according to Charles Skorina, founder and president of an executive-search firm in San Francisco who specializes in placing finance executives at universities.

Especially at universities on the East and West coasts, where real estate expenses and other costs are high, trustees including Wall Street executives are eager to pay their presidents top dollar, Skorina said. They look for ways to pay additional compensation that doesn’t show up in annual surveys that can anger donors and employees, he said.

“You look for sweeteners, the car and driver, the house and then a back-end exit bonus,” said Skorina. “An exit bonus is palatable because until the guy leaves you don’t have to deal with it.”

Attract, Retain

Colleges say they must offer compensation packages to win over talented executives and faculty. Harvard and Stanford said they keep tuition affordable with generous financial-aid programs. High-level administrators focus on efficiency and financial health, said NYU spokesmanJohn Beckman.

“When they have been successful — as was the case with Jack Lew — the benefit to the university can range in the tens of millions of dollars,” Beckman said in an e-mail.

At the University of Chicago, Madara’s severance payment, including deferred compensation and retirement benefits, reflected money earned over the course of his career, part of a package typical of executives at peer institutions, according to Steve Kloehn, the school’s spokesman.

Colleges must “attract and retain the best leaders we can,” Kloehn said. Madara, 62, who became chief executive officer of the AMA in 2011, declined to comment.

In terms of favorable loan deals for faculty and some administrators, Harvard and Stanford are among the biggest players. As at NYU, the colleges said they do so because of high real estate costs.

‘Shared Appreciation’

Along with low-interest home loans, Harvard offers “shared-appreciation” mortgages to tenured faculty and some administrators. These loans, which cover only a portion of a property’s purchase price, don’t have monthly payments or set interest, though give Harvard a share in any gain in value when the property is sold. Stanford and NYU have similar programs.

At Harvard, faculty can also take out no-interest education loans. Eight professors, some with administrative jobs, owed $2.8 million in home and education loans, according to the Cambridge, Massachusetts-based school’s 2010 tax return.

Julio Frenk, dean of the Harvard School of Public Health and Mexico’s former health minister, held a $1.16 million loan for the purchase of a home. Homi Bhabha, director of Harvard’s Humanities Center, owed $318,000 on a $552,000 loan for “dependent’s education.”

Summers, Harvard’s president from 2001 to 2006, owed $1 million for the purchase of a home and $177,000 for a dependent’s education, according to Harvard’s 2009 tax return.

Summers’ Loan

In June 2006, Summers took out the real-estate loan, available to all faculty members. When he was president, he lived in a university-provided residence. In 2009, Summers, the U.S. Treasury secretary under President Bill Clinton, became director of the National Economic Council in the Obama administration. In 2011, he returned to Harvard as a professor.

Harvard offers mortgages and education loans because it is “committed to recruiting the most talented teachers and researchers in the world,” Kevin Galvin, a Harvard spokesman, said in an e-mail.

Summers declined to comment. Bhabha didn’t respond to an e- mail.

When Frenk was recruited from Mexico, Harvard provided the loan so he could buy a comparable home in the Boston area, said Julie Rafferty, a spokeswoman for the Harvard School of Public Health. When he sells, the school will be repaid in full and receive part of the appreciated value of the house, she said.

Stanford Mortgages

At Stanford, near Palo AltoCalifornia, four senior administrators and faculty had a total of $4.6 million in housing loans outstanding, according to its most recent tax filing. Philip Pizzo, former dean of the school of medicine, had three loans, amounting to $2.7 million. Martin Shell, vice president for development, owed $1 million. Pizzo and Shell didn’t return messages requesting comment.

The housing program “allows faculty to enter into a very challenging housing market,” said Lisa Lapin, a Stanford spokeswoman. “Otherwise the cost is so prohibitive.”

During Lew’s confirmation hearings, Senator Charles Grassley, the Iowa Republican who has long been critical of higher education compensation, sharply questioned such perks at New York University, where Lew was executive vice president and chief operating officer from 2001 to 2006. NYU forgave $440,000 of Lew’s real-estate loans.

“There always seems to be more money for the executive suite even as colleges raise tuition year after year,” Grassley said in an e-mail. “Universities have to answer for their executive perks in exchange for their tax exemption.”

Natalie Earnest, a Treasury Department spokeswoman, referred questions to NYU. In answering queries from Grassley, Lew said he repaid his loan by refinancing privately.

Loans Forgiven

NYU won’t discuss details of individual employees’ compensation, said Beckman, the spokesman. In its real-estate program, fewer than 10 loans have been forgiven, and the university does so only to retain an employee, he said.

The school, based in Manhattan’s Greenwich Village, offers separation payments for a variety of reasons, including a history of outstanding work or a contractual obligation, Beckman said.

“NYU does not do this often,” he said. “We understand how important it is to be careful stewards of the university’s resources.”

In 2010, NYU’s neighbor, the New School, paid former U.S. Senator Bob Kerrey a bonus of $1.2 million when he stepped down as president.

Kerrey, in a telephone interview, said he had received job offers that year far above his pay at the New School. The board offered him the bonus to keep him in his job during his final year, until a successor arrived in 2011, he said.

“There was no compelling reason for me to stay” without the extra money, said Kerrey, 69. “This was a payment to retain me on the job.”

To contact the reporters on this story: John Hechinger in Boston at jhechinger@bloomberg.netMichael McDonald in Boston atmmcdonald10@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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