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What the Devil won't tell you

What new UA president's pay tells us about the salary game

Supply & demand are non-factors for top dogs at big institutions

Incoming UA President Robert Robbins will probably end up making a million a year by the time his contract is finished – and a good portion of it is still being negotiated – which could make him among the five highest-paid public university presidents.

The part that hasn't been worked out is the “at-risk” clause of his compensation package. Those are the incentives and they can as much as double a president's pay in a single year.

We have two ways of looking at Robbins' salary. It's not that outlandish for a university president to make four times the pay of a medical researcher or even 20 times that of a typical campus employee when the S&P 500 ratio is 335:1. On the other hand, Robbins' contract shows that the principles of supply and demand and price elasticity that govern how we ordinary folks get paid go out the window when we consider how we compensate our top dogs.

And y'all haven't gotten the full story.

Robbins' salary reflects neither peer institutions nor a want of competition. It's a million-dollar example of how the rich get richer because the laws of economics do not apply. Worker pay reflects markets. Executive pay is a transaction. It's a deal worked out to be as good as it can be rather than a line to be held.

Is he worth it?

Robbins can make the argument that he is a big “get” because he's a renowned cardiac surgeon and the outgoing president of Texas Medical Center. He made $1.2 million per year to run that place because he didn't have a better agent. He was robbed.

Texas Medical Center isn't a hospital as much as it is a principality. It's big enough to have its own national anthem.

It's the largest hospital in the world. Not even that quite conveys its scale. It's not Godzilla. It's Monster Island.

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An aerial view Texas Medical Center might convince you that it ate Oklahoma, Louisiana and New Mexico medical centers and is moving north on Minnesota.

Drop Texas Medical Center on Downtown Tucson and the next day we'd all wake up asking “Where the hell did the city come from?” Why is Arizona Stadium now a podiatry center? It's almost four times the size of the UA campus and jam-packed with skyscrapers. It's so big Texans say “Dude. Seriously.”

So no wonder this guy figured he should make some bank (plus wear a sash and go by the title "Generalissimo") to run that place. The question being, is he worth the price to run this place? Bill Belichick could apply for the coaching position at Flowing Wells High School. That doesn't mean the Cabs fork over $10 million per year.

Arizona Board of Regents President Ellen Klein made the case that Robbins' pay was just the market rate.

“As we looked around the country and surveyed different packages of different CEOs, it became clear that there needed to be an increase to really attract the talent to lead the university into the future,” Klein said last week to Arizona Public Media.

That suggests the Regents are paying the going rate. Oh boy, are they not.

The reporter moved on but a follow-up question might have been: “So when you saw former Arizona Gov. Janet Napolitano was earning $537,000 in base salary to oversee 238,000 students on 10 campuses of the University of California system, you forgot that the UA is just one school?”

Don't like Napolitano because of Fast and Furious? Fine, then notice how Robbins' (with yet-to-be-determined bonuses) could approach William McRaven's pay to run the University of Texas system with its 221,000 students.

Napolitano ran the U.S. Department of Homeland Security and McRaven ran U.S. Special Forces Command. If Robbins wants to make $1 million per year, how come he didn't kill Osama Bin Laden?

How high can you go?

Part of the executive pay game is just numbers across a vast institution. An extra million bucks given to a CEO isn't much of an opportunity cost for 10,000 workers. So the rules are different for the many than for the few, and boy are the few cashing in on this fact.

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You may have seen reports that Robbins will earn just $600,000 in base pay. No. That's just the public funds the Regents agreed to pay. He'll get another $200,000 annually to serve as an endowed chair.

Here's how an endowed chair is supposed to work: A department raises a hunk of principal and then uses the interest to pay a prof's salary. Quick and dirty: At 5 percent return, the University of Arizona Foundation would have to raise $4 million to pay this portion. Endowed chairs are quite prestigious but tend to require the prof to profess.

Robbins' contract does not require him to do anything with his “endowed chair.” It's not an extra hat he has to wear but just a different pot of money from which he gets to draw.

“Appointment to an Endowed Presidential Leadership Chair to be funded by private funds from the University of Arizona Foundation in the amount of $200,000 per year. This appointment is conditioned upon Dr. Robbins serving as the President of the University of Arizona.”

He does have to actually take the job of president to get his endowed chair. It is not an interview bonus.

Klein's justification for Robbins salary also seems to hint that no good candidate would take a university presidency for less than 2.5 times the University of Colorado Boulder's salary. Who would take such a gig?

The Regents received more than 100 applications before settling on the final two candidates.

And this is the crux: Do you think a company with 100 applicants for a mid-level job are going to increase the job's pay 50 percent at the end of the process? An applicant would be lucky if they didn't get paid in company scrip.

When the department manager looks at the final candidate out of a pool of 100, they see a guy or woman interchangeable with the other 99 candidates. The applicant will take what they're given and like it. Board members look at the top CEO candidate and say “this is the one who beat out 99 others. We better break open the bank.”

The trimmings

After the Arizona Public Safety Retirement system faced insolvency, the various stakeholders came together with the Reason Foundation to work out a deal to make the system more sustainable. Cops and firefighters agreed to bear half their pension costs by splitting the contribution 50-50.

Hey, one of the reasons cops, firefighters and public employees find a public sector job such a get is the benefit package, and kicking in about 7 percent of their salary for an equal match seems like a good deal.

Robbins is getting an 18-percent pension contribution from the state and doesn't have to pay a dime into it. I guess living on $600,000 per annum is just too tight to deal with.

The rest of us are expected to save for our retirement at $50,000 per year but top executives must not be put out so rudely.

The Regents will pay Robbins $70,000 per year for housing and $10,000 per year for a car. Plug that cash into a mortgage calculator and the UA will buy him a $1 million house … in Tucson. Were he to just set aside 20 percent of his base salary for a mortgage (about 50 percent less than FHA practice), then he could afford twice the home.

His base salary is basically free and clear spending money after he buys a place in Pima Canyon Estates and brand-new Mercedes Benz C-Class coupe.

No risk at all

The At-Risk portion of his contract is poorly named. It would be at risk if Robbins failed to meet incentives and lost his housing allowance. That's highly unlikely. It's more likely that the part of the contract I outlined is set in stone – no takebacks. He'll get more if he hits certain benchmarks.

They should call it the Gravy Clause because the potatoes ain't going anywhere.

And the gravy could be ample, if his peers are any sort of example.

Last year, Georgia State University President Mark Becker got a $500,000 bonus payment driving him into the top 5 salaries at $1 million per year. University of Houston President Renu Khator topped the list of highest-paid presidents because she received a $400,000 deferred compensation bonus. Khator also runs a five-campus system around Houston.

Yes, Texas leads the way in paying presidents and chancellors maximum salaries as they held slots 1 through 3 in 2016. Becker came in fourth — where Robbins would rank now because former University of Oregon president (who knew Ducks were so rich?) Mark Gottfredson resigned and tumbled out of second place.

Someone to crow about?

Look. If Robbins does a bang-up job atop the Admin Building (symbolically, because Ann Weaver Hart dropped bags of cash on moving the UA president's office to Old Main), then he's a bargain at twice the price. Regents would get a force-multiplier extraordinaire for the cost of a medical researcher and a business professor. He's got a great resume and he presents himself well.

His contract, though, is not a good sign because it's just a three-year deal.

Up in Tempe, Michael Crow has proven to be a transformative president. He had a vision for establishing an egalitarian higher education model based on the University of London. He's got ASU well down the road to becoming just that, but it's taken him 15 years of beating on the hydra with a rake.

Some love it for its innovation. Some hate it for its disruption of protocol.

The Kauffman Foundation, a $2 billion outfit focused on education and entrepreneurship, issued a report heralding Crow's achievements and the lessons other colleges can learn. The phrase the report uses over and over is “embed,” i.e. “Lesson 1: Embed entrepreneurship in the mission of the university in order to create cultural change.”

The trick with embedding anything on campus culture is to keep embedding it because change floats in bureaucracies. That takes time. And the three-year deal doesn't inspire confidence that Robbins'll stick around long enough to make the kind of changes for which the Regents (and thus, you and me, the taxpayeres) are paying.

None of the schools paying their presidents this much money are what you would call academic powerhouses. Georgia State, Wright State University, the University of Delaware and Washington State University aren't making anyone forget Stanford or even the University of Michigan.

So Regents are, in fact, acting like an S&P 500 corporation, where the average CEO is mathematically certain to be an average performer but boards of directors don't see them as average. They see them as “typical” of a higher breed.  If they are so average why are they typically making so much money?

The rest of us? If we are any good at all, then why aren't we rich? See how it works?

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have your say   

1 comment on this story

Apr 18, 2017, 11:36 am
-0 +1

Belicheck is a great coach but no one knew that when they hired him. Same for most other game changers.

The only person I know of that could repeat their early success was Steve Jobs, every other reinvention is a story of disappointment.

Each manager has a unique skill set they bring to the operation and studies have shown they don’t change. To expect repeat performances there must be the same initial conditions and the same operating environment. Not possible.

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