How University Presidents Profit from rising Student Debt and Low Wage Faculty Labor

Alexis Hauk

State universities have come under increasing criticism for excessive executive pay, soaring student debt, and low-wage faculty labor. In the public debate, these issues are often treated separately. Our study examines what happened to student debt and faculty labor at the 25 public universities with the highest executive pay (hereafter “the top 25”) from fall 2005 to summer 2012 (FY 2006 – FY 2012). Our findings suggest these issues are closely related and should be addressed together in the future.

Since the 2008 financial crisis, executive pay at “the top 25” (see Appendix 2) has risen dramatically to far exceed pre-crisis levels. Over the same period, low-wage faculty labor and student debt at these institutions rose faster than national averages. In short, a top-heavy, “1% recovery” occurred at major state universities across the country, largely at the expense of students and faculty.

 The student debt crisis is worse at state schools with the highest-paid presidents. The sharpest rise in student debt at the top 25 occurred when executive compensation soared the highest.

 As students went deeper in debt, administrative spending outstripped scholarship spending by more than 2 to 1 at state schools with the highest-paid presidents.

 As presidents’ pay at the top 25 skyrocketed after 2008, part-time adjunct faculty increased more than twice as fast as the national average at all universities.

 At state schools with the highest-paid presidents, permanent faculty declined dramatically as a percentage of all faculty. By fall 2012, part-time and contingent faculty at the top 25 outnumbered permanent faculty for the first time.

 

 Average executive pay at the top 25 rose to nearly $1 million by 2012– increasing  more than twice as fast as the national average at public research universities

 

Executive Pay at the Top Rises, Falls, then Comes Roaring Back

Like executives in the corporate and banking sectors, public university presidents weathered the immediate aftermath of the fall 2008 financial crisis with minimal or no reductions in total compensation. From fall 2005 to summer 2009, average executive compensation at public research universities nationwide rose in 2012 dollars from $422,447 to $475,966 – an increase of 13%. During the top-heavy recovery from fall 2009 through summer 2012, average executive compensation at public research universities nationwide rose only slightly faster – increasing 14% to $544,554.

By comparison, public universities that already paid their presidents higher than average before the crisis increased executive pay drastically during the top-heavy recovery. From FY 2009 to FY 2012, average annual compensation for presidents at the top 25 rose in 2012 dollars from $727,002 to $974,006 – increasing more than twice as fast as the national average at public research universities.

During this period, the gap in average executive pay between the top 25 and public research institutions nationwide grew from $251,036 to $429,452. By 2012, average executive pay at the top 25 stood near double the national average at public research universities.

Early indications on executive compensation at the top 25 since 2012 suggest this acceleration for the “1%” of public university presidents continues.3

As presidents’ pay at the top 25 skyrocketed after 2008, part-time adjunct faculty increased more than twice as fast as the national average at all universities. At state schools with the highest-paid presidents, permanent faculty declined dramatically as a percentage of all faculty. By fall 2012, part-time and contingent faculty at the top 25 outnumbered permanent faculty for the first time. Average executive pay at the top 25 rose to nearly $1 million by 2012– increasing  more than twice as fast as the national average at public research universities

Who Decides What University Presidents Make?

Boards of Trustees set the compensation packages of university presidents. Boards are commonly made up of private-sector executives from business, law, finance, real estate, and other industries with a significant presence in a given state. Managers of wealthy philanthropic societies may also sit on some boards. Board members are elected by governors, alumni, other trustees, and various business or professional associations with an interest in the university. Given that private-sector executive compensation has soared to astronomical levels (see IPS Executive Excess report), trustees are increasingly out of touch with notions of reasonable compensation. When determining a president’s salary, trustees may face a conflict between the cultural norms of their for-profit peer group and the public interest. Increasingly, boards are deferring to the former and offering dubious justifications in defense of their decisions.

“Fair Market Value”?

A common justification given by boards is so-called “fair market value.” In February 2014, for instance, Penn State’s Board of Trustees hired Eric J. Barron as the university’s next president, awarding him annual compensation in excess of $1 million. A university representative defended the sum, claiming the Board’s Committee on Compensation had studied the salaries of peer institutions and had determined the package to be “competitive and reasonable.” Given our analysis, such justifications are spurious at best. Between FY 2006 and FY 2012, national average annual compensation of four-year public university presidents ranged from $370,939 to $544,554 (nominal dollars). During that same period, however, boards of trustees at the top 25 consistently awarded compensation far in excess of this amount. This was particularly true during the “1% recovery” (FY 2010 – FY 2012) when average annual compensation at the top 25 rose to $974,006 – nearly double the national average for public research university presidents. Another argument often given in support of the “fair market value” justification is that presidents of large public research universities can legitimately “demand” much higher compensation than the national average at other four-year public universities. This argument is also dubious. In FY 2012, for instance, the presidents of some of the nation’s largest, most respected public research universities – the University of California-Berkeley, the University of Wisconsin-Madison, the University of North Carolina-Chapel Hill, and the University of Massachusetts-Amherst – each made less than $500,000 in annual total compensation. From FY 2008 to FY 2012, Ohio State University’s Board of Trustees awarded President E. Gordon Gee $8.9 million in total compensation. Gee’s average yearly compensation was more than three times the national average for four-year public university presidents over the same period. Our analysis suggests that executive compensation packages awarded between FY 2006 and FY 2012 in excess of $600,000 per year (nominal or 2012 dollars) were inflated well above “market value.” There was no “fair market value” compelling trustees to offer presidents of large public research universities far more than the national average for four-year public university presidents. Rather, deliberate decisions by individual boards (whose members often make extraordinary private-sector salaries) determined excessive compensation at the top 25.

As Presidents Cash In, Students Go Deeper in the Hole

At the top 25 public universities with the highest executive pay, student debt increased much faster than the national average during the 1% recovery.

The Student Debt Crisis

The student debt crisis in America has reached staggering heights. In 2012, it was widely reported that student loan debt reached $1.2 trillion, surpassing Americans’ total credit card debt for the first time. According to the Institute for College Access and Success (TICAS), two-thirds of college students now graduating have some level of debt. TICAS estimates that 71% of college seniors who graduated last year had student loan debt, with an average of $29,400 per borrower.

Student Debt Accelerates During the 1% Recovery

Though it has been rising everywhere, average student debt of graduates in the top 25 public universities with the highest executive pay increased 5 percentage points more or 13% faster than the national average from summer 2006 to summer 2012. The rise was most pronounced when executive compensation soared during the 1% recovery. From summer 2010 to summer 2011 alone, student debt in the top 25 rose by 10%, increasing 43% faster than the national average. We also found that throughout our study period student debt rose faster in the top 25 whenever executive compensation increased and slowed when compensation fell briefly after the 2008 financial crisis. This differed from the national trend, where student debt increased sharply after the financial crisis and continued growing at a steadier rate through 2012.

More Spending on Administration, Less Money for Scholarships

Spending on non-academic administration has risen dramatically nationwide. Non-academic administrative expenditures include executive direction and planning, general university administration, legal and fiscal operations, public relations and development. This category does not include administrative expenditures on services that provide a direct benefit to students such as academic advising, career guidance, library services, and computing. At public universities with the highest executive pay, increased spending on non-academic administration came at the expense of scholarships. Between FY 2006 and FY 2012, the University of Minnesota-Twin Cities increased spending on non-academic administration by 125% while decreasing spending on scholarships by 36%. From FY 2006 to FY 2012, spending on non-academic administration rose 65%, much faster than spending on scholarships in the top 25. As tuition and fees rose 61%, spending on scholarships did not keep pace, rising just 46%. Overall, spending on non-academic administration outstripped spending on scholarships by more than 2 to 1. At the top 25, the majority of growth in expenditures on non-academic administration occurred during the 1% recovery. Prior to the 2008 financial crisis, spending on scholarships was rising faster than spending on non-academic administration. After the financial crisis, however, spending on scholarships slowed while spending on non-academic administration accelerated. From FY 2009 to FY 2012 expenditures on non-academic administration rose 106% faster than spending on scholarships. A recent report on inflated administrator salaries at the University of Michigan – which paid out $5.7 million in executive compensation from FY 2006 to FY 2012 – suggests excessive spending on non-academic administrator salaries continues to soar at schools in the top 25. Mimicking common arguments in defense of presidential compensation, a spokesperson for the university defended the salaries, claiming they were “at market and very competitive.” The report found that salaries and unreported bonuses at the University of Michigan were 27 to 41 percent higher than those at peer institutions such as the University of Virginia and the University of Texas at Austin

The Explosion of Low-Wage Faculty Labor

The top 25 public universities with highest executive pay increased low-wage and contingent faculty labor much faster than the national average during the 1% recovery. According to a recent report by Adjunct Action at the Service Employees International Union (SEIU), two-thirds of all faculty in U.S. higher education work on a contingent basis – facing low pay, little or no benefits, and no job security. The Coalition on the Academic Workforce (CAW) found that the median adjunct pay per course was $2,700. Because adjuncts work at piece rate, their annual pay depends on the number of courses taught. The U.S. House Committee on Education and the Workforce recently estimated that the median adjunct pay per year was $22,041 – below the federal poverty line for a family of four.

Low-Wage Faculty Labor During the 1% Recovery

As in universities everywhere, hiring of adjunct and contingent faculty far outstripped permanent faculty hiring at the 25 public universities with the highest executive pay. However, we found that adjunct (part-time) and contingent (temporary) faculty grew much faster than the national average when executive compensation soared at the top 25. From fall 2005 to fall 2009, adjunct faculty labor at the top 25 increased at roughly the same rate as the national average for all universities. During the 1% recovery, however, adjunct faculty labor increased drastically. From fall 2009 to fall 2011, the ranks of adjunct faculty at the 25 public universities with the highest executive pay increased 17%, rising more than twice as fast as the national average. Not all schools in the top 25 relied on more adjunct labor. Those that did not increased full-time contingent faculty instead. A number of schools increased both adjuncts and contingents. Though usually paid more than adjuncts, full-time contingent faculty work on temporary contracts that end after 1 or 2 years. Since permanent faculty hires remain flat nationwide, full-time contingents are likely to fall into the ranks of adjuncts later.

Where Have All the Professors Gone

 As SEIU’s report points out: “Being a university professor, once the quintessential middle-class job, has become a low-wage one.” Even as university presidents’ pay skyrocketed at the top 25, permanent faculty declined dramatically as a percentage of all teaching faculty. During the 1% recovery, permanent faculty hiring at the top 25 fell below the national average for all universities. Between fall 2009 and fall 2011, permanent faculty at the top 25 grew by only 1 percentage point compared to 2 percentage points nationwide. Before the 1% recovery, total permanent faculty at the top 25 outnumbered total contingent and part-time faculty by a margin of 35,597 to 30,508 – 54% to 46%. By fall 2012, total contingent and part-time faculty at the top 25 outnumbered total permanent faculty by a margin of 36,815 to 36,000 – 51% to 49%.

Inequality in the University Undermines Education and Opportunity

The decline of university professors in favor of part-time and contingent faculty labor mirrors the shift in the broader economy from a secure, permanent workforce to a part-time, low-wage and contingent one. This shift has long-term consequences for the quality of higher education. Because adjuncts have to teach as many classes as possible to pay the bills, they do not have adequate time for class preparation or student mentorship. A recent survey revealed that 98% of adjuncts felt they were “missing opportunities to better serve their students because of the demands of their schedule.” Additionally, adjuncts do not receive support for research or professional development. Our research on the 25 public universities with the highest executive pay suggests that soaring compensation for college presidents has come at a familiar price: worsening inequality. In the public university, economic inequality in turn has adverse effects on the quality of higher education. Such effects worsen opportunities for poor and middle-class students to improve their condition creating a feedback loop that entrenches inequality in the broader economy.